Credit Card & Merchant Businesses - CommBank...The material that follows is a presentation of...
Transcript of Credit Card & Merchant Businesses - CommBank...The material that follows is a presentation of...
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Credit Card & Merchant Businesses
“Positioned for the future environment”
Nicholas L.A. KennettExecutive General Manager
22 March 2002
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The material that follows is a presentation of
general background information about the Bank‟s
activities current at the date of the presentation,
22 March 2002. It is information given in summary
form and does not purport to be complete. It is
not intended to be relied upon as advice to
investors or potential investors and does not take
into account the investment objectives, financial
situation or needs of any particular investor.
These should be considered, with or without
professional advice when deciding if an
investment is appropriate.
Disclaimer
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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
0
50
100
150
200
250
300
350
400
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Nu
mb
er
in T
ho
usa
nd
s
at end JuneSource: RBA Bulletin - Table C.5
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Debit & Credit Card Transactions
Source: RBA Bulletin - Table C.3
0
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
millio
ns
pe
r m
on
th
Credit Card Txns Debit Card Txns
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Value of Debit & Credit Card Transactions
Source: RBA Bulletin - Table C.3
0
2000
4000
6000
8000
10000
12000
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
$m
illio
ns p
er
mo
nth
Credit Card Debit Card
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Credit Card Balances Outstanding
Source: RBA Bulletin - Table C.1
0
10000
20000
30000
40000
50000
60000
70000
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
$ M
illio
ns
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 - ongoing
• Technology - Pin@POS, 3DES, 3D Secure/SPA, Chip
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Positioning for the future...
The winner will have a sustainable business model,
options, strong distribution and scale
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Credit Card & Merchant Businesses
“Positioned for the future environment”
Nicholas L.A. KennettExecutive General Manager
22 March 2002