For $880m, National Australia Bank (NAB) plans to increase its credit card market share by taking over Citibank’s retail business in Australia. While the acquisition will make NAB the second-largest credit card provider in the market, it is a strong indication that the market is becoming less profitable. Only issuers that can handle very large volumes are able to keep their business going, as profit margins are being squeezed.
Based on data from GlobalData’s Payment Cards Analytics, Citibank had approximately 10% of the credit card market share in Australia by transaction value in 2010. In the decade that has followed, Citibank has struggled to achieve much in the way of significant expansion in the market, even though the transaction value for the entire market grew by 26.7% between 2010 and 2020 from $175.9bn to $222.78bn.
For the 10 years to 2020, Citibank’s value of transaction market share hovered just below 10%, settling at 9% by the end of 2020. Although the credit card market has expanded, the nature of the payment market in Australia has made it very difficult for an entity such as Citibank to continue competing.
Over the past decade, competition in the Australian payment environment has intensified. Startups and fintechs came and disrupted the market with alternative payment options. As a result, credit card issuers across Australia were forced to reduce their profit margins. The market saw credit card benefits being reduced over the years unless consumers were willing to pay a higher fee to maintain them.
To operate in the current environment, an issuer has to operate either with less cost or at a very low profit margin but with a high enough business volume to remain sustainable. The acquisition of Citibank by NAB resulted from the intensified competition. Having just stayed afloat in the Australian market, Citibank decided to exit, with NAB’s acquisition increasing the volume it holds in the market in order to maintain its own profitability. As consumer markets around the world tighten up, we should expect to see further consolidation in the credit card space.
This article was written by Arnie Cho, Senior Analyst, APAC Payments, GlobalData