Page 1 Credit Card Marketing Shariq Mukhtar Cards Business, Citibank May 2004.

Credit Card Marketing

Shariq MukhtarCards Business, Citibank

May 2004

Presentation Path

Part 1. Credit card basics

Part 2. Taiwan market

Part 3. Credit card marketing

Part 4. Cards financial dynamics

Credit card volumes worldwideAs of Sep 2003

• Credit card is a product with mass appeal.

Total cards: 1,500MM

58.5

583.5

802.5

Cards (Millions)

Visa

MasterCard

American Express

Total sales: US$4,000BN

$340

$1,196

$2,392

Volume (US$ Billions)

Visa

MasterCard

American Express

Why credit cards are so popular?

• Convenience of not carrying cash

• Peace-of-mind in case of emergency Time Place

• Power to make impulse purchases

• Cash Flow Management with revolving feature

Help meet Day-to-Day Needs of today’sfast paced life

Credit card can actually be better than cash

• Lost Card Liability, in case of loss of wallet

• Many Discounts available, due to cards company tie-ups with merchant outlets

• Rewards Points and/or Cash Rebate

• Purchase Protection

• Travel Insurance

• And more….

Target Market

Everybody who has income, does not have

negative credit history and is above certain age.

IssuingBank

Example of Credit Card Process FlowAssuming 2.5 % merchant discount and 1.5 % interchange fee

AcquiringBank

$ $ $

Visa MasterCard

SettlementHouse

Merchant Cardholder

$100 Charge

$100 Worth of Merchandise

$100 Bill $97.5

$ 98.5 $100 Charge

$100 Charge $ 98.5

$100Charge

Sharing of Merchant Discount

Cardholder Pays 100.0

Merchant gets 97.5

Acquiring bank gets 1.0

Issuing bank gets 1.5

Function of Issuing Bank

Issue card to qualified customers

Receive transaction information from Settlement House

Provide transactions and outstanding balance information to card members

Take credit and fraud risk on card members

Provide authorization

Accept transactions for credit to merchant account

Submit transaction information to settlement system

Provide statements and reconciliation to merchants

Take credit and fraud risk on merchants

Function of Acquiring Bank

Presentation Path





Cards - CIF/Sales – Taiwan Market

48%3.1

61%5.0

50%7.4

40%10.4

25%13

38%18

33%23.9

32%31.5

20%37.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

1995 1996 1997 1998 1999 2000 2001 2002 2003

(MM)Cards-In-Force

- Population: 23 million- 50% < 30 years- Households: 6.4 million

CAGR: 36.6%

42%272

38%374

31%491

22%598

20%720

7%770

14%874

16%1012

0

200

400

600

800

1000

1200

1996 1997 1998 1999 2000 2001 2002 2003

Sales Volume(NT$BN)

CAGR: 17.8%

Phenomenal Market Growth Due to Economic Growth as well as due to Cash-to-Card Shift

Transaction Volume US$ BillionCAGR 35%

1.5

17.7

29.9

1992 1998 2003

Cards in Circulation (Million Cards)CAGR 38%

1.5

10.4

37.7

1992 1998 2003

Source: MOF, McKinsey analysis, Press articles

Shift in Consumer Spending Habits…..

11.6

2.7

2003

1998

0.4

5.32003

1998

18%

2.2%

2003

1992

110

712003

1992

Percent Spending via Credit Card

Average Spending per transaction US$

Total Revolving Balance US$ Billion

Total Cash Advance US$ Billion

Changing orientation from cash payments

Dilution due to significant card issuance &smaller transaction

More receptive to revolving, younger segment

Significant growth in this demand, accessibility

IncreasedThirteen fold

IncreasedFour fold

Source: MOF, McKinsey analysis, Press articles, AC Nelson

Dramatic growth leads to declining profits & margins for overall industry...

• Many issuers

• Annual fee lost

• More plastic per customer

• More loyalty points

• Credit losses

Source: MOF, McKinsey analysis, Press articles

Today’s Credit Card Industry in Taiwan

• Singular focus on number of cards and CIF market share- Banks bid down each other’s prices - No fee, APR- Banks bid up each other’s costs - Gifts, rewards, co-brand partner costs- Taking each other’s customers instead of growing the industry - Balance

consolidation • Many issuers do not know they are losing money

- A “relationship gift” to existing banking customers- Inadequate infrastructure, poor service- No separate P&L, accountability

• Consumer behavior- Expect no annual fee, low APR, and premiums- Split usage among multiple cards, based on usage promotion

Presentation Path





Consumer Card Marketing

Strategic Planning

New Business Development +Goal Setting

Costs Mgmt +Performance Tracking

Distribution Sales Strategy

Program Design +Implementation

Market +Portfolio Research

Product Development +Risk Acceptance

Consumer Card MarketingDependencies (Internal)

Technology +Operation Infrastructure

Service +Quality

Datamining Capabilities +Portfolio Analytics

Funding Management +Financial Control

Risk Management

Authorization +Fraud

Consumer Card MarketingDependencies (External)

Industry FrameworkConsumer & Competition characteristicsCard Acceptance infrastructure

Associations GovernanceVisaMasterCardDiners, Amex

Local Regulatory Controls & LawsMOFCentral BankBankers Association

Legal - Penal codes for Fraud crimes

Operating Infrastructure of market

Target Segment Strategy

* High Penetration * High Penetration* High Sales

* High Penetration* High Profitability

* Low Revenues* Low Losses

* Low Penetration* High Revenues* High Losses

* High Revolving * Largest Size* High Penetration

* Low Sales/Account* High Losses

* Lowest Penetration* Low Profitability

18-24 25-34 35-44 >45

Age

H

M

L

Inco

me

Product Segment Strategy

18-24 25-34 35-44 >45

Age

H

M

L

Inco

me

Youth

Silver

Gold/New Platinum

Diamond Preferred/Diners

Channel Strategy

18-24 25-34 35-44 >45

Silver

Direct Sales, TM, DM, Take ones

Gold/New PlatinumDirect Sales, TM, DM, Internet,

Diamond Preferred/DinersUpgrades, Cross-Sell, DM, TM,

Branches

H

M

L

Inco

me

Age

DM - Direct mail

TM - Tele Marketing

YouthDirect Sales,

Student Sales,TO, Internet

Presentation Path





Customer Lifetime Cycle Management is Important

Acquisition /

ActivationPortfolio

Actions

Retention /

Anti-attritionReinstate

• 3 txn gift• Double rewards

pts• Balcon• Merchant offers

• Usage promotion• Installment

payment• Balance transfer• Upgrade• Cross sell

• Anti-attrition model

• Attrition offers• Anti-attrition team

• “Come home to mama” program

Credit Card Revenue Dynamics

Revolvers Transactors

Avg Net Receivables (ANR) Interchange Fee

Sales Annual Fee Other Fees

Accounts

• Interest Income• Cost of Funds• Credit Losses

• Cost of Funds

• Lost/Stolen Fee• Insurance Revenue• Late Fee

Summary

• Cards is a universal product with mass appeal.

• Industry continuous to grow- both due to economic growth and cash-to-card shift.

• Effective marketing requires understanding different segment dynamics and support with right product/channel strategy.

• Cards is a complex business requiring significant local/international infrastructure, and good understanding of risk management, analytics, and profitability dynamics.

• It’s a fun business to work in

Thank You!

Page 1 Credit Card Marketing Shariq Mukhtar Cards Business, Citibank May 2004.

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