In the purchase decision-making process, consumers are normally motivated to use a product when they have a need or a problem that requires a solution and will purchase or adopt a product that offers the optimal solution to their need (Kotler et al., 1994, Prelec & Loewenstein, 1998; Kotler et al., 2001; Soman, 2001). According to consumer behavior theory, the consumer's first experience with a product is a critical factor in determining product acceptance or repeat usage behavior (Smith, 1993; Wright & Lynch, 1995; Smith & Swinyard, 1988; Marks & Kamins, 1988; Mester, 2000). Consumers are less likely to purchase the product or repeat usage behavior if they have a bad experience using the product. Bad word-of-mouth is likely to be generated by disappointed consumers, and this can deter product trial by new bankcard holders (Beyer, 1999; Paterson, 1999).
At the initial stage of the Golden Card project, bankcards were largely issued to employees of state-owned enterprises for withdrawing wages and salaries credited into their bank accounts. Instead of receiving a paycheck, the employees withdrew their wages and salaries from their bank accounts using the cards provided by the banks by arrangement with employing organizations. It has been reported that the number of bankcard holders who took the initiative in applying for a bankcard has been very low. Bankcards have been mainly used at ATMs, although a large number of these cards also have debit functions. Bankcard holders seldom utilized these debit functions, which was blamed on the unreliability of the electronic payment system. However, the banks pointed out that bankcard holders' unfamiliarity with the machines accounted for the slow rate of acceptance of payment technologies. For example, a study by a bank highlighted the fact that 75% of the unsuccessful transactions at the ATMs were due to lack of operational knowledge on the part of the users, while 15% of the unsuccessful transactions were due to card defects (improper storing of cards by the cardholders), and only 10% of the unsuccessful transactions were related to mechanical and network problems. In addition, the banks substantiated their claim by highlighting that 90% of the debit cardholders thought that their debit cards were only good for withdrawal and deposit purposes at ATMs. Only 5% of the debit cardholders were aware that their debit cards could be used for retail consumption, and another 5% were aware that they could use them for payment transfer and payment of bills for utilities.
While Chinese consumers have a need to withdraw salary and wages and pay for transactions that sustain their livelihood, they feel that the ATM and POS systems do not present a viable solution as payment modes or systems. Most Chinese prefer to make withdrawals from bank branches and prefer the traditional method of payment in cash because of their low level of confidence in the payment modes and systems, driven either by their inexperience or negative experience of card usage or word-of-mouth influence. In the main, the heavily publicized capability of the bankcard (that "one could travel the whole of China with a bankcard in hand") is losing credibility, as the experience has revealed a different situation. This has resulted in a low repeat usage of the bankcard in China.
Although the Chinese government has been encouraging the population to use bankcards in lieu of cash for payment, usage of bankcards and the electronic payment system has remained low. The lack of a comprehensive and integrated information technology support system has also accounted for the low usage and trial levels of the electronic payment system and has contributed to an unreliable and uneconomical (when credit risk exposure is taken into account) bankcard verification facility.
When the Chinese government was aggressively promulgating the Golden Card project and the use of bankcard during the experiment phase, the satellite-based interbank network being built by the People's Bank of China was still at the initial stage and was unable to provide processing convenience to either the agents or customers. The electronic payment system has started with a low level of confidence on the part of users. After more than five years down the road, intra- and inter-city bankcard verification and payment settlement transactions are still not being comprehensively supported by information technology (Li et al., 2001; China Daily, 2001). This further eroded bankcard users' confidence in the system and impeded the expansion of bankcard usage. The situation was further aggravated by the banks operating their own dedicated electronic network, and the low level of sharing of ATM and POS facilities has made it very costly and inconvenient for the agents and the customers to adopt bankcard use (Zhang, 2000; Nelson & Leigh, 2001). Overseas experience shows that the evolution of ATM and POS networks appears to consist of five phases: proprietary, shared, multiple members, direct links, and universal (or global sharing). In this respect, China is at the proprietary stage, which was attributed to the technological incompatibility of equipment and the weak telecommunication infrastructure in the country. The absence of a strong coordinating force in network establishment and consolidation at the beginning, and the antiquated telecommunications infrastructure have been impediments to a unified payment network among the various banks. In the mid-1990s, a panel of 38 experts examined the status of the adoption of information technology within the financial system and pointed out that the main problem in the slow progression to an advanced level of technology adoption lies in the absence of coherent strategy and policy among the banks. Even though bank headquarters set standards and requirements, these were not consistent across the different banks (Jinrongshibao, 30/10/1995). The lack of a national direction in technology adoption strategy has led to incompatible technology applications. It was stressed by these experts that financial computerisation should be listed as a national strategy to realign adoption undertakings to ensure compatible technology applications. In 1996, the Central Bank began to alert banks to the problems of noninteroperable systems and encourage banks to move away from proprietary architectures for a more open software design that uses industry standard operating systems. In 1997, the banks located in the twelve cities (beachheads in the experiment phase) began to work towards an interoperable system for a unified ATM system (Shang, 2000). In 2001, the degree of network interoperability achieved was considered far from satisfactory by one of the Chinese bankcard authorities. Bankcard holders continue to face serious difficulty in areas where telecommunications infrastructure is inadequate (Liu, 2001).
