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Maverick China Analyst Blog
Bankcards Used in a Quarter of Consumer Spending
According to the PBOC, China's "bankcard penetration rate" (defined as the total bankcard payment for consumer goods, excluding wholesale and real estate transactions) as a percentage of gross national retail sales was just under 26% by the end of September 2008. At the end of 2007, this figure was at 22%, and as recently as 2005, it was below 10%. In top-tier cities such as Beijing, Shanghai, and Guangzhou, the figure is higher but still below those of developed economies.
The rapid growth and utilization of bankcards, however, shows that Chinese consumers are willing to adopt alternative payment methods and is a positive sign for the development of electronic payments.
Credit Card Use Remains Low; POS Terminals Limited
While credit card issuance has grown quickly in the last two years, overall numbers remain very low. According to the PBOC, at the end of 2008, China had an estimated 145 million credit cards, up from 90 million in 2007.Bankcards Issued: 1.8 billion
The phenomenal growth of bankcard issuance (and banking in general) is one indication that Chinese consumers who grew up in a purely cash economy are open to adopting new methods of electronic payment. According to China UnionPay, the sole interbank fund transfer network and card issuer in China, about 1.8 billion bankcards had been issued by the end of 2008, up from 762 million in 2004. Included in this figure were 145 million credit cards, up from 90 million at the end of 2007.
A Late Start to Electronic Payments
Due to the late development of the domestic credit card market, China's electronic payments market is essentially developing 50 years later than the US and other developed markets. This late start presents some challenges for consumers and companies interested in new payment systems. It also has left fewer legacy systems in place, however, and China's market remains more open to alternative e-payment technologies and companies.
The first Chinese credit card was not issued until 1986 by the Bank of China. Adoption was slow over the following two decades due to a lack of consumer demand, a dearth of merchants which accepted card payment, and the lack of a unified appraisal system in the banking sector. It was not until the founding of China UnionPay in 2002 that bankcards in China were finally unified under a nationwide network and began to be used in large numbers.
Taobao and the Dominance of the Alibaba Group
Taobao is the largest online marketplace or online retail store in China today, controlling over three-quarters of the domestic C2C and B2C markets. Paipai, the second largest online marketplace in China, controls less than 10% of the market.
Taobao is sometimes referred to as China's eBay, but it has become a critical e-commerce platform for businesses as well. Since the company was formed in 2004, it has managed to overcome formidable challenges from global incumbents such as eBay and Amazon.
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