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China: Non-banks look beyond credit and debit hype

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Non-bank players have been quick to see that the potential of the payments industry in China lies not just in the debit and credit card segments.
Recent reports on payment systems in China have drummed up interest in Internet banking and the credit market, with banks' initiatives focusing largely on these two areas.

However, coordination, geography, and credit assessment capability still caused bank cards to account for 2.7 percent of retail consumption in 2001 as compared to 30 percent in more developed markets. Furthermore, at least 90 percent of cards in China are debit cards with a limited credit facility due to the lack of a consumer credit culture and supporting infrastructure on the card-issuer side. As of 2001, Internet penetration was only 1.8 percent of the total population.

While the sheer size and unevenness of development across China has made it difficult to discern trends, Asian Banker Research found that the growth of areas other than credit and debit cards in the payments industry has been too phenomenal to dismiss.

Value of transactions for non-cash payments in China
Source: People's Bank of China estimates

Although they account for only a small part in the non-cash payment arena, direct debit experienced a 975 percent growth in value of transactions from 1996 to 2000. According to the People's Bank of China, direct debits are used mainly for payments of utility fees, insurance fees, tax and tuition fees and have been developing quickly in the recent years. Cheques, while immensely popular earlier accounting for 54 percent of total transactions in 1996, have declined in popularity with a growth of two percent over the same period. In 2000, cheques accounted for only 47 percent of total transactions. Credit transfers (mostly used for non-local remittances) accounted for more than half of transactions in 2000 compared to 45 percent in 1996, experiencing a slow but steady growth.

Meanwhile, most of the initiatives by foreign and local banks have been focused on expanding the credit and debit card arena and making huge investments in infrastructure for networking, risk management and merchant acceptance, among others. The most significant local activity has been from the country's third largest bank, China Construction Bank (CCB), which started with six branches offering personal remittance service in 1998. The service has since been made available nationwide, and by 2000 it has been extended to CCB's overseas banking offices.

Such developments could well provide a rich breeding ground for non-bank players to capture the payments market. Remittance players focusing on credit transfers, such as Western Union and MoneyGram, have been making expansive inroads into the Chinese market with the former targeting to open 6,500 outlets.

A new mobile phone service, Sumit Mobile Systems from Shanghai, is already targeting the direct debit segment by launching a system that enables customers to pay bills with their mobile phones. At last count the company has already signed up eight banks in Shanghai, the local fixed-line phone company, two gas companies, and two water companies. - Titien Ahmad

--The Asian Banker E-Newsletter (January 2, 2002)--

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