The POS system has been beset by the problem of inadequate technology support since its beginning, as revealed in the following situations.
In areas where telecommunications infrastructure support is well developed, it has been reported that verification of a POS transaction takes ten seconds to process in China. However, cases of consumer complaints that verification processing times in China were at least 15 minutes, half an hour, or even half a day, have occurred (Li, 1995; Cai, 1995). In developed countries, a POS transaction usually takes less than 30 seconds and may even be faster with sophisticated technology. In China, time spent on processing a transaction paid by card via telephone could be equivalent to the amount of processing time for three to four cash transactions (Li, 1995). This discourages bankcard holders from relying on their cards for payment settlement and results in a low acceptance rate for bankcard usage.
The USA's maximum processing time for card payment settlement has been three days. In contrast, processing time is inconsistent and could be very long in China. It has been noted that an interregional card payment settlement transaction by means of a card in China could take 15 days or even one to two months to finalise (Deng & Qin, 1995). An intracity settlement transaction could take two to five days or, at times, six to seven days to finalise payment (Wang, 1995; Li, 1995). As a result, agents have been reluctant to accept payment by card because of the long period involved in the payment settlement process.
In the event of card loss, the prevention of unauthorised use is time consuming and tedious, especially in the less developed areas (Zhang, 2000). When the cardholder reports the loss, the notifying branch will transmit the information to headquarters via a telephone call or fax message. Specialised staff at headquarters will execute the instruction, normally either initiate notification to the various branches of the card loss through the telephone line or wait for the branches to call up for routine updating of details. This intensive process of notification could take ten days from the time the loss is lodged by the cardholder to the time the notification is received by the branches. This involves an unduly long period of time when compared to one-day notification time frames in an overseas country with developed information technology support systems (Fang, 1995). By the time the "blacklist" or the "hot card" list reaches the agents in China, half a month may have expired (Jiang, 1995). Apart from the long time frame involved, the process could be very costly to the parties involved. For the detection of fraudulent use of a card in the system, the fraud may be discovered after seven to thirty days because of the heavy reliance on the postal system for payment settlement (Zhang, 1995b; Liu, 1995; Ma, 1996). The long time frame exposes the bank, agent and the cardholder to the possibility of accumulative credit risk.
The proprietary architectures of the POS systems and the absence of open software design and industry standard operating systems have also resulted in duplicate resources for debit and combination card facilities (Yang, 1996; Zhang, 2000; Zhang et al., 2000). For example, a department store in Guangzhou had to install five different POS systems of different banks at each of its 36 checkout counters. Each unit requires an investment outlay of 8,500 yuan, which total 1.53 million yuan for all installations at the 36 counters. The banks commonly bear the cost of investment and installation, otherwise they face a problem in recruiting agents to accept their bankcards. If an interbank sharing facility was enabled for the POS set-up in this departmental store, the investment cost would only be 306,000 yuan, without duplication of resources and wastage of installation space and telephone lines.
The unreliable electronic payment system not only keeps the cardholder from using the system but also the agent from using the system or from giving cardholders an opportunity to use the system. POS agents avoid the use of the technologies, using the common excuse of equipment malfunction (Chen, 2000; Tang, 2002). This barrier erected by the agents reduces the consumer's exposure to the use of the technology (affecting trialability). For example, it was found that although there were 4509 cardholders to every POS system in Guangxi in 2000, 67.8% of the residents had no access to, and no opportunity to try, the POS system. This had resulted in a high number of dormant cards (Xiao, 2000).
Prior to April 1, 1996, the legislative structure was not able to provide sufficient protection to the card issuing bank, agent and cardholder in the event of fraud or breach of use (Zhang, 1995a; Chen, 1996). The cash management legislation was used as a guide for regulating market behaviour. In addition to the lack of knowledge in the use and operation of bankcard facilities and poor infrastructure support, cases of overspending and card fraud were on the rise. However, a majority of the default values consist of small amounts, less than 1,000 yuan. Because of the uncertain legal environment, the legal pursuit of such cases could cost a hundred times more than the accruing value and is uneconomical for the card issuing banks. In a number of instances, these banks have reluctantly become bearers of the losses, with actions confined to the recalling of card and revocation of rights to card use.
Legislation to govern the proper use of bankcards was formally implemented on April 1, 1996. The legislation eliminated many loopholes. The frame of reference for the proper use of a card and the penalty for infringement were specifically laid out in the legislation. The failure to repay overspent amount exceeding 5,000 yuan was punishable as fraud. This was considered a significant step towards achieving a stable environment for bankcard use. Although further steps have been taken by the legislature and the Central Bank in regulating the bankcard environment, further efforts are still necessary in defining the rights and responsibilities of the banks and cardholders.
Credit risk refers to risk, faced by the creditor, of the inability of debtor to generate enough returns to cover all expenditures and to continue running the business profitably. Credit risk can arise as a result of costly financial sourcing to discharge pressing payment obligations (Borio & Bergh, 1993).