When Bank of America issued the first ever credit cards to US citizens in 1958, the abuse that followed nearly led to them being outlawed. In the wake of 60,000 of the cards being released, America witnessed a tidal wave of unregulated use, fraudulent activities and large-scale defaults, leading some members of US Congress to call for a ban on them.

Today, those trying times seem light years away as the ubiquitous credit card increasingly becomes the preferred method of choice in the purchase of nearly every kind of consumer item or service in millions of establishments around the world; and none more so than the cards issued by Visa.

Visa, which enjoyed some US$3 trillion in annual sales volume in 2004 alone, is by far the most popular credit card in use today. In Asia-Pacific, Visa is the card used in 62 per cent of all credit card transactions and has a greater market share than all other payment card brands combined. There are currently some 238 million Visa-branded cards in the region and last year, US$475 billion was spent at points of sale or withdrawn from ATMs using a Visa card.

What may come as a surprise to credit card veterans is that, rather than being a credit provider, Visa is in fact an association of 21,000 lending institutions that support a standardized credit card service.

"We are often mistaken as being a financial institution that provides credit card services," says Jim Allhusen, executive vice-president and general manager, Greater China, of Visa International, at the launch of a recent golf tournament in Shenzhen. "In fact, Visa does not provide any financial services at all. What we do is provide marketing and business development services for our member banks in order to widen the use of their credit service."

In Hong Kong, this service is now part of everyday life. In a city where shopping-mad locals hold an average of four credit cards each, total credit card spending in 2004 was HK$128 billion, a year-on-year growth of 22 per cent. At the same time, Visa-related transactions rose from 14 to 16.1 per cent of personal consumption expenditure (PCE), continuing an upward trend both in spending and increasing acceptance of credit cards in the city.

If these figures aren't impressive enough, Visa recently struck more credit card gold with its joint partnership with Hong Kong Disneyland. In the deal, Visa becomes the official card for the theme park and in doing so, accesses a significant catchment area of consumers, which will boost usage even further.

On the mainland, Visa has been equally busy, expanding its reach by embarking on joint promotion programmes that encourage travellers to come to China, as well as making a contribution to improving the nation's payment-processing environment. This, it is hoped, will boost inbound and outbound numbers, both for leisure and for business, by making travellers more confident that they can enjoy wide coverage in the use of their cards. The association is also trying to develop business by offering improved products and services, more convenience and more benefits for users.

"Our job is to develop the credit services of our member institutions and we do this through partnerships with companies and marketing programmes and sponsorship of high-profile events like the Dynasty Cup," says Allhusen.

The Visa Dynasty Cup, the three-day event that was held last week at Shenzhen's Mission Hills Golf Club, sees the cream of Asia's golfing talent take on their Japanese counterparts in a hotly contested golf tournament that is being touted as Asia's version of the Ryder Cup. The competition attracts the biggest names in Asian golf, including the likes of Japan's Shigeko Maruyama and Hsieh Min-nan from China's Taiwan island.

"The Dynasty Cup is a very good product," he says. "The beauty of it is that the event appeals to our target audience. People that come here to watch the tournament are financially sound, are interested in our event and the type who will come to China to spend. China's economy benefits because high-profile events like these boost tourism, so everyone wants to see more of these events happening."

Presently, there are around 5.6 million Visa credit card holders on the mainland, but the cards issued are not for use locally. Visa's 17 local member banks and five foreign financial institutions provide credit card services for local card holders who then have access to credit services when they travel overseas, as well as for international tourists who are travelling on the mainland.

No credit card system exists for 99 per cent of local consumers, who instead have access to a debit card system known as China UnionPay, which they can use to purchase goods and services.

"When the time comes, I believe the mainland's debit card payment system and credit cards will develop in tandem. There is already a strong debit card culture well established here, so people are getting used to non-cash transactions," he says, adding that the only thing holding the nation back from developing a local credit card service is its accession to the WTO, due in 2007. "When that happens, we anticipate that credit cards will be able to be issued here," he says. "By the time the Olympics come to Beijing in 2008, we hope there will be a fully established credit card system in place," he says.

