More than
200 delegates met at VRL KnowledgeBank’s annual Cards and Payments
Asia-Pacific conference in Hong Kong to discuss profitability and
growth in the region’s cards and payment industry. Titien
reports on the main talking points

A range of senior card and payment industry executives from major
issuing institutions gathered in Hong Kong during March for VRL
KnowledgeBank’s Cards and Payments Asia-Pacific conference, at
which delegates were given a comprehensive overview of the current
state of the market in the region. Delegates were also treated to a
robust exchange of views over how to maximise growth and
profitability at a time when some industry players are licking
their wounds over failed product launches.

There were vocal critics of the state of the Asia-Pacific cards
industry, such as Alistair Scarff, senior director and head of
Asia-Pacific financial institutions research for Merrill Lynch. In
his opening presentation, he highlighted that “the credit cards
industry has had a chequered history”.

Scarff said: “It is staggering how banks have not learned from each
other and follow product after product, failure after failure. What
was once a golden child is now going through a difficult time. In
the market share grab, profitability of the cards market has been
eroded. How are you making money if acquisition costs are so

He stressed that the cards market is a scale game – a point echoed
by Ridha Wirakusumah, regional business head for consumer finance
at global financial services group AIG, in his closing

Farhad Irani, global product head for personal loans in Standard
Chartered, pointed out that there is a “need to re-examine the
business as the card industry has come of age. It is time to move
from market building to business building and from account growth
to profitability growth.”

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Irani’s strategies focused on the customer and a granular
understanding of the customer experience and needs. For example,
issuers “need to understand the fully loaded cost of a new
acquisition” to appreciate the importance of customer retention.
The first 100 days is crucial in a new relationship but retention
means higher profitability associated with the customer in the
longer term. The key to this is to “lend at the right price”, which
incorporates the riskiness of the portfolio and builds customer
loyalty across products.

A number of speakers also touched on the need to consider the
customer experience in launching a product. Antony Morris,
executive manager of strategic development and risk management for
Hong Kong’s contactless payment and transport card body, Octopus
Cards, highlighted that the rapid adoption of Octopus cards – 3
million cards in the first three months after its launch – was
largely due to the simple customer interface. Octopus cardholders
and front-line staff did not need to know the complexities of the
business or the technology, but had to be convinced that the card
was “simple, consistent, fast and reliable”, said Morris.

“In the payments industry, we get so wrapped up in the processing
that we lose sight of the human dimension – what is the customer
experience, how to manage the relationship. We should think about
who is buying the product in order to develop a successful
product,” said Scott Gallit, senior vice-president, global prepaid
products for MasterCard Worldwide.

For example, card activation is an area that has been
underutilised. In his presentation, Howard Davidson, managing
director of Card Protection Plan, said: “Card activation through
the interactive voice response system is the biggest marketing
opportunity that has not been used by banks. That is when customers
are engaged with the bank.”

The customer experience also extended to marketing activities. Nick
Reade, Australian banking group ANZ’s general manager for consumer
cards, shared his bank’s strategy of communicating to the customer
by adopting a friendly and humorous tone in advertisements.
According to Reade: “People do not do banking in their dreams, they
do it in their nightmares. We addressed the customers’ issues of
security and service through our marketing

Asian commercial cards market 2006


The other main theme that ran through the different sessions was
the necessity of innovation in the cards and payment industry to
grow profitability for issuers in the current environment. TS Anil,
Citibank’s regional head of card products and marketing, urged card
issuers to look for fresh areas to innovate. “It is fine to look at
investing in sustainable innovation but disruptive innovation is
where the money is,” he said.

Innovation is not just in the card design but also in different
aspects of the card which have been previously ignored. Citing his
experience at US issuer Capital One, Anil said: “The amount of
value that pricing innovation can generate has been so enormous
that it required a whole team just focused on pricing. In addition,
innovation in underwriting is fantastic because it goes straight to
the bottom line. The entire ethos of the company was about testing
and learning.”

Distribution has also moved beyond the traditional channels of
branches, call centres and the internet into insurance agents.
Issuers were urged to partner with telecommunication providers as
mobile phones are now more ubiquitous than credit cards.

