Why China is the stalwart in Asia's cards and payments industryBY SISI LIAO
For financial institutions and customer-centric executives, it has never been more important to focus on the rapidly developing cards and payments market. Now Asia is set to lead a card acceptance revolution with China’s UnionPay governing the charge.
The hot word at the moment in the cards and payments industry is China. Recently Su Ning, chairman of China UnionPay, the sole issuer of credit cards in China, said debit cards accounted for 90 percent of UnionPay's plastic cards. It currently has around 3.4 billion debit cards in circulation worldwide. The revolution in consumer payment behaviour is evidenced by recent Lafferty research that predicts the billed volume on credit cards will exceed $1 trillion by the end of the year and for debit cards, the figure is likely to approach $5 trillion. In recent months, UnionPay has opened the gates for potential shared network growth with card issuing partnerships across Australia and the Asia-Pacific region.
In January, ANZ bank signed a tentative agreement with China UnionPay, allowing its customers to tap into UnionPay’s extensive network in the Asia Pacific region. The Asia-focused bank is playing a catch-up game against its big four rivals in allowing UnionPay cardholders to access its ATM and merchant network in Australia. NAB and Commonwealth Bank already have existing agreements with UnionPay, allowing Chinese cardholders to make purchases within this extended network.
According to the Australian Bureau of Statistics, Chinese tourists are visiting Australia in record numbers and have become the most important growth market. Tourism Australia aims to double the number of Chinese visitors to Australia by 2020, increasing revenue from $4 billion to $9 billion.
At the end of January, Krung Thai Bank (KTB), the Thai state-owned institution, launched a joint debit card with UnionPay. KTB president Vorapak Tanyawong said the agreement would play an important role in financial cooperation between China and Thailand, and that the KTB-UnionPay debit card is only the first product of this partnership. The target group likely to benefit from this partnership would be Thai customers who have activities in China, such as parents who send their children to study there.
Now UnionPay has its sights set on European expansion. The sales pitch has been delivered from payment companies like Swiss-based Six, promising increased turnover for merchants who could soon be serving an influx of Chinese tourists using their preferred method of payment, the UnionPay card. Europe is one of the most popular travel and shopping destinations for Chinese tourists and the potential to accept UnionPay cards and reap the future revenues, is far too appealing for merchants to ignore.
Although China and the East are making strides in the cards and payments industry, activities in other markets still have exciting developments to offer. Those of us who are fortunate enough to be intricately linked to the exciting world of cards and payments know that by closely monitoring this sector we will have a tool at our disposal that can analyse household credit card debt, consumer spending levels by card and the amount of payment card transactions processed in specific geographic regions.
From analysing trends in the cards industry in recent years, with the help of Lafferty Research Databases, debit cards are revealed to be one of the biggest success stories. In the developed world, debit cards have flourished as issuers and consumers alike refocus away from riskier credit cards. Elsewhere, one of the greatest revolutions in retail banking has quietly occurred: millions of people have gained access to a bank account and card for the first time. In the BRICS countries alone (Brazil, Russia, India as well as South Africa), the number of debit cards increased from 615 million to a staggering 3.4 billion between 2002 and 2011.
Of course, having a card is not the same as using it. For banks, getting the customer to pay for goods at the point of sale (POS) is undoubtedly one of the biggest challenges and untapped opportunities in banking today. Outside the card-friendly markets of Western Europe and North America, most people overwhelmingly use their cards to withdraw cash at an ATM.
Fewer than $1 in every $5 spent on a debit card is at the POS. For those that can address this deficiency, there are significant profits to be made. For example, if debit cards were used at the POS at a proportionally similar rate to credit cards, merchants globally would need to process an additional $7.4 trillion electronically. Even with the continued pressures on merchant service charges, that’s a particularly tasty pie we should all want a slice of. A key piece in this puzzle is growing the merchant acceptance.
Different countries have adopted different solutions to this. The Central Bank of Nigeria (CBN) aims to grow electronic payments as part of its ‘Cashless Nigeria’ strategy. In this scenario, banks are forced to adopt an aggressive roll-out of POS terminals. Whereas in Turkey, the national cards association has run high-level advertising campaigns to remind cardholders to use their debit cards instead of cash payments.
The intriguing analysis above examines the more familiar world of debit and credit cards. Now, e-commerce and payment technology has extended the scope of this sector to new heights. The appetite of consumers to embrace shopping from their desktops clearly shook the payments industry and raised questions over the ability of incumbents to deal with this expanding market. The arrival of the mobile device has increased the stakes dramatically. Leading on from this is mobile money which has become an internationally recognised phenomenon, particularly in the developing world, where the basic functionality of handsets is no obstacle to the delivery of equally basic (yet entrepreneurial) financial services. Essentially, the cards and payments industry is so revolutionary that new technology and new ways of thinking are coming from the emerging markets and economies and not just the established western world.
Professionals working within the financial services industry who are committed to fully harnessing the vast potential that cards and payments has to offer, now have the opportunity to gain a valuable insight into the sector via the International Academy Retail Banking (IARB).
Part of the Lafferty Group, the IARB is a global educational and professional body for the cards and payments sector worldwide. Designed by senior cards and payments professionals and retail banking academics from across the globe, the curriculum for the Certified International Cards and Payments Professional certification (CICPP) sets out to share industry best practices in face-to-face classroom seminars directed by a faculty of over 70 leading industry practitioners.
In March 2013, the CICPP Executive level programme is being held in Singapore. Executives who attend these programmes not only send a powerful signal to customers and colleagues that they are maintaining the highest standards of professionalism in their work, they have the opportunity to achieve the designation of Fellow of the IARB. Unlike other banking products, credit cards and related technology provides a customer experience as a continual reality, occurring at any hour at any location through an ever-growing range of service points. To put it another way, by the time a bank knows what its customers are actually experiencing, the experience itself has already changed. How banks track and respond to the customer experience must also keep changing and improving. With the right education and the relevant industry experience, financial professionals now have the opportunity to make a killing in what is set to be one of the most profitable areas for decades to come.