Credit card firms missing out on HK$1.85b from lack of merchant focus: analyst

Most issuers focus more on onboarding card users, the study found.

Hong Kong’s credit card issuers are sitting on approximately HK$1.85b of revenue per annum– all they have to do is improve credit activation via more merchant deals, according to a consulting firm.

One in two (51%) of total retail gross merchandise value (GMV) in 2023 were from credit cards, according to a report by strategy consulting firm Quinlan & Associates. It is also said to generate a “significant portion” of revenue for local banks.

Despite its dominance, the city’s credit card industry is facing three key structural challenges that are weighing on its revenue: oversaturation, underutilisation, and high churn.

“These structural issues directly affect credit card issuers’ profitability, contributing to inflated direct expense ratios for banks’ credit card business units, which are up to 7 times higher than that of their other business units,” said Benjamin Quinlan, CEO & managing partner of Quinlan & Associates. 

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Quinlan advised credit card issuers to change up their current strategy from acquiring card users to acquiring more merchants.

“Most local issuers remain heavily focused on acquiring new credit card users through a mix of welcome offers and rewards attached to new card products. However, data clearly indicates that there is little-to no correlation between the number of credit cards offered and customer spending,” Quinland noted.

“The opposite is true for credit card deals. Yet, despite their outsized impact on spending behavior (and therefore issuer revenue), the authors believe merchant deals are not being given due attention by issuers,” he added.

“By re-examining their existing approach to merchant deals, issuers tap into pockets of opportunity to drive customer spending and, in turn, their own credit card revenues.  But doing so would necessitate key strategic changes, such as improving customer awareness, leveraging targeted partnerships, and enhancing the overall customer experience of using deals,” Quinlan concluded.