Gonna buy something? Banks want you to pull out plastic

Tracy Li
Credit card spending, hurt by coronavirus and the popularity of online payment systems, is making a comeback – good news for banks' bottom lines. 
Tracy Li

Zhang Lei, a 30-year-old former truck driver from the coastal province of Shandong, applied for a credit card with Shanghai Pudong Development Bank before moving to Shanghai two months ago.

He used the card, which has a credit limit of 30,000 yuan (US$4,391), to buy a car, but has seldom used it since.

When the coronavirus epidemic hit his hometown, he found it difficult to earn enough money to support his family. So he came to Shanghai, where he now drives a taxi.

Eileen Peng, a 27-year-old Shanghai yoga instructor, got a credit card two years ago but has never used it. She told Shanghai Daily she prefers making online payments for daily expenses using Alipay credit service Huabei or WeChat Pay.

Huabei is a virtual credit card for Chinese online shoppers using Alibaba’s Tmall and Taobao e-commerce sites.

“I signed up for a card only to use in emergencies, like serious illness,” she said.

The younger generation like Zhang and Peng are a target group for banks pitching “plastic money.” Credit cards, a lucrative business for years, were badly affected by the pandemic, when people stayed at home and shopped online, using digital credit systems.

With the banks reporting rather mediocre earnings in the first half, the push is on to reverse the trend.

China Merchants Bank, a pioneer in promoting the “fancy lifestyle” afforded by credit-card spending, said in its recent interim financial report that credit-card transactions fell 0.12 percent to 2 trillion yuan from the same period a year earlier.

In the first six months, existing credit-card debt dropped 2.8 percent to 652.2 billion yuan. Non-performing credit-card debt rose, the bank said.

Ping An Bank announced similar results for the first half.

Industrial and Commercial Bank of China, China's largest lender, reported about 160 million issued credit cards as of June 30, ranking it first in the country.

Income from bank cards rose by 886 million yuan, the bank said, and non-performing credit-card loans showed a rather high ratio of 2.65 percent, the first time that information was ever released.

Lu Jinhua, a senior financial industry observer, said in an interview with Shanghai Daily that people tightened their belts amid the coronavirus outbreak as job prospects dimmed. That put pressure on the retail businesses of banks.

At the same time, some young people didn’t really connect credit cards with bank debt and didn’t worry about repayments.

“They thought it was some kind of free money to spend at their leisure,” Lu said.

“As a result, some banks have lowered the spending limits on cards and become more cautious in issuing cards,” said Su Xiaorui, a senior research fellow at Madai Institute, a Shanghai-based organization focusing on Internet finance.

China Construction Bank, one of the Big Four state-owned lenders, outperformed its rivals in the credit card business.

As of June 30, the bank had issued 139 million credit cards to 101 million customers. The cards were used in purchases totaling 1.5 trillion yuan, with an outstanding balance of 774.5 billion yuan in the first half. Non-performing debt was at a ratio of 1.17 percent, lowest in the industry.

The relatively good asset quality was attributed to the replacement of magnetic strips on cards with implanted chips that made anti-fraud tracking easier and improved risk management, the bank noted.

Utility of cards

Feeling the impact of coronavirus, even die-hard credit-card fans like Abby Liu, an insurance agent in Shanghai, cut expenses, especially on entertainment and social activities.

Liu applied for her first plastic card in 2014, when she got her first job as a marketer in a foreign-owned company. She found the credit card useful on frequent business trips.

“The credit card was really a very good tool at the time to keep my cash flowing,” she said.

Her first card was issued by China Guangfa Bank, a joint-stock commercial bank that had a card partnership with China Eastern Airlines that earned Liu frequent-flyer miles as well as other reward points.

“I felt so cool and professional to present a card on business trips, such as checking into hotels,” she said.

In 2016, Liu opened another credit-card account with China Merchants Bank, lured by a one-time signup bonus of a luggage bag and ongoing reward points.

A big fan of TV series and movies, Liu has redeemed the reward points for memberships on popular on-demand video-streaming platforms like iQiyi. She also enjoys the fun of dining out with friends because of big discounts offered by the China Merchants Bank card.

Her daily purchases, big or small, are almost all paid by credit card.

“I think it's kind of group behavior,” she said. “People around me were all using credit cards, so it became a habit when making payments.”

Taxi driver Zhang said he is “conservative” when it comes to buying on credit and does not like to spend tomorrow's money for today's comforts.

To his way of thinking, credit cards and other popular online loan products like Huabei are all meant to entice people to spend more than they can afford, and that can lead to big debt if one is not careful.

Banks are reporting signs of recovery in the credit-card business.

Shanghai-based Bank of Communications said in its interim reports that growth in credit-card spending and overdrafts improved in the second quarter.

Not taking anything for granted, the banks are initiating an array of promotional activities to enhance consumer spending and credit-card use.

In response to the government’s campaign to promote consumerism, Bank of Communications initiated new marketing campaigns. One went under the slogan: “That’s the deal offered by Bank of Communications.” Another celebrated the 10th anniversary of “Super Red Friday,” a shopping festival to boost weekend consumption.

Ping An Bank is using artificial intelligence technology in its credit card “smart speech” platform, which makes nearly 12 million calls to potential customers every month. That is equivalent to the workload of about 3,000 telemarketers.

Using big data, Ping An Bank also upgraded its customer services platform to enhance targeted marketing.

China Construction Bank is trying to consolidate its advantage in consumer credit, especially auto finance, by accelerating credit card use in commercial complexes, airports, high-speed rail stations and gas stations, among other sites. The strategy targets consumer spending on clothing, restaurants, housing, transportation and entertainment.

The bank has launched the “CCB Home Improvement Festival” by means of online live broadcasts and offline services.

China Merchants Bank has also launched creative campaigns, such as the Constellation Guardian Credit Card and customized card numbers for couples on May 20, or 520, the 20th day of the fifth month of the year, which sounds similar to wo ai ni, or “I love you,” in Chinese.

The bank is targeting new card customers with its CMB Life app, whose Chinese name roughly translates as “Life in Your Palm.”

By creating a strong content ecosystem, quality e-commerce, the motoring lifestyle and other daily activities, the application has attracted over 98 million users, with about a third of them not credit-card users.

Thanks to these efforts, the bank said its credit-card business is “in a stage of restorative growth.”

Industry watcher Lu noted that smaller competitors and newcomers to the consumer credit industry should avoid direct competition with big, established players. Instead, they should focus on niche markets with innovative card products that offer distinctive benefits and features.

He cited Shanghai Rural & Commercial Bank as one example.

The bank issues membership cards to labor union members. They provide basic credit and debit banking services, and members can enjoy discounts when paying at participating stores.

Moreover, card issuers are now targeting more specific segments of the population.

China Construction Bank, for example, has initiated cards targeting car owners, offering a full-service product covering parking fees, car washes, refueling and auto insurance.

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