American Express announced Monday night that one of China's largest banks would begin issuing its credit cards later this year, significantly expanding Chinese consumers' access to US credit cards.
Only last month, Citibank began issuing credit cards in China, working with the Shanghai Pudong Development Bank, in which it owns a 5 percent stake.
Unlike previous credit cards issued in China by foreign banks, the American Express and Citibank cards allow payment not only in dollars but also in Chinese currency. That makes the cards viable for ordinary consumers.
"This partnership provides us the opportunity to cultivate the tremendous potential of the Chinese credit card market," said Jiang Jianqing, chairman and president of the Industrial and Commercial Bank of China, which will be issuing the American Express cards.
In a population of 1.3 billion, scarcely a million credit cards are in circulation, according to a recent report by McKinsey & Co, the management consulting concern. The Chinese card market's structure is fragmented: Many cards are valid only in certain parts of the country, and lenders find it difficult to make loans because of scant consumer credit data. Even so, McKinsey said, the industry could produce US$3 billion in annual revenue by 2010.
Fewer than 5 percent of existing credit cards can be used outside of China, according to The Nilson Report, a card industry publication.
"Clearly the opportunity exists for a tremendous number of transactions," said David Robertson, publisher of The Nilson Report. "The profitable ones are going to be those that put credit cards in the hands of Chinese who travel abroad."
Kenneth Chenault, American Express' chairman and chief executive, described the foray into the Chinese market as one of its broadest third-party alliances to date. He said ICBC was already the country's largest card issuer.
Under the arrangement, whose financial terms were not disclosed, ICBC will market and issue cards with an American Express logo. It will provide customer support, extend the credit on the cards and own any balances. Customers will be able to use the cards at any of the merchants in ICBC's existing network as well as merchants in the American Express' international network.
In turn, American Express will earn a portion of every purchase, and its cardholders from other countries will have access to the merchants in ICBC's network.
The deal is similar to the one American Express reached in January with MBNA, the credit card issuer based in Wilmington, Delaware. That agreement represented American Express' first alliance with a bank that also issues MasterCard and Visa cards, and it stands to realign competition in the card industry.
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