Product innovation went beyond credit cards into new product areas
such as debit, prepaid and commercial cards. Ken Howes, director of
payment strategy company Edgar, Dunn & Company, drew the
delegates’ attention to profitability in debit. Howes stressed that
debit cards will “continue to change the payments landscape in the
Asia-Pacific region” with the growth of international
network-branded cards and establishment of a pan-Asian debit
scheme. However, he pointed out that debit card profitability “has
not been the key objective for most banks” and “in many markets,
debit cards have been issued free of charge to the consumer as part
of the current account proposition”. The card is also viewed as a
commodity in many markets.

Though debit card profitability is more complex than credit card
profitability, revenue growth can be attained through better
segmentation, tariffs on a cost-plus basis and active product
development such as payroll debit cards or linking with other
applications such as transport.

Keen interest in prepaid

Prepaid cards is an area on which a large number of the Asian card
issuers are keen. Delegates heard that many prepaid card programmes
in the region had failed to take off in the way that they had in
other markets.

“Identify low-hanging fruits. I am a great believer in starting
small – it is better to start with a small success than a big
failure. There are prepaid products that are easy to understand and
implement such as gift and travel cards,” said MasterCard’s

He cited a MasterCard survey that “nine out of ten respondents
would prefer to get a MasterCard gift card than a store card, and
eight out of ten would prefer to receive gift cards than a present
of similar value”.

Thomas Beck, managing director of Swiss Bankers Travel Cash, a
prepaid travel card, shared his experience in launching a prepaid
travel card in the Swiss market. The card has seen exponential
growth in loading volume from $28 million in 2003 to $470 million
in 2006, and is distributed through bank branches and exchange
officers. Beck said: “Travel Cash is not a new product. It is
another form of the travellers’ cheque with a proven track record
spanning a century. The key benefit of safety while travelling
remains unchanged. The switch from paper to card, however, makes it
much more user-friendly and attractive. The product positioning is
simple and clear. It addresses the needs of the customer, not
necessarily those of the bank.”

According to Gallit, issuers considering prepaid should “look for
leveraged sales and distribution opportunities, particularly in
replacement products, and assess what customers you serve that
manage significant numbers of disbursements or consumer

As consumer lending margins are getting thinner by the minute in
many markets in Asia, delegates and speakers explored a previously
ignored segment – the corporate customer base.

Grant Halverson, managing director of consulting company McLean
Roche, highlighted that commercial cards do not have the regulatory
scrutiny or competitive intensity that consumer cards have to bear.
Commercial cards interchange rates, for example, have not been
regulated even in markets where consumer cards interchange has been
driven down. Hence, issuers will have a freer hand in setting fees
and rates, making the profit margins highly attractive. Halverson
estimates the size of the Asian commercial cards market to be at
$1.45 billion, with significant potential given the number of small
businesses in the region.

Small businesses have been rejected for business loans and are
running their businesses on consumer loans – a development that the
speakers in the commercial cards session noted. It is thus better,
they reasoned, to understand the cardholder from a small business
perspective and price accordingly, rather than a consumer credit

However, Halverson cautioned that it is a sales-driven product and
not marketing-driven, as are consumer cards. The issuer would thus
need to be skilled in making business-to-business sales.

Emerging markets

Strategies for entering emerging and developing markets in Asia
were also discussed. While Scarff pointed out that “the credit card
is a great arsenal in entering the market”, he was sceptical of
importing foreign market practices into Asia’s emerging markets. He
asked: “How can you build learning from the likes of MBNA and
Providian, that are extremely data-intensive, into markets where
you are lucky if the local credit bureau gets your name and city

Trevor Laight, HSBC’s senior vice-president for consumer credit
risk Asia-Pacific, advocated a proactive approach to regulators in
these markets. “For example, in Indonesia there is no consumer
protection, but it will not be long before the regulators look at
other markets and put a cap on card pricing, for example. The way
to handle that is for us to initiate the process by establishing
customer protection laws and start pricing according to risk. If
you don’t act proactively in emerging markets, there will be a
bigger repercussion.”

The developments in the Australian market could also be used as a
guide for the path of progress in other Asian markets. Stephen
Karpin, head of cards for Australian banking group Westpac Banking
Corporation, said that the regulatory policies in Australia have
been a catalyst for change, as issuers are forced to revisit their
profitability strategies as the interchange regulation “exposed the
unprofitability of the transactors”. He stated: “Analytics and
information will determine who will succeed.”