During his ten years at GE Consumer Finance, Ridha Wirakusumah turned a money-losing business into a high-growth and highly profitable operation, and grew assets from $1 billion to over $10 billion. On his watch as head of banking for Asia, GE introduced over 100 new consumer finance products and derivatives, made three acquisitions and built a consumer finance franchise through high-profile partnerships with local and international financial institutions throughout the region, such as Bank of Ayudhya, Tesco and State Bank of India.
In his current role as regional business head for the Asia-Pacific consumer finance group at global financial services group AIG, Wirakusumah contends that AIG has a unique advantage in its insurance agency force.
In an interview with CI, he said: “The AIG Life division is in 13 markets and usually ranks number one or two in these markets. There are more than 20 million policyholders. In theory, AIG does not even have to go out and look for new customers as I can work with the agents to tap into the existing insurance customer base.” This is in addition to traditional channels currently utilised such as direct sales agents, telemarketing, branches and partners.
A more competitive market
He does not think that AIG’s consumer finance venture will be an issue with the many bancassurer relationships that the insurance side has with banks in the region. “I don’t think it is competing at all actually,” he asserts. “It is like AIG selling life insurance directly through their agents and through banks – these are two different channels.”
AIG’s advantage in distribution and customer base is key as “the consumer finance business is actually very commoditised. If you have a pretty good system and credit you can almost lend instantaneously because it is a lot easier to lend to one person than analysing the balance sheet of a company. Consumer finance is easier than corporate banking.”
Because of the commoditised nature, Wirakusumah reasons that “consumer finance in Asia is going to be a lot more competitive in the future. There is a lot more yield in consumer finance than corporate and a lot more banks are jumping onto the bank bandwagon. It will be harder to be successful in consumer finance.”
His strategy is thus to play on “the strength of our parent on the insurance side. We need to think of products that have some sort of protection on the insurance side.”
He added: “In 20 years’ time, the regular guy will always have three to four credit cards and given increased consumer sophistication, he will become choosier and concentrate on cards that give the best value. You don’t really care which bank the card is from. Cards will become more and more commoditised – everyone will need cards like they need toothpaste.”
Finite number of offerings
Scale is thus important in order to effectively execute strategies in this market scenario. “There is only a finite number of options in credit card offerings, so there will be a dichotomy between huge players who can plough in money for investments, and small players who are getting squeezed because a guy who has 2 million credit cards can do a lot more with a programme than a guy with 200,000 credit cards,” he said.
“I envision that there will be more and more consolidation in the consumer finance space unless the smaller banks are using cards only for their own pride. For example, in Hong Kong only a handful have more than 100,000 credit cards in circulation. It might not kill them but it might not get them anywhere either. Thailand is already crowded in the card market – not a lot of people have credit cards and the credit card penetration still has some way to go, but there are enough players in the market already.
“I think it is probably a safe assumption to say that if we were to survive in the consumer finance industry, you have to look at all tools possible, including inorganic growth.”
In his presentation at the recent VRL KnowledgeBank’s Cards and Payments Asia-Pacific conference in Hong Kong (see page 18), Wirakusumah highlighted that “partnerships are one of the ways to build scale, but it need not focus on distribution only. It could be any type of partnership, such as Deutsche Bank with ECS, which focuses on the back office and allows everything to be outsourced except underwriting.”
Presence in Asia
AIG Consumer Finance is currently in four Asian markets – the Philippines, Taiwan, Thailand and Hong Kong. It is a latecomer in the major growth markets in Asia, having opened in China last April, and has made two acquisitions in India since it received its finance company licence last October.
Commenting on AIG’s prospects in China, he said: “In China it’s hard. It is a very nascent market and we need to be a bank to be able to issue credit cards. There is also the foreign ownership limitation on local institutions. I think China’s growth in credit cards will be explosive and it will not be easy to get in, but at the moment credit cards are completely out of the question for us.”
Looking at the other Asian markets, he said: “In my view, Vietnam is pretty virgin territory. Taiwan and Korea are already saturated. Thailand is getting very saturated and there is some scope to grow in Indonesia and Malaysia. Japan is interesting on the credit card side and is not as penetrated as Korea. There is still some growth – not so much on cards but the change in behaviour from charge cards to credit cards.”
Wirakusumah foresees that there will be a lot of consumer spending in the next 12 months. According to the Chinese calendar, this is the Golden Boar year which is a good year for building families and getting married. “From that angle, there will be a lot of spending, sometimes reckless spending, to buy a new home or buy a new television set in Chinese-centric markets such as China, Hong Kong, Taiwan and Singapore. Consumers do not worry about money as there is plenty of credit – there will be a lot of reckless borrowing and reckless lending. So consumer finance players – beware! It is prudent to ensure that your credit risk and operations are spick and span,” Wirakusumah said.