Wal-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.
