Idle credit cards prompt Citi, HSBC over­haul

China Daily (USA) - - BUSINESS - By BLOOMBERG in Hong Kong

Free rice cook­ers and suit­cases were among the spe­cial deals that tempted Chiu Wing­suet into ac­cu­mu­lat­ing her 20 credit cards, many of which are crammed into her wal­let. She’s un­likely to ac­cept any more such of­fers.

“I’ve come to re­al­ize that most of my cards are use­less,” said the 30-year-old Hong Kong nurse. “I ba­si­cally use only one card, for shop­ping and travel book­ing online.”

The shift­ing at­ti­tude of Asian con­sumers such as Chiu is up­end­ing the economics of the credit-card in­dus­try, and banks like Cit­i­group Inc, HSBC Hold­ings Plc and Stan­dard Char­tered Plc are tak­ing note. The banks, which in­creas­ingly rely on the re­gion’s swelling num­ber of af­flu­ent peo­ple to drive prof­its, are slash­ing the num­ber of card prod­ucts they of­fer in Asia and fo­cus­ing in­stead on get­ting a smaller range of cards adopted for online pay­ments.

In Asia more than else­where, con­sumers are in­creas­ing card spend­ing while jet­ti­son­ing some of their plas­tic. At 18 per­cent last year, re­gional growth in credit-card pay­ments was dou­ble the global rate, data from Lon­don­based Re­tail Bank­ing Re­search show. Yet the ac­tual num­ber of cards in cir­cu­la­tion fell in­Asia last year even as the world­wide tally in­creased, RBR es­ti­mates.

And that was be­fore Ap­ple Inc be­gan rolling out its mo­bile-de­vice pay­ment sys­tem Ap­ple Pay in Asia.

“The real game now is to get your card to be the one that sits be­hind the pay­ment plat­form,” said Keith Pog­son, a se­nior part­ner at Ernst & Young LLP. “The cus­tomer doesn’t change it. They make a de­ci­sion once about which card num­bers they are go­ing to use in the sys­tem. That de­ci­sion for the banks is crit­i­cal

be­cause it gives them an enor­mous trade flow of those trans­ac­tions.”

To cap­ture the busi­ness, it no longer makes sense for the banks to is­sue mul­ti­ple cred­it­card prod­ucts in the hope of max­i­miz­ing us­age, es­pe­cially at a time when they are un­der pres­sure to save money. In­stead, they are try­ing to fo­cus on pro­mot­ing a smaller num­ber of cards, us­ing more tar­geted ben­e­fits such as air­line mileage pro­grams and tout­ing the dig­i­tal fea­tures.

“What we are try­ing to do in Asia is to ac­tively and ag­gres­sively re­duce the num­ber of prod­ucts with fewer, more pow­er­ful and bet­ter prod­ucts,” said Ser­gio Zanatti, head of Asia-Pa­cific cards and per­sonal loans at Cit­i­group. “The amount of com­plex­ity that you need to man­age them just grows and makes our op­er­a­tions more com­plex.”

Cit­i­group has slashed its num­ber of card of­fer­ings in Asia from 270 to just over 100, in line with the 60 per­cent re­duc­tion in global card prod­ucts, Zanatti said. That contributed to the 12 per­cent drop in op­er­at­ing ex­penses at Cit­i­group’s con­sumer-bank­ing op­er­a­tions in Asia last year.

Asia ac­counted for al­most a fifth of Cit­i­group’s global con­sumer-bank­ing profit in the first half of this year, the largest con­tri­bu­tion out­side North Amer­ica. Asian rev­enues from Cit­i­group-branded cards were sec­ond only to North Amer­ica.

HSBC, which has posted bill­boards all over cen­tral Hong Kong to pro­mote its tie-up with Ap­ple Pay, says its num­ber of ac­tive mo­bile-bank­ing clients in the city has jumped al­most 50 per­cent over the past three years — and pre­dicts of­fer­ings such as Ap­ple Pay will keep that fig­ure ris­ing. The bank has been of­fer­ing cash re­bates to its card­hold­ers when they make con­tact­less pay­ments at cer­tain re­tail­ers in Hong Kong, in­clud­ing through a tie-up with 7- Eleven to pro­mote chicken meals.

“In the world of Ap­ple Pay or Google, con­sumers will use cards in dif­fer­ent ways and we need to en­sure our cards and re­ward pro­grams align with these chang­ing needs,” said Kevin Martin, HSBC’s Asia-Pa­cific head of re­tail bank­ing and wealth man­age­ment.

HSBC is re­de­ploy­ing as­much as $150 bil­lion of as­sets to Asia and adding some 4,000 jobs in

What we are try­ing to do in Asia is to ac­tively and ag­gres­sively re­duce the num­ber of prod­ucts...” Ser­gio Zanatti, head of Asia-Pa­cific cards and per­sonal loans at Cit­i­group

China’s Pearl River Delta re­gion with a fo­cus on re­tail bank­ing and wealth man­age­ment. The bank, which gen­er­ates most of its prof­its from Asia, is pre­par­ing to launch its firs town-brand credit card in the Chi­nese main­land later this year.

For Stan­dard Char­tered, Asia ac­counted for close to 70 per­cent of its op­er­at­ing in­come in the first half. The Lon­don­based bank said ear­lier this year it had more than 100,000 ap­pli­ca­tions for a new credit card of­fer­ing air miles and the Ap­ple Pay ser­vice in Hong Kong. Re­duc­ing the num­ber of credit-card of­fer­ings has the added ben­e­fit of keep­ing costs in check.

“With fewer, more stan­dard prod­ucts and a global dig­i­tal in­fra­struc­ture, you also have fewer er­rors and much less risk -- this also re­duces costs,” said Karen Fawcett, Stan­dard Char­tered’s re­tail bank­ing chief ex­ec­u­tive of­fi­cer.

Mil­lions of Asians are start­ing to use credit cards as they join the mid­dle class — and in many cases, al­most si­mul­ta­ne­ously adopt­ing the mo­bile pay­ment ser­vices of­fered by the likes of Ten­cent Hold­ings Ltd. and Alibaba Group Hold­ing Ltd’s fi­nance af­fil­i­ate. China’s Ten­cent has 700-mil­lion-plus users on its We Chat mes­sag­ing plat­form, where it of­fers fi­nan­cial ser­vices in­clud­ing pay­ments. Alipay has about 450 mil­lion users.

“The big­ger banks are in at­tack mode try­ing to get more cus­tomers to use their cards online ,” said Gary Ng, a part­ner at Price water house Cooper s LLP who spe­cial­izes in bank­ing and fi­nan­cial ser­vices. “The more cash-based trans­ac­tions move online, the more likely it is the banks can gen­er­ate fee in­come and in­ter­est in­come.”

XU HAIFENG / FOR CHINA DAILY

A Chi­nese trav­eler shows her credit card jointly is­sued by the Shang­hai Pudong Devel­op­ment Bank and Ci­tibank.

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