Foreign financial-services players are turning their attention to the Chinese credit card market, which could well rack up more than $3 billion in annual revenues by 2010 (Exhibit 1). If the current impediments to supply—for instance, restrictions on foreign players, the local players’ antiquated mind-set and inadequate skills, and a lack of consumer credit data—are overcome more quickly than expected, those revenues could exceed $5 billion by the decade’s end. This would be almost equal to the annual revenues of Taiwan’s credit card industry at that point.

China certainly appears ready for plastic. It boasts a growing class of affluent consumers; the number of households with annual incomes of more than $6,500 will increase tenfold by 2010, to 30 million. Recent market data suggest that Chinese consumers are as likely to use consumer credit and to revolve their debt—the key to success for a credit card business—as consumers in developed markets such as the United States. Even with a mandatory interest rate cap of 18 percent, the profit margins on credit cards, after adjusting for default, are 900 to 1,100 basis points¹ for customers who carry their card balances (Exhibit 2), compared with only 300...