Going All Out to Attract Card Customers

SINGAPORE - At the headquarters branch of Overseas Chinese Banking Corp. the Mercedes parked on the plaza is not promoting auto loans. It is the expensive bait in an increasingly cut-throat effort to lure new credit card customers.

OCBC is not alone. Many banks give away luxury cars or apartments - worth as much as $1 million - to win the business of Asians who don't mind annual fees and interest rates as high as 30% for the prestige of a MasterCard or a Visa.

And the get-your-attention promotions are only the beginning. Card issuers are increasingly pushed to offer rewards for usage that are generally unrivaled anywhere on the planet. Occasional users are rewarded with coupons for Haagen-Daz ice cream or discounts on record store purchases. For the most loyal customer, the payoff could be an expenses- paid shopping trip to Tokyo, airfare included.

"This is a sweepstakes-oriented culture and people have come to expect these prizes," said Robert Hammer, a California-based credit card consultant to several Asian banks. "It's an opportunity cost, albeit, a significant one."

Adds a Singaporean credit card executive: "You offer these programs because everyone else does. But you have to wonder when it will stop, or how expensive it may become."

The good news for banks is that the card business is fast-growing and highly profitable. The bad news is that it can only get more competitive as major players start to offer cards outside their home countries.

Banks are tight-lipped about profitability, but experts say the business has a remarkable 6% return on assets - as much as triple the profits in some large U.S. banks. Losses are similarly low. But those numbers are likely to change as new players enter the Asian markets and local issuers start to offer cards beyond their own customer base.

"Consumers now do not want prestige but rather a more practical credit card," said K.K. Ng, president of MBf Card Services, a subsidiary of Malaysia's largest finance company. "They want a card that is widely accepted, low or no annual fee and low or no interest charged for revolving."

His company is leading the new breed of card issuer: MBf has established subsidiaries in markets from China to Vietnam. As the first Asian nonbank card issuer, MBf is leading the charge across borders. Others are certain to follow.

Sources say GE Capital has been prospecting in the region, with plans to begin offering cards in markets from Indonesia to China. BankAmerica Corp., forced to sell its international card business as part of its restructuring a decade ago, is prospecting, too.

"You are seeing more cross-border plans, but it is very much in its infancy," said Lindsay Pyne, president of Visa International in Asia/Pacific. "The credit card is under focus for the banks. There's a recognition that the card could replace the branch."

But the move to new markets is often stunted by more pragmatic concerns. Consider the case of Hong Kong-based Manhattan Card Co. The specialty bank, 54% owned by Chase Manhattan Bank, planned Western-style tactics including no-fee cards to build marketshare last year.

Angered, Hong Kong banks reportedly told their merchants that electronic approvals could not be given for Chase's card customers. Instead, the merchant would have to await written approval - a move that forced MCC to drop its plans. (Chase officials declined to comment.)

"It is no secret that all banking business is set by the cartel to be profitable," said one local banker. "There is an incentive to not rock the boat because even a bank with 10,000 cards can make very good money."

Long-term, that will change. The liberalization of financial markets will bring new competition. And in markets like Hong Kong, monetary authorities already have pledged to reduce the role of the cartel, which currently sets interest rates and fees to which all banks must conform.

Such an evolution will open the market to regional players like Hong Kong Bank and Standard Chartered. Their model may well be Citibank. With four million cards (including Diner's Club) in the hands of consumers, the bank has pioneered techniques long accepted in the U.S., such as direct mail.

Rana Talwar, executive vice president and head of Citibank's consumer operations in Asia, tells the story of introducing direct mail in a market like India where postal workers were accustomed to delivering personal letters at a leisurely pace.

"We sent out these direct-mail pieces and were waiting for a response and nothing was coming back," Talwar says. "We went to the post office and found our bags of mail just sitting there. We had to teach them how to handle this kind of mail. Once we got it right, the responses just poured in."

The numbers certainly indicate that more Asians want plastic than ever. At yearend 1994, card companies reported another double-digit rise in the number of cards issued and an incredible 50% average increase in total transactions. (It was up four times that level in China, alone.)

"The myth of the Asian credit-hater is being exploded here," said Jim Cassin, president of MasterCard International's Asia/Pacific region. "There is so much economic growth going on here that is providing a fresh flow of new prospects to banks all the time."

To be sure, some officials worry that readily available credit will create an irresponsible, free-spending society that will canabalize high savings rates. Singapore has taken a hardline. Last year, the government banned advertising of promotions and mandated minimum incomes for cardholders.

"Our government is worried about the erosion of thrift," says a Singaporean banker, who is angry over the moves but declines to speak publicly. "Officially, the bank supports the moves as good for all of Singapore."

But few are worried about growth in the region peaking soon. By Asian standards, Singapore and Hong Kong are mature markets. But most countries are seriously underdeveloped with lots of potential as economies emerge and the middle class grows.

A favorite topic at cocktail parties in this region is to estimate the potential size of markets like China. On sheer numbers alone, most markets are scarcely penetrated. Observers like to point out that with 1.2 billion people, the bankable consumer market could be 200 million - nearly the size of the U.S. population. By comparison, a scant 6.5 million cards are estimated to be circulating there today.

"Card issuers view the market like Procter & Gamble sees selling toothpaste," said Raymond Chan, who overseas China for Visa International. "If every family buys just one tube of toothpaste, you will be busy for the next 10 years."

Beyond new markets is the continued push toward co-branding and niche opportunities. In Taiwan, China Trust offers a Visa card marketed to members of a Buddhist association that promises to contribute a percent of all purchases to certain charities.

Other efforts are broader. The Development Bank of Singapore offers the popular MasterCard co-branded with Esso, a chip card popular at the country's leading gas station. Given consumers' taste for perks and paybacks, the market is only certain to grow for affinity cards designed to reward them.

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