to savvy issuers, but vastly different political and economic
considerations in various markets mean that issuers must tailor
their strategies to individual countries. Craig Vosburg,
regional business leader at MasterCard Advisors, outlines the
developed countries – or perhaps because of them – growth
opportunities in emerging markets continue to be high on the list
of priorities for many corporate executives.
where the numbers – particularly as they relate to China and India
– can be staggering. GDP growth in Asia as a region has outpaced
global GDP growth by 3.5 percent to 4 percent per year since the
beginning of the decade. While China and India have led the charge
(and dominated the headlines), much of the region has flourished,
with Asia (excluding Japan) now accounting for over 25 percent of
world economic output.
banking services, and in particular payments cards, is growing
rapidly among newly affluent customers and the growing middle
class. Growth in payments cards dollar volumes has increased an
average of 16 percent each year in Asia since 2002, driven in part
by underlying GDP growth but also through displacement of cash and
the rise in banked populations. Despite this impressive
performance, MasterCard Advisors estimates the region accounts for
only 14 percent of global payments revenues, suggesting substantial
room for further growth.
payments industry are substantial, conditions vary significantly by
country – complicating issuers’ decisions about whether and how to
enter these markets. For example, Taiwan is among the most
competitive payments markets in the world. In less mature
economies, such as the Philippines and Indonesia, card products are
just beginning to move beyond the urban affluent, opening
potentially large new growth opportunities. To maximise profitable
growth in a region that is home to countries with vastly different
political, cultural, and economic profiles, companies must be
prepared with strategies tailored to the unique characteristics of
Size does matter
As with most questions of strategy, the ‘size of the prize’ is an
important starting point. With an estimated profit pool for card
issuers of just under $3 billion, Asia represents a sizeable
opportunity. But such statistics about the profits to be gained can
be misleading. Extracting those earnings requires issuers to
develop deeper insights into cards market size, growth potential,
and competitive dynamics.
considering the cards market relative to the size of the overall
economy. India, with its 1.1 billion people, has a cards market
today only a few times larger than Singapore’s, despite the
latter’s much smaller population of only 4.5 million. While this
will certainly change in the years ahead, in the near term there
are clear implications related to sizing the overall profit
potential of the cards business.
Driving profit growth
Many factors beyond market size and growth influence profitability
in the credit card business. In 2006, these combined to drive
substantial disparities in return on assets (ROA) across the region
– ranging from negative ROA in some markets to in excess of seven
percent in others. When looking across Asian markets, three
characteristics stand out as differentiators: government
regulation, the competitive environment, and customer segment
composition and behaviours.
• Government regulation
Perhaps nothing has greater influence on cards sector profitability
than the efforts of local governments to regulate the industry. As
has been the case elsewhere in the world, governments exert
influence by setting limitations on cardholder solicitations,
minimum income criteria, maximum credit limits, minimum payment
requirements and interchange caps.
managing card market activity by limiting access to the market (as
in Indonesia, with minimum income requirements, maximum credit
limits, etc) and controlling the cost of credit (as in Taiwan, with
interest rate caps, minimum payment requirements, etc). These
factors combine to drive significant differences in the revenue
(and profit) per customer in markets across the region.
• Competitive environment
Also important in defining the cards market profit opportunity is
the nature and intensity of competition among existing issuers. As
an example, Taiwan has over 45 active issuers, with the top five
controlling just under half of the market. By contrast, Korea (a
market nearly eight times larger than Taiwan), has roughly 10
issuers, with the top five controlling nearly 90 percent of the
sheer numbers of competitors and market concentration – may be most
relevant to issuers considering entry into Asian markets and their
choice of growth strategies (organic vs. inorganic, for example).
But it also has considerable bearing on revenues (annual fees,
interest rates, etc) and costs (funding acquisition campaigns,
rewards programmes, etc.).
competitors leverage their unique strategic assets in the market.
For example, multinational issuers have historically leveraged
strong analytics and risk management skills to selectively target
high-profit customer segments. On the other hand, domestic banks
are increasingly taking advantage of their strong distribution
networks, large and loyal customer bases, and more robust customer
information to make strong inroads into the cards market.
domestic bank that has quickly and effectively leveraged local name
recognition, distribution, and a loyal customer base to build a
consumer banking business from scratch. Indeed, ICICI Bank’s retail
banking division did not exist in 2000. By 2001, it reported a
customer base of three million. As of the end of 2005, the number
had grown to 13.5 million. During the same period, ICICI leveraged
these same assets and capabilities to become the leading cards
issuer in the Indian market, very quickly establishing itself as
the scale player in a rapidly growing market.
