Citibank: Launching the Credit Card in Asia Pacific

CASE REPORT

By:

Kamalnath

Jai Kumar

EXECUTIVE SUMMARY

The rapid growth of Asia-Pacific economy was incredible in several years. It could be a good chance for Citibank’s growth, so Citibank started branch banking business since 1978. Actually, performance of Asia-Pacific branches is not bad. In 1988, Citibank earned $69.7 million, but Citibank does not satisfy with its performance. Citibank’s goal is $100 million until 1990. For this goal, Citibank launched the most innovative service such as telephone banking service. And now, Citibank is planning to launch a new product credit card. Acquiring card customers means that Citibank has more opportunities to cross-sell product line: Auto Loans, Ready Credit, Deposits, and Mortgage Power, Citibank’s core products. But many of Citibank headquarters have doubts about the success of credit card service in Asia-Pacific. Because there are many regulations that prevent foreign companies with entering credit card service, and the market is undeveloped yet. In addition, there are most people with little credit experience. However, we are sure that Citibank’s credit card can succeed if they have good strategies.

SWOT Analysis

Strengths

Citibank pioneered telephone banking in much of Asia, and it is an attractive service for customers.

Citibank provides customers some services that none of its competitors could reproduce.

Weakness

Citibank imposed relatively high deposit requirements of its checking/saving customers.

Opportunities

The growth rate in Asia-pacific countries is increasing higher and higher recently.

There are very large population potential customers in some countries.

Threats

Economics in Asia-pacific countries are not as developed as United States and Europe.

Government’s regulations of some countries make barriers for Citibank.

ANALYSIS OF NON TARGETED COUNTRIES

Philippines

We think that this is not the time to launch credit card service. Because of unstable political situation, they did not achieve high growth rate. In 1988, they got 6.8% growth rate. Therefore, Citibank need to watch the situation of Philippines.

Taiwan

Again it is not appropriate to launch credit card services in Taiwan. Even though Taiwan government removed some regulation for credit card, there are still powerful regulations. Taiwan people have to obtain the card in Hong Kong, and Citibank should obtain authority from NCCC. Furthermore, Taiwan is cash-oriented country, so they would not use card very often.

Singapore

In Singapore, It is not good for launching credit card. Their political and economical situations are quite good. However, there are already many competitors like AMEX, Hong Kong bank, many local banks, and etc. Furthermore, the card market of Singapore is already saturated. Although Singaporean people earn much money and regulation is not very high, it is too late to enter the market.

Hong Kong

The competitors of Citibank’s credit card are American Express, Visas and Master Cards by local Hong Kong Bank and Standard Chartered Bank. The population is 5.6 million and the average annual income is $8,158. Thus, many people are qualified. In addition, Citibank's Classic and Gold Visas' had 140,000 users and held an 8.7% share of the credit card market and they remain many possible customers for Citibank. The condition of Hong Kong is good for Citibank.

India

In India, 80% of the Indians live in rural areas and the majority of the country's wealth is concentrated among a small group of urban households. Credit cards served as status symbols for Indian upper-middle-class consumers and consumers prefer to pay on time and not use the card. Hence, credit card service is not attractive to Indian people. Credit cards issued in India can be used only for local transactions in local currency and not for foreign-exchange transactions. 70% of distributed cards were used by lower-middle-class consumers whose annual income was from $2,000 to $6,000 and that amount of people almost uses bank cards. Therefore, it makes harder for Citibank to launch the credit card in India.

Indonesia

In Indonesia, 90% of people earn less than $2,000 annually, but 80% of Indonesian live in rural areas. Because of low income levels, many people are not qualified for membership,

and it limits the size of the customer severely. So, Indonesians perceive card ownership as a measure of high social standing. These all make hard for Citibank to launch the credit card in Indonesia.

RECOMMENDATIONS

SEGMENTATION

There are many countries in Asia Pacific region. Different people are living in different countries, and each country has their own market characteristics compared with other countries. Some countries have strict regulation of government; some countries are still poor countries; some countries are similar with the western countries. Therefore, some of them are desirable to start card service immediately and others later. So, are assuming some countries as a segment.

