Credit card payment loses ground in more markets
Credit card issuance and usage wane as digital and mobile payments increase in popularity.
- Credit cards continue to be an important mode of payment for some countries in Asia
- The rise of digital payments is shaking up the credit card industry
- Continuing shift towards cashless economies
Among consumer products, credit card is still one of the most lucrative sources of income for banks given the strong net interest margins it generates. The popularity of e-commerce and the increasing purchasing power of consumers have contributed to the continued usage of credit card. However, as other alternative mode of payments such as mobile wallets emerges, the competition in the payments space is narrowing. Banks are being challenged to innovate and keep pace with the new players as well as offer consumers more attractive product propositions and secured transactions.
The number of credit cards in China has increased significantly, from 229.7 million in 2010 to 432 million in 2015, a rise of 88 %. However, these numbers have started to decline since 2014. Between 2014 and 2015, the total number of credit cards dropped 5% from 455 million in 2014 to approximately 432 million in 2015 (Figure 1).
This decline is largely due to a change and shift in consumers’ attitude towards credit cards. The increasing prominence of technology and services such as mobile and online payments has also contributed to the decline of credit cards usage. In addition, banks have slashed the number of card-based products they offer and instead focused their efforts on a smaller range of cards for online payments.
Furthermore, young Chinese are more savvy with cashless and cardless transactions, such as pioneer online payment services like Alibaba’s Alipay and Tencent’s Tenpay, that have acquired significant market share over market leader UnionPay. In addition, companies like Alipay and Tencent have been partnering with banks and communication applications, and releasing their apps, siphoning away customers from traditional outfits.
In Jan 2015, Tencent launched what it claims is the country’s first online bank, WeBank. The company aims to provide different financial services to more people in the country. Credit cards in force may decrease even further as mobile and online banking services gain more popularity. Nonetheless, credit card expenditures will still experience sustainable growth.
South Korean credit cards have been declining since 2011. From 122 million cards in circulation in 2011, the number of credit cards decreased 37.4% to 88.8 million in 2015 (Figure 2).
Stricter requirements for card issuance, as well as the cancellation of inactive and dormant cards, resulted in this shift. Furthermore, the economic slowdown has forced many customers to trade their credit cards for cash cards to avoid overs-pending. An example of a cash card is the T-money card which is a rechargeable card used to pay transportation fees for subways and buses. T-money card can also be used to purchase goods in convenience stores and other retail outlets.
According to the Bank of Korea (BOK), only around 20% of the transactions conducted in the market are cash-based, which shows rising interest in the country to move towards a cashless society by 2020. To achieve a cashless society, many systems and technologies are being tested.
The most popular technology allows transfer of change from a cash transaction into a customer’s T-money card, which conducts nearly 43 million transactions every day.
Credit cards have also been decreasing since the 2014 debacle in which an IT worker in the Korea Credit Bureau stole credit card details and social security numbers of about 20 million South Koreans. The consumer sentiments remained volatile with many opting to use a debit card, which prevents them from filling in personal details while making payments online.
Moreover, fintech developers such as Naver, Kakao, and Samsung have focused on developing mobile payment platforms to secure the movement of customers from computers to mobile devices. Messaging and communications app Kakao is even offering its mobile payment users the ability to perform an extensive range of day-to-day transactions, almost eliminating the need for credit card or cash in the future. All of these developments contribute to lessen credit card usage in South Korea.
Credit cards in Singapore have increased gradually in the last few years, from 6.1 million cards in circulation in 2010 to 8.1 million in 2015 (Figure 3).
A MasterCard survey in 2014 showed that on average, each Singaporean held 3.9 credit cards. Singapore is one of the most pro-card countries with more than 38% penetration rate, as compared to other Southeast Asian countries which have less than 5% penetration rates. This high penetration rate is a result of the aggressive marketing campaigns of banks, which offer additional benefits and privileges to customers making payment using credit cards. For example, ANZ’s credit card gives customers the option of choosing their own reward categories.
There is also a high preference among the public for faster and more convenient contactless payments. Also in July 2015, the government invested $160 million to support the fintech industry for the next five years. Such investments have contributed to an increase in non-cash payments in Singapore. A booming e-commerce network, an impressive network coverage, and high smartphone usage rates will transform Singapore into a cashless society by 2020.
Moreover, with the bourgeoning of contactless payments and emergence of fintech players, cashless transactions using credit cards look set to face new opportunities in the next few years.
In Thailand, the number of credit cards in circulation increased 53.5% from 14.2 million in 2010 to 21.8 million in 2015 (Figure 4). Some factors contributed to a steady growth in credit cards usage in the country are the increasing per-capita income of Thailand, which is expected to grow by 6.1% in 2016. There is also an influx of innovative banks as well as greater efforts to modernise payments infrastructure. Banks are also exploring the use of mobile technologies and social media to promote their products and services and provide better customer engagement.
Cards are being issued for a variety of purposes including pre-paid cards for transportation, online shopping and entertainment, which are becoming increasingly popular. A growing Thai economy and increasing numbers of the middle class and the youths have resulted in higher demand for credit cards.
In addition, the amount of spending is also likely to move upwards since the value of e-commerce in the country is rising while the local tourism industry is performing well. Even local Thais are being encouraged to actively use their credit cards and other payment cards through cashback offers, discounts, and rewards.
Thailand’s growing economy, increasing disposable income, and rising e-commerce prospects are likely to induce a higher demand and distribution of credit cards in the future.
The number of credit cards in force in Vietnam is continuously growing, although much of the population is not familiar to making payments using plastic cards. Since 2010, the number of credit cards in circulation has increased from 0.4 million in 2010 to 4.4 million in 2015 (Figure 5).
This increase can be attributed to extensive improvements in infrastructure, systems, technology, and marketing by local banks. Many commercial banks have also developed creative solutions such as exempting customers from paying the annual fee for the first year to covering the costs of development.
Furthermore, about 40 commercial banks have integrated more features in their credit cards such as personal online banking, direct payments for utilities and other purchased goods and services, EMV technology, and nearfield communication (NFC)-payments systems.
Due to these reasons, the transaction value of credit cards has rapidly increased. However there are still a lot of unused issued cards because of a higher preference for cash-based transactions. In fact, more than 90% of payments are processed using cash. The government has recently introduced measures to change the payment behaviours of consumers and increase non cash-based transactions.
Currently, only around 22% of Vietnam’s population has access to electronic financial services. With consistent efforts from both the government and the banking sector to promote financial inclusion and a cash-free culture, the number of cards in force, and the transaction volume will grow in the future.
Shift towards cashless economies
Every country is undergoing a transition into a cashless economy. Before 2013, the number of credit cards being issued has increased substantially. However, there has also been a decline in the numbers of credit cards in many countries with the advent of the “cardless” concept. Moreover, the prevailing problems like credit card fraud and cyber security breaches and threats have also contributed to such a trend. The next step for banks is to find opportunity to increase credit card usage in a cashless society, and look for ways to evolve their credit card products in the advent of “cardless” concept with the possibility of eliminating both credit card and cash in the future.
Keywords: Credit Cards, Digital Payments, Tencent, Tenpay, Alipay, WeBank, BoK, EMV Technology, NFC, ANZ