HSBC wants 1 mln China credit card users
(Reuters)
Updated: 2005-12-09 15:15

Ron Logan, chief executive of the HSBC's (0005.HK: Quote, Profile, Research) joint card center with Bank of Communications (3328.HK: Quote, Profile, Research), said he expected the unit to be profitable in three to four years.

"We are slightly ahead of our target and the number can reach 1 million by July 2006," Logan said in an interview.

HSBC set up a Shanghai-based joint card operational center in late 2004 with BoCom -- in which it bought a 20 percent stake for $1.75 billion in August 2004 -- to issue dual currency-denominated credit cards to the Chinese from 2005.

HSBC's rival Citigroup (C.N: Quote, Profile, Research) also had a joint card center with Shanghai Pudong Development Bank (600000.SS: Quote, Profile, Research), which is aiming to have 800,000 co-branded card users by next year.

Consultancy McKinsey & Co. has said credit card profits in the nation could hit $1.6 billion by 2013, compared with zero now in China, where people still believe cash is king.

Beijing, struggling to clean up a banking sector saddled with $200 billion in sour debt, is encouraging local lenders to seek out foreign capital and expertise. Overseas investors want to access the country's $1.7 trillion in personal savings.

However, foreign banks are still not allowed to issue credit cards on their own.

"China's card market is highly competitive and profits cannot come easily," said Logan, who was appointed as head of the joint card center in November 2004.

"It may take three to four years for us to get the profitability level."

To secure a bigger market share, foreign card players have been known to spend vast sums of money for marketing and promotion in China, which eats into profits in the early years.

"There is no doubt that we will make money but the question is the exact time for profitability," Logan said. "We have to build the business to the right scale first."

Foreigners are restricted in setting up card joint ventures: They are allowed to contribute technology and management expertise but are not allowed to take stakes in the units.

But HSBC wants to set up a 50-50 card joint venture -- an option written into the partners' agreements -- as soon as regulations are changed, Logan said.