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While the U.S. credit card industry is still getting back on its feet after the double punch from the credit crisis and the curbs on revenues resulting from the Credit CARD Act, the card market in China continues to shoot full speed ahead.
China is expected to overtake the US by 2020 as the largest credit card market worldwide, according to recent reports from major payment network MasterCard Worldwide. Experts project that ten years from now, China will have approximately 900 million credit cards in circulation.
Analysts cite China’s mounting urbanization as the main factor for driving consumer demand for credit cards. In addition, China’s economy offers a low-risk business environment due to the government’s strict economic policies and conservative bank practices.
Since 2001, Chinese credit card usage has shot up 84-fold to a whopping 7.7 trillion yuan ($1.1 trillion). In the past year alone, the nation’s credit market grew by 207 million cards, an increase of 10 percent since 2009 and four times the quantity seen in 2006.
MasterCard predicts continued growth both in terms of the quantity of cards in circulation and card spending over the next 15 years. Analysts project a yearly increase of 14 percent in the number of credit cards as well as an 11 percent jump in spending volume between 2010 and 2025, projecting that total credit usage by then will approach $2.5 trillion. MasterCard also foresees a 20-fold jump in issuer revenue and a 30-fold jump in profits in the Chinese credit card market.
While this should be enough to attract the attention of any major credit card issuer, many banks remain frustrated with attempts to break into the world’s fastest growing major economy. China’s UnionPay, the country’s only national electronic payment network, currently holds a monopoly on the processing of credit card transactions, and foreign banks and payment processors are required to “co-brand” with UnionPay if they wish to get a foot in the door.
In March, U.S. trade officials unsuccessfully attempted to dethrone UnionPay’s monopoly through a formal complaint with the World Trade Organization. In June, payment processor Visa, Inc. told merchants and banks to use its network when handling transactions initiated outside of China on co-branded Visa/UnionPay cards.
Established in 2002, Shanghai-based UnionPay meanwhile continues to expand, benefitting greatly from its monopoly as the only payment processing network for Chinese credit card transactions. In its eight years of existence, the company has expanded globally; according to the company’s website, China UnionPay has established partnership with around 400 financial institutions all over the world, and its acceptance network has been extended to 92 countries and regions all over the world.
MasterCard recently announced that it had started exploring future business development opportunities with UnionPay with the aim of creating potential cooperation opportunities in the arena of online payments as well as other areas.
