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Credit Card & Merchant Businesses “Positioned for the future environment”
Nicholas L.A. Kennett
Executive General Manager
22 March 2002
Credit Card & Merchant Businesses Positioned for the future - - PowerPoint PPT Presentation
Credit Card & Merchant Businesses Positioned for the future - - PowerPoint PPT Presentation
Credit Card & Merchant Businesses Positioned for the future environment Nicholas L.A. Kennett Executive General Manager 22 March 2002 Disclaimer The material that follows is a presentation of general background information about the
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Outline
- Cards Environment in Australia
- Regulatory Environment
- CBA Response
- CBA Cards - Strategy and Vision
- The Future
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Cards Environment in Australia
- Highly competitive
- Significant growth
- Key players and market share
- Consumers seeking convenience and security
- Sophisticated payments environment
- Re-regulation/competitve dis-equilibrium
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Growth in EFTPOS Terminals
50 100 150 200 250 300 350 400 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Number in Thousands at end June
Source: RBA Bulletin - Table C.5
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Debit & Credit Card Transactions
Source: RBA Bulletin - Table C.3 10 20 30 40 50 60 70 80 90 100
May-94 Nov-94 May-95 Nov-95 May-96 Nov-96 May-97 Nov-97 May-98 Nov-98 May-99 Nov-99 May-00 Nov-00 May-01 Nov-01
millions per month
Credit Card Txns Debit Card Txns
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Value of Debit & Credit Card Transactions
Source: RBA Bulletin - Table C.3
2000 4000 6000 8000 10000 12000 M a y
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4 N
- v
- 9
4 M a y
- 9
5 N
- v
- 9
5 M a y
- 9
6 N
- v
- 9
6 M a y
- 9
7 N
- v
- 9
7 M a y
- 9
8 N
- v
- 9
8 M a y
- 9
9 N
- v
- 9
9 M a y
- N
- v
- M
a y
- 1
N
- v
- 1
$millions per month
Credit Card Debit Card
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Credit Card Balances Outstanding
Source: RBA Bulletin - Table C.1
10000 20000 30000 40000 50000 60000 70000 M a y
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4 N
- v
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4 M a y
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5 N
- v
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5 M a y
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6 N
- v
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6 M a y
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7 N
- v
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7 M a y
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8 N
- v
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8 M a y
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9 N
- v
- 9
9 M a y
- N
- v
- M
a y
- 1
N
- v
- 1
$ Millions Advances Outstanding Limits Outstanding
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Regulatory Environment
- Worldwide focus
- RBA concerns
– “collective setting of interchange fees - rigidity, lack of transparency and absence of formal methodologies” – “inefficiency of credit card pricing to cardholders, reinforced by „no surcharge‟ rules” – “lack of competition in credit card market and between payment networks more generally”
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RBA‟s position
- RBA proposed reforms
– cost based methodology for interchange fees – abolition of „no surcharge‟ rules – new category of participants
- Submissions to RBA closed 15 March 2002
- Three month consultation process
- Final decisions mid 2002 (indicative)
- Implementation late 2002 / early 2003 (indicative)
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CBA‟s response
- RBA‟s proposals will not result in net public benefits
- RBA‟s interchange fee cost categories are unjustifiably
narrow and should include:
– interest free period – costs that are common to „on-us‟ and „not-on-us‟ transactions – portion of statementing, remittance processing and collections costs – return on capital – cost of implementation and compliance – GST on interchange fee itself
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CBA‟s response (cont.)
- Abolition of „no surcharge‟ rules unnecessary -
regulated competitive disadvantage
- New participant proposals are incomplete - draft
prudential standards are yet to be developed Regression of Australia towards a cash based society??
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Possible impacts of regulatory reviews
- Reduced interchange income to issuers
- Reduced interchange expense to acquirers
- Potential risk of „contamination‟ of payments system
- Higher cardholder fees
- Reduced investment
- Less funding for loyalty
- Regulated competitive disadvantage with “closed”
schemes
- Pressure on commercial cards
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Consumers commence migration to AMEX
Interchange
Closed versus open loyalty schemes
MSF
Merchants express dissatisfaction with AMEX MSF Overtime, AMEX MSF
AMEX Profit or higher fees / Loyalty
AMEX Response / Impact “a long and uncertain time” after open scheme impact
Cardholder Fees Loyalty
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Winners in the new regulatory environment
- Winners will have:
– scale – balanced issuing and acquiring profile – high ratio of interest/interchange income – low cost rewards programme – broad portfolio of merchants
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Profitability Drivers
- Card numbers
- Spend/spend per card
- Revolve rate
- Margin and fees
- Number of merchants
- Number of ATMs
- Merchant turnover
- MSF
- “On-us” transactions
- Loss/Fraud rates
Issuing Acquiring
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CBA Cards - Vision and Strategy
- Market share of profit
- Leverage customer base, distribution channels & scale
- Mono-line discipline with multi-product relationship
- Sustainable business model
- Packaged offerings
- Focus on ROTE, service and alliances
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CBA Cards - a scale business
- 10m+ CBA Customers
- #1 in cardholders
- #1 in merchant relationships
- #1 in ATM terminals
- True Awards
- Woolworth's Ezy Banking alliance
- Partner relationships
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Issuing strategy
- Focus on sustainable market share of profit:
– acquisition, retention and activation programmes – usage as a credit tool – usage as a relationship tool – NIM – loss management – loyalty costs – convergent business models
- CRM/relationship packaging
- Service
- Distribution management
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Acquiring Strategy
- Leverage scale
- Leverage low capital requirement
- Convergent opportunities
- Leverage corporate relationships
- New markets
- Support customer move to online
- Drive down losses
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The Future
- Consumer
- convenience and security
- Merchant
- convenience, security and price
- Regulation
- ngoing
- Technology -
Pin@POS, 3DES, 3D Secure/SPA, Chip
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Positioning for the future...
The winner will have a sustainable business model,
- ptions, strong distribution and scale
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Credit Card & Merchant Businesses “Positioned for the future environment”
Nicholas L.A. Kennett
Executive General Manager
22 March 2002