TARGETING

Australia

In Australia people want convenient services. Citibank has some unique services that can make their customers manage their finance more comfortable like telephone banking. It implies that Citibank’s card service has competitive power. Furthermore, average customers’ bank balance of Australian people is also high ie $24000. Therefore, a high deposit requirement to use the services might not be a big problem.

Malaysia

Malaysia regulates that only customers whose income is more than $9,000 can have credit cards. People whose annual income is from $6,000 to $12,500 are 20% of the total population. We guess half of them earn $9,000 to $12,500 per year. Hence, 25% of Malaysian people have above $12,500 as an income. Although competitors such as American Express exist already, Malaysian people have open mind to credit cards. Furthermore, American Express, the top company which serves the credit card, has only 15% of market share. Therefore, Citibank is enough serves the credit card, has only 15% of market share. In addition, the latest Malaysian growth rate is 8% higher than the average value of latest 5 years. It implies that Malaysia has a wonderful future for the credit card service.

Thailand

In Thailand 20% of Thai whose income is over $6,000 earn over $23,200 a year. The proportion is higher than other countries. (Except Indonesia [43%] and Singapore [25%]) and the proportion of owing cards of that group is just 12.5% of overall population. (India [10%] and Malaysia [10%] are countries that have lower proportion than Thailand) Also the literacy

rate of Thailand is low 89%. (Australia [99%] and Taiwan [90%] have higher rate) It means that Citibank can use the bind-ins that have lowest customer acquisition cost. (Bind-ins [$56.25 per customer] and Direct-mail[$112.5]). These figures show that Thailand is a good market for Citibank.

Hong Kong

The competitors of Citibank’s credit card are American Express, Visas and Master Cards by local Hong Kong Bank and Standard Chartered Bank. The population is 5.6 million and the average annual income is $8,158. Thus, many people are qualified. In addition, Citibank's Classic and Gold Visas' had 140,000 users and held an 8.7% share of the credit card market and they remain many possible customers for Citibank. The condition of Hong Kong is good for Citibank.

POSITIONING

There are 4 countries have high possibility to launch credit card service among the 10 countries, which are Australia, Hong Kong, Malaysia, and Thailand. Each country has different position, regulation and using of credit card.

Australia: the card market is already saturated. Naturally, if Citibank starts Greenfield market development, there will be very intensive competition. Therefore, acquiring other card service bank will be better. Furthermore, Australian people have negative attitudes toward joining and annual membership fee. Therefore, lower joining and annual fee than AMEX and Diners Club will be needed.

Hong Kong: there already have Citibank’s Classic and Gold Visas that hold an 8.7% share of the credit card market, but it shows very small amount of 462,840 customers from total customer 5,320,000. Credit Card customers use their cards for a variety occasions from daily trips to the grocery store to business travel to family vacations, so Citibank needs to concern more about these kinds of service’s cards. Half of the population use telephone, so telephone banking service can be successful in Hong Kong. Moreover, Citibank need to choose Greenfield market development, because if Citibank enter the market by acquiring an already existing card portfolio, the 5 bank could consider leveraging off an already developed operations infrastructure and trained human resources in the acquired company to consolidate the market share.

Malaysia: most people live in rural areas and the most important reasons for owning credit cards are convenience and extra credit (Exhibit 10). Because there is 60% of the population living in rural areas, so Citibank needs to operate 3 branches and many ATMs continuously. Consumers usually use their credit card for personal and family retail purchases, and with small group of corporate customers who used the cards for business travel and entertainment. Therefore, the service needs to focus on family and traveller mainly. In addition, advertising should be focused only in rural areas. By competing with American Express, providing high limit for using card is important.

Thailand: Citibank need to be concentrated on the structure of Thailand industry. Most profit of Thailand comes from tourists, and Thai’s savings are relatively and absolutely low. It might be a problem to launch credit card service. We think that Citibank should focus on foreigners (tourists) and high-income customers (over $23,000). In addition, we think that US dollar should be the standard currency for these credit cards.