Analysis On The Profitability Of Credit Card Business In China's Commercial Banks

As the modem medium of electronic payment, credit card stemmed form the USA in the 1950s. Along with the rapid of IT in finance, credit card explosively grew during the 1970s because of its convenience, quickness and safety. Nowadays in the developed country and region, especially in the North America, credit card business has become one of the most profitable products in banking.In china, credit card industry starts relatively late. Bank of china launched the first bank card in 1985. but, as the internationalization trend in our country has been more and more clear and payment settlement networks has been widespread and the people's living quality has been greatly improved, credit card business in our country has been in a fast-growing stage. From year 2003 to 2008, credit card issuance has been increasing by above 60% annually. As far as the end of the second quarter of 2010,2.266 billion bank cards have been issued, the total number of credit card is 207,000,000. And the number of the engaged-merchants is up to 1,811,000, the number of POS network equipments is 2,824,000.Total loans is also growing, as far as the end of the second quarter, total loan is up to 16.4 thousand billion. From every facet of credit card, its business' development environment, prospect is optimistic, then from the profitability of credit card, the actual condition of credit card is pessimistic. According to the recent annual financial report related to listed banks, only Guangdong Development Bank, China Merchants Bank, China Citic Bank, Shenzhen Development Bank and Industrial Bank have announced that credit card business was profitable. Traffic Bank is the only bank which has announced the profitability of credit card business in the five state-owned commercial banks. In other words, at least half of credit card issuing banks are at loss. Contrary to developed countries, credit card business in our country is in the first stage of its business development. The overdraft interest income is much lower than international average level and the whole income structure is unreasonable, cost of its business especially the proportion of operation cost is over large, and credit card bad debts is in the stage of raising. The domestic issuing banks must analyze the deep-rooted problems which have an impact on credit card profitability in order to find more new polices which is in line with the actual condition of China. Base on aforesaid background, this article uses the way of data analysis, comparative analysis, besides, the article is based on the construction of profit model of credit card business, and in the comparison of abroad credit card business, find the reasons of the profitability of credit card business in our country. Through relative analysis, there are several problems in the facet of credit card income. Such as people' consume consciousness is relatively conservative, the high overdraft interest rates, single standard and high disorder of interest rare of credit card market. There are also a few problems in the facet of cost, for instance, over high issuing cost of operating, lower efficiency, low alive rates of credit card and low ability to control the credit card risk. Some disadvantages also exist in the external environment of the credit card. For example, personal credit registry system is unsound, the shortage of credit card supervision. This article takes a representative commercial bank as an example, and analysis its credit card business'income and cost through the profit model to find that the direct reason which credit card business is at loss is concluded owing to too low interest income and too high operating costs. And put forward suggestions and countermeasures to improve the profitability of credit card business from the angle of the issuing bank and government.This article is divided into five parts. The preface in chapter one firstly propose questions, then shows the main research findings in the relevant field, and give an introduction about the research method and framework of the article. Chapter two introduces the basic concepts, theory, classification, function and operating process of credit card and its history in order to make a foundation for the later analysis. Chapter three firstly introduces the development status and process of credit card business in our country, then, it summarizes the factors of credit card business profitability, and analyzes current problems and disadvantages which exist in current credit card business. Chapter four is based on the credit card business profit pattern to build its profit model, and evaluates the earning performance about the credit card business of bank Z through this model, and analyzes its profitability through some important financial indicators. The last chapter puts forward suggestions and countermeasures to improve the profitability of credit card business from the angle of the issuing bank and government.