All cards on the table
Updated: 2007-07-12 14:52
Foreign-funded banks were allowed to issue bank cards after securing renminbi business for Chinese citizens last December, ushering in toe-to-toe competition between Chinese and foreign banks
The China Banking Regulatory Commission (CBRC) began accepting bank card applications from overseas banks on June 4. Foreign incorporated banks qualified for renminbi retail business are allowed to issue renminbi bank cards in accordance with CBRC requirements and related operational and technical standards.
For commercial banks, bank cards are major carriers of retail banking and personal financial services. Before this new CBRC decision, however, foreign banks couldn't issue bank cards independently and could only issue joint-brand bank cards with local commercial banks.
At present, only four foreign-funded incorporated banks are qualified for the application, including HSBC, Standard Charted Bank, Bank of East Asia (China) Ltd. and Citibank. All of them submitted applications to the CBRC on June 7.
This means foreign banks will enjoy the same treatment as Chinese banks, fulfilling China's WTO commitments as well as related stipulations in the country's Regulations on Administration of Foreign-Funded Banks.
"The practice that permits foreign banks to independently issue renminbi bank cards will commence fully fledged competition," said Guo Tianyong, Director of the Chinese Banking Research Center in the Central Business and Finance University.
Reactions vary
It has been a long-cherished wish for foreign banks to issue renminbi bank cards. They are not only a means to target their customers but also a platform to provide a full range of services in the coming future.
It was reported that a majority of foreign banks had negotiated with the China UnionPay Co. Ltd., the country's only operator of a unified trans-bank information switching network, about bank switching services. China UnionPay would possibly become the sole provider of switching services within China for foreign banks' renminbi bank cards.
CBRC's Assistant Chairman Wang Zhaoxing said they would make specific stipulations on foreign banks' issuance of renminbi bank cards in the new Regulations for the Administration of Bank Cards. The action, expected soon, will symbolize a mature time for foreign banks to introduce renminbi bank card services.
Yet, as some foreign banks issued joint-brand credit cards with Chinese banks, they can rival their former partners when issuing their own cards. As a result, they are very prudent with the new policy.
"We look forward to the debut of the regulations on bank cards," said HSBC Spokeswoman Zhang Dandan. HSBC has been working in cooperation with its strategic partner, Bank of Communications, with regard to credit cards and has issued over 2 million co-branded dual-currency credit cards, backed by HSBC management and technology.
"The mainland market enjoys huge growth potential in credit card business, and we will continue credit card cooperation with the Bank of Communications in the future," said Zhang, while stressing the possibility of independent issuance of bank cards in line with the new regulations.
Citibank is reluctant to make any comment on the issue for the same consideration. Li Yawen, Vice President of Citibank China, said, "We will make decisions on whether to issue independent cards after the supervisor introduces the new regulations, and at present, we are very satisfied with our cooperation with the Shanghai Pudong Development Bank."
Standard Chartered Bank and Bank of East Asia, however, are very active in planning renminbi bank card business as none of them have ever cooperated with local commercial banks in issuing credit cards. Standard Chartered Bank (China) Spokeswoman Qian Jing disclosed that the bank had designated a team responsible for the design and issue of renminbi bank cards and is coordinating and exchanging positively with the supervisor.
Vice President of the Bank of East Asia (China) Sun Minjie said, "We have submitted the application for issuing debit cards and are preparing to issue credit cards." He also expressed confidence in the bank's future performance in China's bank card market and believed his bank would enjoy advantages in outlet networks as they had poured in investments into this arena.
He declined to provide a timetable for his bank's new move but confirmed that it "wouldn't take a long time."
High-end targets
Chinese citizens possess the most bank cards in the world. Chinese banks have issued more than 1.1 billion debit cards and some 50 million credit cards, according to figures released by the People's Bank of China.
That eye-catching number, however, does not indicate that the Chinese are adept at using bank cards. The central bank reported that 80 percent of retail transactions of social commodities last year were still conducted in cash, with the remaining 20 percent completed through non-cash transactions. In developed countries, however, there are a low rate of cash transactions, and in the United States, for an example, only 20 percent of retail transactions are completed on a cash basis.
"This indicates a huge growth potential for the bank card market, as well as a major attraction for foreign banks," said Shen Minggao, chief economist with Citigroup in Beijing.
"Foreign banks enjoy advantages in technologies and value-added services compared with Chinese banks, and there remains plenty of room for growth of the bank card business," said banking expert Guo.
Guo believes that bank card competition between Chinese and foreign banks will first be focused on securing high-end customers, as foreign banks can't cover every segment of the market and will lay emphasis on developed cities and high-end customers. He believes foreign banks will take more interests in individual consumption credit business, personal finance and money management services than in independently issued bank cards.
Shen also thinks the new policy will possibly result in an exodus of high-end customers from Chinese banks as foreign banks have obvious advantages in bank cards, especially in credit rating and credit risk control.
"Foreign banks will offer their customers certain high value-added services despite that they charge higher for the same services," analyzed Shen. "In fact, high-end clients care less about charges on bank cards than about quality service. "
Currently, foreign banks charge far more than Chinese banks on small accounts. Bank of East Asia, for instance, charges significant clients with daily assets higher than 5,000 yuan and lower than 200,000 yuan an annual fee of 200 yuan, and normal accounts with daily assets lower than 5,000 yuan a monthly fee of 10 yuan. The Industrial and Commercial Bank of China (ICBC), however, charges small accounts with average daily deposit lower than 300 yuan only 3 yuan per quarter.
Shen predicted that Chinese banks would first lose foreign clients and then high-end Chinese clients.
Mutual benefits
As they target different clients, Chinese and foreign banks will not encounter a life-and-death struggle over customers after the bank card market is formally opened to foreign banks.
Guo believes Chinese banks are not inferior to foreign banks in terms of experience, IT solutions and equipment for the time being as they are far ahead of foreign rivals in operating bank card business in China. Besides, foreign banks currently have limited outlets, and it's hard for them to challenge the dominance of local banks in this business.
Li Weiping, head of ICBC's Peony Card Center, also expressed his doubt that foreign banks would be able to rival Chinese banks in a short time.
"We have many overwhelming advantages, including the number of cards issued, the number of customers, a penetrating sales channel, as well as a good knowledge of local consumption habits," Li explained. "ICBC had issued 15 million credit cards by this May. Besides, we have 190 million customers and nearly 20,000 outlets nationwide, and the number of our electronic customers has reached 25 million."
However, customers are skeptical about the confidence of Chinese banks as services they provide have long been targets of complaint. Recently, People's Daily Onlineconducted a field investigation on 113 outlets of major Chinese banks in the downtown area of Beijing and found out that only 7.1 percent of them have toilet facilities, customers still have to wait in long queues in outlets of ICBC and China Construction Bank, 6.2 percent of them have received complaints about their services and half of them don't provide such amenities as drinking water machines and newspaper racks.
Li Jin, a reporter from Beijing, complained about the low efficiency of Chinese banks to Beijing Review. "There is always a queue of around 100 at each major outlet and even so, they don't operate at full capacity and have several windows closed, " Li said. "If you have to do transactions at several banks, it will take you almost a day to wait in queues."
Ding Zhijie, professor with the School of Finance and Banking at the University of International Business and Economics, said the privileged monopoly Chinese banks have enjoyed for quite some time is responsible for many of their problems today.
"In the long run, the opening of the bank card business to foreign banks is conducive to the development of this market despite the fact that a certain impact on Chinese banks is inevitable," Ding said. "Chinese and foreign banks have different strengths in this business and, apparently, either competition or cooperation is good to promote both parties to scale new heights in their own development."
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