Taiwan's credit card market is little more than a decade old, but already there are 56 card-issuing banks competing in the market. Many of those institutions have seen the number of their credit card holders and accounts receivable grow by more than 30 percent annually. But what looks like a booming market is anything but that in reality.
More than 90 percent of local card-issuing banks are not making money. Only three out of the 56 banks are actually making a profit, said one analyst. Fierce competition means the profit margin in the Taiwan market is almost the lowest in Asia, said Sheu Jiing-song (許景崧), head of Citicorp's (花旗集團) consumer banking.
The major problem is the "free annual fees" that most of the issuing banks offer their cardholders.
If a bank wants to make money in the credit card business, it requires at least 300,000 fee-paying cardholders. If a bank issues cards without asking an annual fee, it would require at least 600,000 valid cardholders (this is, those who are actually using their cards) to make a profit.
Almost all card issuing banks in Taiwan offer cards without an annual fee, said Sheu, just like what happened in the US market during the early 1990s. That's when AT&T launched the first no-annual fee card, igniting a fee war among card issuing banks. The vicious competition spelled the end for many of the issuing banks and AT&T finally sold its credit card business (with 17 million cardholders) to Citicorp.
While the US credit card market has been saturated, and the number of issuing banks continues to decline, Taiwan's credit card market is still developing, and newcomers are still entering the market.
The market shares of the top ten credit card issuing banks in US reached 60 percent after a decade's consolidation, said Sheu. Citicorp has a 14 percent market share, with US$69 billion accounts receivable. Citicorp is also the largest credit card issuing bank in the world.
But Sheu says there are too many card issuing banks in Taiwan and most of them have not reached economic scale. Citicorp ranks as number two in the Taiwan market behind China Trust (中信銀). But the total amount of accounts receivable is only US$2.5 billion, far smaller than US market.
The local market has been the scene of fierce competition since a "no annual fee" war broke out about two years. Only few local banks still insist on collecting annual fees, including Citicorp. The stakes were raised again last month when the US financial giant, AIG Group (友邦), launched its credit cards with a super low revolving interest rate. AIG's market entry ignited another interest rate war and put the other issuing banks under heavy pressure.
Taiwan's credit card market is still in its early stages, said Sheu, and a vicious competition will destroy the market, especially when most players lack economic scale. He said Citicorp has no intention of joining the fray by waiving its annual fees.
Meanwhile, the numbers involved remain staggering.
As of the end of July, Visa International issued 12.39 million cards to 21.5 million residents in Taiwan. Visa clients in Taiwan have taken a total of NT$245.46 billion in credit, a 26.6 percent increase over the same period last year.
According to Visa International, Taiwan residents became Visa's best Asian client group in 1998 by taking on NT$362.7 billion in credit and a total of 9.4 million new cards.
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