• Customer segment composition and
Different consumer segments present diverse growth opportunities,
product options, and profit dynamics. That is because spending and
payment behaviours vary significantly based on economic, cultural,
and demographic factors across the region.
market research suggests the number of people considered to be
affluent is rising significantly across Asia. For example,
MasterCard estimates the middle class in China (those with greater
than $5,000 in annual income) will increase from 70 million in 2005
to 250 million by 2015. This growing affluence is quickly
translating into increased consumer spending, as demonstrated by a
50 percent increase in domestic sales of luxury goods in China in
2006 from the previous year. Similar trends are evident across much
of the region.
key driver of issuers’ profitability, cardholder payment behaviours
are perhaps even more critical. This is heavily influenced by
economic factors, as well as cultural and demographic ones.
Differences can be significant, with cardholders in China
exhibiting average balances per account of less than $100 versus
more than $700 in Malaysia. With revolvers accounting for more than
half of the net earnings for issuers in many Asian markets, finding
the right customers is critical for success.
What is an issuer to do?
Asian markets may be among the fastest-growing consumer credit
markets in the world, but banks must proceed with caution as
pitfalls to profitable growth abound. While disparities in economic
conditions and variability in social and business norms and
regulatory requirements occur everywhere, the Asian landscape
presents particular challenges to credit card issuers. Based on our
experience in these markets, four core competencies are
distinguishing market winners and driving superior returns on
investment in their cards businesses:
• Build information management and analytics
The cards business is one of the most information-rich lines of
business. Cardholders use their payments cards many times each
month – in some cases multiple times each day – with each
transaction registering a merchant, merchant category, transaction
value, location, time, etc.
to identify clusters of customer needs and behaviours, and
tailoring account management accordingly, will play key roles in
determining which issuers win and lose in the future. This applies
equally to marketing/campaign management initiatives – where
analytics will support the delivery of targeted, cost-effective,
and high return acquisition and usage offers – and risk management
– where similarly targeted analytics will support differentiated
line management, authorisation, and collections strategies.
• Strengthen risk management expertise in parallel with
Credit risk management in many Asian markets is fraught with
challenges, including limited availability (and even more limited
use) of credit bureau data, limited customer histories,
still-evolving credit-scoring environments, and challenges related
to contacting (or finding) customers. Leading issuers in the region
are investing heavily in building risk management capabilities,
with a focus on profit maximisation.
relevant data into decision-making processes (including available
bureau data); systematising risk acceptance and decision-making
criteria throughout the customer lifecycle; applying segment and/or
customer-specific approaches in the management of credit limits,
delinquencies, and collections; and applying rigorous ‘post-mortem’
analysis to identify root causes of unsatisfactory risk
• Develop deep product management expertise
As Asian cards markets continue to mature, product differentiation
will be ever more important in reaching the right customers in an
increasingly crowded marketplace. Broad, product-based segmentation
(such as Platinum or Gold) will be replaced by more granular
sub-segments, each exhibiting unique needs, behaviours, and
economics. Winning issuers will increasingly focus on generating
deep customer insights through market segmentation, innovative
customer-focused product design, and a laser-sharp focus on product
economics and execution of product strategy.
• Optimise cardholder acquisition and portfolio management
Acquisition and portfolio management is again largely an issue of
making best use of available data to drive improved business
performance. This applies across the entire customer lifecycle,
from acquisition targeting and channel management to executing
activation, usage, balance building, and retention programmes, all
with a clear focus on maximising return on investment. In a sense,
this is where everything comes together through the use of data to
understand the likelihood of a customer wanting (and qualifying
for) a particular card product, how best to reach that customer in
a cost-effective way, and how to subsequently maintain a high level
of customer engagement and activity to both drive current
profitability and generate the ongoing stream of information
required to ensure future success.
markets, successful issuers will need to maintain a steadfast focus
on profitability – not just the number of cards issued. While the
profit pool for issuers in the Asian cards market is substantial
and growing, the opportunities and challenges posed within
individual countries are unique. Despite the variance from one
market to another, there are core competencies that will ultimately
separate the winners from everyone else – competencies in which all
committed issuers would be wise to invest: use of information and
analytics to identify the most promising opportunities and
effectively target them; investment in building risk management
capabilities to maximise profitability; use of segmentation to
drive product differentiation; and continuous optimisation of
portfolio management approaches to increase profitability and
ensure ongoing success.