HSBC.jpgWal-Mart
becomes the first western retailer to issue credit cards in China
through a deal with Bank of Communications, the country's fourth
largest bank.

Credit cards are a huge opportunity for banks and
retailers alike, and their number is growing rapidly, albeit from a
small base. In 2005, around 12m credit cards were in use in China,
quadruple the number of two years previously.

Initially, the Wal-Mart co-branded card will be offered in six Wal-Mart stores and then extended to all 60 of the stores that the US giant has in China, according to Dow Jones.

The
deal is important for Wal-Mart but, more importantly, for HSBC, which
owns a 20% stake in BoC, and is responsible for the day-to-day running
of the credit card operation.

To date, foreign banks like HSBC
have been restricted in how they operate in China. They have not, for
example, been allowed to issue their own credit cards but must do so
through partner banks — hence HSBC's stake in BoC.

In 2007,
when the banking market is liberalised, the gloves will come off.
Around 75m of China's “mass affluent” consumers will find themselves
inundated with offers from western card issuers, who have greater
experience in selling credit cards than China's local banks.

While
still finding their feet in many areas, China's big domestic banks do
have one big advantage — customer acquisition. Many of China's first
wave of cardholders signed up for cards simply because a bank came to
their workplace.

This “worksite marketing” is by far the dominant channel for customer acquisition in China, accounting for as much as half of card issuances, according to a McKinsey report.

In
addition, most Chinese cardholders prefer to pay their credit card
bills in cash at bank branches or using ATMs. So again, the big
national banks with large numbers of branches and ATMs have another
advantage.

HSBC appears to get the best of both worlds. Through
its venture with BoC, it has access to a domestic bank's established
card marketing channel — they have been working together since 2004.
And it also has the chance to offer novel co-branded cards with new
non-traditional partners.

As well as Wal-Mart, HSBC and BoC announced a credit card for Suning Appliance, China's second-largest home appliance retailer.

McKinsey
says the liberalisation of the market is likely to result in a wave of
similar co-branding deals with mobile phone companies, car
manufacturers and the like.

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