China Gets Ready for Credit Cards
When Americans shop, they make sure to bring their credit
cards. When Chinese shop, they use their store value cards.
Because the concept of purchasing with credit is still
developing in China, Chinese need to make sure that they
have sufficient funds in their bank account before they
make a purchase. These funds can then be stored on a card
with a memory chip, and can be widely used in place of
cash. The benefit for the Chinese consumer is that they
are freed of the burden of carrying large amounts of cash.
Chinese are traditionally prudent in their spending habits,
and do not like to go into debt. Tradition dictates that
the individual should pay all his/her debt by the beginning
of the new year, and it is not unusual to hear about suicides
because someone was not able to pay his debts, especially
in the countryside.
China's state-controlled banks have also been very conservative
when it comes to going into the consumer market for credit.
The first major changes started with consumer mortgages
to buy housing more than ten years ago. Now, city folk
especially, are much more willing to incur short-term
debt, especially if they have a steady income.
The path to credit cards in China has started with stored
value cards, which are issued by the bank where the hodler
has an account. Stored value cards are very popular in
China; there are now 400 million carriers. Credit cards
are still comparatively rare, with only one million credit
cards which can be used internationally. For banks, which
are the issuers of the stored value cards, there is another
benefit: they carry an annual fee. The concept of a stored
value card with no annual fee has not yet arrived in China.
For Mastercard and Visa, stored value cards are the precursors
to the credit card, and are prepping the market for a
more sophisticated credit conscious general public. This
is because banks allow their preferred customers temporary
overdrafts on their stored value cards, which turns them
into a short-term credit card. The banks make money from
the fee they charge for these temporary overdrafts.
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