Visa's North Asia group country manager Chris Clark discusses how the firm is setting its sights firmly on the region's burgeoning wealth.

As the world's economic power shifts from West to East, US financial services firm Visa is aiming for half of its revenue to come from outside of North America by 2015. North Asia is currently its fastest growing market, with thirty per cent of payments volume stemming from the region last year. Chris Clark, North Asia group country manager, discusses how the firm is setting its sights firmly on the burgeoning wealth in Japan, Korea, Greater China, Hong Kong and Taiwan.            

Q: North Asia is home to a large number of high net worth and ultra high net worth individuals. What is Visa doing to tap into this growing market in terms of affluent spending?

The increase in millionaire population and wealth is significant in North Asia as the region’s markets experience continued economic growth and strong gains in other key drivers of wealth. Why go after this segment? They spend a large amount, they’re the most resilient and, if we don’t go after them, our competitors will.   

To do this, we know that we need to provide a broader set of products and services to meet the complex needs of today’s HNW individuals, especially since much of the wealth in North Asia is newly generated. What this means is that many HNW individuals may require sophisticated and multifaceted services, but they have limited experience with—or access to—the scope or scale of services that exist in highly developed markets.

Fortunately, our experience in the region has taught us about ways that Visa and its client banks can effectively target wealthy individuals. For example, today’s affluent customers love to travel – which is why so many Visa benefits platforms deliver travel offers to premium cardholders. We’ve also found that card usage can be lifted by increasing the use of Visa’s concierge services. Customers who use concierge services multiple times will generally spend more than customers who have only used concierge services once. Besides expecting customized/bespoke services, today’s UHNW individuals also contribute substantially to charity, so we’re encouraging banks to make this a part of the mix of offering for their affluent segment. And, in some markets like China where prestige is important, card design elements such as a diamond on a Visa Infinite card can serve to differentiate a bank card.

Q: What are the spending behaviors and spending patterns of high net worths and ultra-high net worths in Greater China versus Korea versus Japan versus Hong Kong versus Taiwan – their similarities and differences?

In terms of investment, Asia Pacific HNWIs invest most heavily in real estate and equities, with Japan’s HNWIs behaving the most conservatively, according to the 2011 Asia-Pacific Wealth Report by Capgemini and Merrill Lynch Global Wealth Management.

However, many Asia Pacific HNWIs are using 'investments of passion' as a diversification tool, and this is consistent with some of the trends that we’re also seeing here at Visa. For example, sales of luxury cars are way up in North Asia. Mercedes-Benz said its sales in China (including Hong Kong) jumped 112 per cent in 2010, and Ferrari reported China sales in 2010 surged nearly 50 per cent from 2009, marking its best ever year. Ferrari added that the Greater China area is now one of its top five international markets.

Jewelry, gems and watches also hold economic and cultural appeal for HNWIs. Indeed, Christie’s International reported that its 2010 fine and rare watch auctions saw “exponential growth in buyer participation from Asian countries, led primarily by China and Hong Kong”.

In North Asia, Taiwan HNWIs lead as buyers of luxury collectibles which includes automobiles, boats, etc.) at 38 per cent, with Chinese millioniares just behind at 35 per cent. Japan’s HNW individuals follow at 30 percent. China millionaires are the largest buyers of other collectibles (which includes coins, wine, antiques, etc.) at 22 per cent, with Japan’s HNW individuals second at 18 per cent.

More than half of Chinese consumers’ luxury purchases are made abroad when they travel. China’s young wealthy also increasingly seek a more spiritual, socialized and personalized level of consumption (The Chinese Luxury Consumer White Paper, March 2012). Traveling is Chinese HNW individuals' favorite leisure activity.

Q: How do high net worths and ultra-high net worths define luxury?

The Capgemini and RBC Wealth Management World Wealth Report 2012 confirmed that HNWIs and ultra-HNWIs are defining luxury in terms of their 'investments of passion', especially in emerging markets. China is now the largest market for art and antiques, which has driven up prices for traditional Chinese art. Diamonds also continue to be a strong investment with prices increasing 20 per cent over the previous year. 

But the North Asian high net worths and ultra high net worths may not be satisfied with just these luxurious investments of passion. In its 2012 white paper on The Chinese Luxury Traveler, the Hurun Report looked at how the Chinese luxury travel market is flourishing due to the rapid increase in the number of millionaires in China. According to the white paper, luxury travel is the most popular form of entertainment and the biggest area of consumption for Chinese millionaires. Chinese tourists are collectively the biggest spenders across the world, with growth of more than 50 percent over the last three years. When traveling, the most popular luxury goods purchased are watches and jewelry, with Hong Kong the undisputed first choice destination for Chinese millionaires to buy luxury goods.

