credit card & merchant businesses nicholas l.a. kennett general manager cards & financing...

Credit Card & Merchant BusinessesCredit Card & Merchant Businesses

Nicholas L.A. KennettNicholas L.A. KennettGeneral ManagerGeneral Manager

Cards & Financing ProductsCards & Financing ProductsNovember 2001November 2001




The material that follows is a presentation of The material that follows is a presentation of general background information about the Bank’s general background information about the Bank’s activities current at the date of the presentation, 7 activities current at the date of the presentation, 7 November 2001. It is information given in summary November 2001. It is information given in summary form and does not purport to be complete. It is not form and does not purport to be complete. It is not intended to be relied upon as advice to investors or intended to be relied upon as advice to investors or potential investors and does not take into account potential investors and does not take into account the investment objectives, financial situation or the investment objectives, financial situation or needs of any particular investor. These should be needs of any particular investor. These should be considered, with or without professional advice considered, with or without professional advice when deciding if an investment is appropriate.when deciding if an investment is appropriate.

DisclaimerDisclaimer

OutlineOutline

• Credit card environment in Australia• Regulatory environment • Profitability drivers• CBA Card - Strategy and Vision• Delivering the vision• The future

Cards Environment in AustraliaCards Environment in Australia

• Highly competitive• Significant growth• Key players and market share • Consumers seeking convenience and security • Sophisticated payments environment• Ansett collapse• Re-regulation

Average Daily Number of Transactions for Month of May

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1993 - 94 1994 - 95 1995 - 96 1996 - 97 1997 - 98 1998 - 99 1999 - 00 2000 - 01

million

Cheques Direct Debit Direct Credit Debit Cards Credit Cards

Cheques

Direct Credit

Debit Cards Credit Cards

Direct Debit

Australian Payment TrendsAustralian Payment Trends

Source: RBA

Regulatory EnvironmentRegulatory Environment

• Worldwide focus• RBA designation of the ‘Schemes’

– developing standards • interchange fees • access regime to the credit card systems

– review expected in November 2001– consultation period – final decisions in early 2002

Possible Market Impact of Possible Market Impact of Regulatory ChangesRegulatory Changes

• Reduced interchange income to issuers

• Reduced interchange expense to acquirers

• Potential risk of ‘contamination’ of payments system

• Potential backlash to surcharging

• Higher cardholder fees

• Unequal position with “closed” schemes

• Less funding for loyalty

• Pressure on commercial cards

• Less technology investment

Business Impact of Potential Business Impact of Potential Regulatory ChangesRegulatory Changes

• Best placed institutions will have:– large portfolio– balanced issuing and acquiring profile– high ratio of interest/interchange income– low cost rewards programme– broad portfolio of merchants

Profitability DriversProfitability Drivers

• Card numbers• Spend/spend per card• Revolve rate• Margin and fees• Number of merchants• Number of ATMs• Merchant turnover• MSF• “On-us” transactions• Loss/Fraud rates

Issuing

Acquiring

CBA Cards - Vision and StrategyCBA Cards - Vision and Strategy

• Market share of profit

• Leverage customer base, distribution channel & scale

• Mono-line discipline with multi-product relationship

• Sustainable business model

• Integrated issuing, acquiring and ATM business

• Packaged offerings

• Focus on ROTE, service and alliances

CBA Cards - a Scale BusinessCBA Cards - a Scale Business

• 10m CBA Customers

• #1 in cardholders• #1 in merchant relationships• #1 in ATM terminals

• True Awards• Woolworth's Ezy Banking alliance • Partner relationships

Issuing StrategyIssuing Strategy• Focus on sustainable market share of profit

– acquisition, retention and activation programmes

– usage as a credit tool

– usage as a relationship tool

– NIM management

– loss management

– convergent business models

– loyalty costs

• CRM/relationship packaging

• Service

• Distribution management

Issuing ResultsIssuing Results

Credit Card Balances: CBA Market Share

15.0%

17.0%

19.0%

21.0%

23.0%

25.0%

27.0%

1997 1998 1999 2000 2001

RBA data ABA data

Credit & Fraud LossesCredit & Fraud Losses

1998-99 1999-00 2000-01

Fra

ud

(b

ps)

Cre

dit

(b

ps)

Mkt. aver.

Mkt. aver.

CBA AcquiringCBA Acquiring

• #1 market share

– 150,000 Merchants

– 4,000 ATMs

• 35% market share

• Growing at 25 %+ pa

• Key initiatives:

– Mobile

– E-commerce

• Low capital requirement

Acquiring Results - Market ShareAcquiring Results - Market Share

• Loyalty programs

• Convenience

• Corporate purchasing

• Revolving lines of credit

• Online purchasing

•Convenience - EFTPOS

•Security - no cash

•Control - own funds

•Global - ATM/EFTPOS

* Source : RBA 2001 reports

Credit Cards

21.6

29.9

10

20

30

1996 1997 1998 1999 2000 2001

%

Debit Cards

24.8

46.3

20

40

1996 1997 1998 1999 2000 2001

%

Acquiring StrategyAcquiring Strategy

• Leverage scale • Convergent opportunities • Leverage relationship with corporate

relationships• New acquiring markets• Support customer move to online

acquiring• Drive down losses

0.20

0.40

0.60

0.80

1998-99 1999-00 2000-01

Acquiring Fraud LossesAcquiring Fraud Losses

bps

The FutureThe Future

• Consumer - convenience and security• Merchant - convenience, security and price• Regulation - ongoing• Technology - Pin@POS, 3DES, 3D Secure/SPA, Chip

The winner will have a sustainable business model, options, strong distribution and scale

credit card & merchant businesses nicholas l.a. kennett general manager cards & financing...

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