Allhusen is bullish on growth prospects in the coming years. "I am confident that by the end of this year, we will have some eight million Visa card holders on the mainland. By 2010, our target is to have 50 million users which, I believe, is a realistic target. We are already established in the major cities like Shanghai, Beijing, Guangzhou and Shenzhen, and I believe our next step is to move forward into second-tier cities like Tianjin and Dalian."

Spend in style

As well as the Dynasty cup, Visa also enters into joint marketing programmes with mainland goods and services providers in a bid to further boost credit card spending. At the same time, these companies gain benefits from the exposure given to them through the programmes.

A recent tie-in is with Lenovo, the mainland's largest computer maker, in the headlines recently after it acquired the personal computing division of US giant IBM. Purchasers of Lenovo products will enjoy benefits and privileges by using their Visa card, says Allhusen.

"We have also established a partnership agreement with China National Tourist Administration (CNTA), where we offer benefits for consumers who use Visa when purchasing goods and services from its members," he says. "CNTA is also actively pushing to expand the number of local merchants who accept Visa to fulfil its own goal of raising Beijing's standard of services to that of an international city, especially ahead of the 2008 Games."

Allhusen believes Visa's other mainland partnerships, such as the recent deals with the Shanghai tourist association, as well as many other local tourist organizations and local airlines, will also expand the card's penetration.

"Of course our aim is to increase the number of merchants who accept our card as a method of payment, he says. "But sometimes they need to be convinced. They need to see that they can boost their business and avoid losing business by accepting the card."

And while Visa grows with every partnership it establishes, the benefits are not only one way. "What must be realized is that Visa is not only a credit card payment system, it is also a brand," he says.

"With the Dynasty Cup, we do raise our brand image by being associated with a high profile event such as this, but the event, and other companies who are also providing sponsorship for this event, also gain prestige by being associated with the Visa name."

Despite the successful efforts to build business, the biggest boost (in penetration) will come in the years leading up to the Beijing Olympics, Allhusen says.

"In the run up to the Olympics we will be launching a wide variety of marketing efforts to spread the word and increase the number of merchants that accept us. Obviously the government is behind the push also, because the event will be a huge boon for the tourism industry, so we expect to see a big spurt in acceptance ahead of that time. Local merchants realize that the number of people that will be coming to the city to stay in hotels and spend money at that time will be enormous, so we are confident they will get on board.

Ready to shop

The reality for most mainland workers is an average salary many times smaller than their counterparts in developed markets. Allhusen is nevertheless confident that there is sufficient wealth to support further credit card penetration without needing to compromise on lending criteria.

"The banks themselves set the criteria for approving credit lines to their account holders, and we do not believe there will be any significant shift in lending practices because of lower local salaries in order to boost penetration," he said. "The number of local consumers who could qualify for credit is already in the millions, so we see there is plenty of growth available in the market."

As for mainland consumers' renowned aversion to disclosing financial details, Allhusen remains similarly unconcerned.

"I do not see any difficulties in overcoming mainland consumer's reluctance to disclose their personal details. It is true, a debit card account is less intrusive in setting up, but local consumers are already purchasing holidays and cars and other big-ticket items on loan, so I believe there is already an acceptance of disclosure to some degree."

Visa's biggest challenge, he says, is in convincing people that making purchases using Visa is an acceptable practice.

"Once people can see that to buy things this way is safe and secure, they will start using credit cards more. They already have some confidence in the secureness of payment methods through debit cards, so the mindset is already there. It's all about confidence and perception.

"We are already seeing local consumers begin to embrace credit services. They see their friends do it, and so they get increasingly confident in buying bigger and bigger items using credit. Slowly but surely, they are getting used to the idea."

(HK Edition 04/19/2005 page4)