Interestingly, a majority of Chinese millionaires want their private banks to provide luxury travel advice.  On a micro level, Visa provides a useful service to travelers by providing a safe, secure, convenient way for them to pay. Electronic payments reduce the need for paper currency, and the various aspects that can irritate a traveler, such as the inconvenience of money transfer, the threat of theft/loss, or the fear of “not having enough money” to pay for goods and services or emergencies while away from home. On a macro level, Visa’s involvement includes working with partners (clients, airlines, retailers, hotels, airports) to run marketing campaigns that incentivize spending by travelers, and by using our data and market intelligence to provide valuable insights to governments, retailers and clients into what drives tourist spend, thereby aiding targeted efforts by the local industry in boosting a country’s tourism revenue.

Q: How do you think Asia's wealthy view the internet and its various applications for managing their wealth and finances?

The HNW population has always demanded - and paid for - more personalized and varied service than the mass market. When it comes to financial services, HNWs typically want a choice of suitable value-added products and services that will properly align to their risk profiles, as well as meet their local market preferences. With the proliferation of the internet, the HNWIs are finding that they can do more with their wealth online than they ever did before, so clearly the internet can play a key role in helping to attract and retain HNW customers.

In China, for example, the internet is the most widely used source for millionaires who want to obtain travel information. According to the 2012 Hurun white paper on The Chinese Luxury Traveler, more than half of millionaires prefer to research travel destinations on their own and make decisions on the information they have personally acquired.

However, the internet alone won’t fully satisfy the needs and preferences of the HNWs. Most people know that North Asia is leapfrogging, much faster than the rest of Asia, in terms of embracing technology. In fact, according to a 2012 Nielsen study, North Asian countries have some of the highest smartphone adoption rates across the entire Asian region. In China and Taiwan, 42 and 51 per cent of mobile users own a smartphone respectively. In South Korea, an impressive 67 per cent of mobile users own a mobile phone. North Asian countries far surpass other countries in the region such as Malaysia (28 per cent), Thailand (27 per cent), Indonesia (19 per cent) and India (10 per cent).

Q: What are your biggest growth markets in North Asia?

The trend to switch away from cash to electronic forms of payment continues and this is something from which we and our bank clients benefit. Our fundamental strategy is very simple. We work with financial institutions (our clients) to ensure that more people have: (1) a Visa account; (2) a way to pay using that account (via card, mobile); and (3) more places where they can do that (increase acceptance).

Our China business is strong but it is restricted to what we call “cross-border” transactions – that is, when Chinese cardholders use their cards abroad. However, even when excluded from the domestic market, China business is one of our fastest-growing markets. 

Still, there is a lot of growth for Visa outside of China, so our strategy for the region does not focus on one country. Nearly 30 per cent of Visa’s global payments volume last calendar year came from Asia. US$1 trillion in payment volume passed over our network in Asia-Pacific in the year ended Dec 31, 2011.  That growth is widespread across North Asia with more than 50 per cent payment volume growth in China and almost 20 per cent growth in the more established market of Japan.

Q: How does growth differ from market to market in North Asia? What characterizes growth in markets such as China, versus growth in the mature markets in Japan, Korea and Hong Kong?

Growth in mature vs. developing markets varies by the level of infrastructure that is in place to develop and nurture mature electronic payments networks. 

In more developed and mature markets, including Korea and Hong Kong, Visa will drive growth by allowing people to shop anywhere using diverse payments options and providing new products and services like person-to-person money transfer, recurring bill payment, transit and event tickets and top-up of prepaid mobile cards. Growth in these markets will also happen by enabling Digital Wallet payment services for online and mobile transactions.

PCE penetration in Hong Kong stands at more than 50 per cent, in China at more than 45 percent and in Korea at more than 70 percent. In Japan, on the other hand, electronic payments aren’t as widespread, with PCE penetration still only at 12 percent. Therefore, the focus on Japan is a lot more about building out the infrastructure, new product lines (Debit) and growing acceptance rather than rushing into Digital Wallet.

In a developing market like China, Visa will help to drive growth and better serve our Chinese bank clients and Chinese cardholders by bringing new investments and innovations to the country. With our products, services, technology and payments expertise as well as our financial literacy tools and resources, Visa can help to build financial infrastructure and bring more people into the financial system. We can also help to expand the reach of the Visa acceptance network throughout China so that there are more electronic payment opportunities for consumers. This involves working with more merchants as well as embracing technology innovations at the point of sale.