If you thought things were bad when Visa and MasterCard started opening credit card-application tents in rural African villages, you ain’t seen nothing yet. This week, Citibank got the thumbs up from the Chinese government to start rolling out more Citibank branded credit card products across the country.
At the moment, China is something of a golden goose for card issuers. Due to the country’s strong central government, there are only 268 million credit cards circulating among China’s 1.3 billion residents. Despite the small number of cards currently on the market, though, their use has grown 20% since last year – making the country a prime target for international lenders like Visa and MasterCard.
The only problem is that China’s banking industry is notoriously domestic. According to the Financial Times, foreign institutions control only 1.85% of the country’s banking assets. In 2008, the Bank of East Asia in Hong Kong became the first non-mainland bank to receive permission to issue credit cards, and even then they had to partner with a Chinese bank in order to distribute their products. According to Businessweek, The World Trade Organization is currently investigating a complaint filed by the USA that questions the “legality of China’s refusal to let foreign companies issue their own bank cards denominated in its currency, or to permit companies such as Visa Inc., American Express Co., MasterCard Inc., Discover Financial Services and First Data Corp. to process card transactions in China.”
So how did Citibank succeed where MasterCard and Visa failed? It played by China’s rules. The U.S.-based credit card giant has played a supporting role in China’s credit card operations for years through a partnership with the Shanghai Pudong Development Bank. Citibank will maintain that partnership even though it will begin to issue cards under its own name – something that Visa and MasterCard refuse to do. According to Andrew Au, Chief Executive of Citi China, “The ability to offer retail and commercial cards provides Citi with a strong competitive edge, further meeting the needs of our expanding customer base.”
However, even though Citibank is the first U.S. bank to break into China’s credit card market, honing that “competitive edge” could be harder than expected. The bank has just 46 branches in China at the moment, and that number isn’t likely to grow – especially in the midst of an ongoing investigation. As Jacques Bourgeois, a trade banker at Wilmer Hales in Brussels, told Businessweek, “If I were in the Chinese authorities’ shoes, I would subject that authorization to a number of conditions that would safeguard my position in the WTO… Making a move like this in the middle of a case otherwise appears to me like caving in.”
It’s hard to say how much this approval will benefit Citi in the long run. Though China is certainly a bigger mark than the African countries MasterCard and Visa are chasing after, the communist nation’s strict regulations could seriously throttle stable revenue streams. At the moment, all we can do is wait and see how this mess sorts itself out.
Related Posts:
- Chinese Social Network Launches Pioneering Social Credit Card - Renren, what some are calling the Chinese version of Facebook, has partnered with China Merchants Bank to develop a co-branded credit card...
- Citibank Defaults Up Again For Second Month In A Row In 2011 - Citibank has said that their rate of credit card defaults has increased again, making this the second month in a row for...
- Citibank Introduces Cellular Credit Cards - In an attempt to make spending with your credit card even easier, a number of companies have banded together to work out...
- Indonesian Killed By Debt Collectors At Citibank Local Office - Irzen Octa, a resident of Jakarta, Indonesia who owed Citibank $12,000 on his credit card account was beaten to death by debt...