Chinese banks must prep credit card growth

China's credit card market will grow rapidly as second- and third-tier cities open up, according to a financial research and consulting firm, which urges local banks to upgrade their systems to support this growth.

In a report released Tuesday, Boston-based Celent said the credit card market in China is expected to grow at an average annual growth rate of more than 30 percent over the next four years. The annual growth rate averaged at 54 percent in the past three years.

"At present, China's credit systems are basically foreign-run, so banks in China accept foreign credit card systems more readily," Celent's Asia research group analyst, Hua Zhang, said in the report. "With increased profitability and the development of new technology, credit card systems will need to link with customer relations management (CRM) and network systems to practise a more customer-centric business philosophy."

According to Celent, more local banks in the country will also need to upgrade their credit card systems to support a bigger scale of operations. The research firm expects eight banks to reach the 10 million credit cards issued-mark in four years, while about 30 banks will cross the 1 million card issued-mark.

The Industrial and Commercial Bank of China, China Merchants Bank, China Construction Bank, the Bank of China and the Bank of Communications were the biggest card-issuing banks in end-2008.

The report noted that larger banks preferred to use in-house systems by purchasing software from external sources and developing them internally. Small and midsize banks opted for the outsource model as it helped reduce the risk of issuing cards borne by the banks, shorten the period needed to issue cards and reduce the costs of issuing cards.

Currently, only one-third of credit cards rely on the outsourcing model, according to Celent, noting that this is mainly due to the relatively late entrance of small and midsize banks and foreign banks to the Chinese credit card market. The analyst firm expects more credit cards to be operated on an outsourcing model.