‘The credit card profitability
challenge’ was the theme for this year’s Asian Cards User Group’s
annual conference, held in Siem Reap, Cambodia in early August
2007. As Asian card markets become increasingly competitive, the
challenges facing them intensify and require new strategies to
combat.

The 15th annual Asian Cards User Group (ACU) Conference was
attended by over 100 delegates from several countries across
Asia-Pacific. This year the group tackled the challenges facing
credit card issuers in the region as competition increases and
pressure on margins accelerates. The two-day roster of speakers
from the region, the US and Europe addressed this issue from
several different angles, and some common themes emerged.

After a welcome from Charles Vann, deputy general manager of
Cambodian financial services firm Canadia Bank, who is also the
chairman of the Association of Banks in Cambodia for 2007, Joanne
Robinson, MD of Cards and Payments at VRL KnowledgeBank, was
presented to the delegates. Speaking about meeting the marketing
challenges of cards in competitive markets, she drew from trends
and experience from mature markets around the globe to suggest ways
to combat the competition and remain profitable. The focus on
acquisition in the Asian markets was challenged as a strategy and
attendees were encouraged to shift spending and priorities to
activating, retaining and maximising the profitability of credit
card customers. Segmentation, multiple channel strategies, product
innovation and partnership marketing were all highlighted as
successful competitive strategies in mature markets. New trends,
such as green credit cards and super premium cards, were put forth
as strategies to adapt for the individual markets.

SEPA challenges

The delegates next were introduced to challenges facing issuers
in other regions with an overview of the Single Euro Payments Area
presented by Eric Maurel, market managers director of payment
processor Atos Worldline, a subsidiary of the Atos Origin Group.
The complexity of European market is similar to that of the many
markets in Asia. Maurel stated the movement towards SEPA was driven
by “the powerful 15 percent of retailers that generate 80 percent
of domestic transactions and want to reduce their bank fees”. He
described Europe as a “mass of processors and consolidation will
surely accelerate driven by SEPA”. It is expected that SEPA will
cause a “redistribution of the €30 billion [$41 billion] revenues
generated in e-processing”, Maurel concluded.

Japanese card consortium JCB, represented by managing director
Tsuyoshi Notani, presented its planned strategy for international
growth. While a leader in payments in its home market of Japan, JCB
has struggled to achieve significant growth in other markets. Its
new areas of focus will be Asian countries, particularly China,
accelerating the level of card acceptance in the US, Association of
South-East Asian Nation members and Europe, and expanding into the
Middle East through a new joint venture.

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By GlobalData

Co-branding

The subject of co-branding was discussed in many of the
presentations and was the topic of a break-out session later in the
day. Lim Kim Heng, managing director of Senheng Electric,
Malaysia’s largest electrical outlet chain, described how a bank
and a retailer can work together successfully to develop a mutually
beneficial and profitable co-brand partnership.

The co-branded card, issued by RHB Bank, is offered to members
of the chain’s loyalty programme. Uniquely in the Malaysian market,
RHB Bank charges an annual fee for the card. The card was
introduced to enhance the loyalty programme, not to form the basis
of the programme, as is generally the case. In just over one year
the PlusOne card now accounts for 14 percent of RHB’s credit card
sales. The need for a true partnership was stressed and Senheng and
RHB Bank appear to have got this one right.

The next challenge that was detailed was that of a major systems
migration, never an easy task for any organisation. Desmond Wong,
senior manager of RHB Bank, described its business case and
migration strategy for the CardLink version 2 system card payment
solution, and credits work from all levels of the project team as
the key success factor.

Converting data to profits was addressed by Vivek Agarwal,
regional sales director of IT solutions provider Saksoft, with an
emphasis on the four steps of profitability management: analyse,
strategise, implement and evaluate. Vivek challenged the issuers in
the audience by suggesting that they “fire some of your customers,
especially those that are untargeted and unprofitable”. The
challenges of profitability analysis that were described included
lack of awareness and skills, obtaining accurate customer
information, ability and desire to build a complete picture of the
customer across the company, doubts about results, the failure to
take into account the future profitability of the customer, and,
once an accurate picture is developed, what to do with the
results.

In a switch to the acquiring side of the business, Ben
Shaughnessy, client director of card solution provider Euronet
Essentis, highlighted the need for innovation to make acquiring
businesses profitable. Merchants have become more demanding over
the years and Shaughnessy outlined strategies to address market
requirements such as transparency, cross-border support and
multi-currency offerings. The need for a single view of the
customer, in this case the merchant, was emphasised, though it was
noted that this is a significant challenge for many organisations
but one that is necessary to understand profitability.

New unpublished research that had been conducted among affluent
consumers in 17 major Asian cities was presented by Cyrus Daruwala,
managing director of research company Financial Insights. This
presentation suggested that rewards programmes are becoming less
influential in a consumer’s choice of which card to use, and that
cards as we know them will eventually disappear, perhaps in as
little as five years. Wireless and mobile payments were cited as
the next mainstream payment tools and the success of some initial
trials of these technologies were used to support the theory.
Biometrics is another payment technology that is expected to
experience a significant increase in adaptation levels, according
to Daruwala.

Asia shares many of the challenges of other parts of the world
when it comes to credit card profitability. As markets develop,
these challenges will only intensify and knowledge sharing can
assist issuers to meet them.