Citibank Credit Card in Asia Pacific

Launching the Credit Card in Asia Pacific Ankit Bhardwaj Apaar Malik Neha Sharma Shashwat Bhanti Sidharth Shah Introduction ? ? ? ? ? ? Citibank, a major international bank, is the consumer banking arm of financial services giant Citigroup. Citibank was founded in 1812 as the City Bank of New York, later First National City Bank of New York. Citibank has retail banking operations in more than 100 countries and territories around the world. Founded in 1812 as the City Bank of New York, ownership and management of the bank was taken over by Moses Taylor, a protege of John Jacob Astor and one of the giants of the business world in the 19th century. In the 1960s the bank entered into the credit card business The card, known as â€Å"The Everything Card†, was promoted as a kind of East Coast version of the Bank Americard. ?Products: ? ? ? ? ? ? ? ? ? ? CitiOne Account Mortgage Power Citibank Auto Loan Citibank Ready Credit CitiGold Service Citi Phone Banking ATM Business Banking Citibank NRI Business International Personal Banking Citibank ·s presence Africa Europe Middle East Central America South America North America Asia Citibank ·s Net Income till 2008 Citibank ·s Assets/Liabilities ratio *The company is financially strong Case Introduction Credit Card Functioning Years in which Citibank entered countries. Population statistics Economic statistics Manager ¶s Opinion. ? Credit Card Functioning Card holder makes purchase at merchant Merchant submits transaction to merchant bank or acquiring company Cardholder ($100) Merchant ($100) Merchant Bank or Acquiring Company ($97) Credit issuer bills card holder for total of Transactions made in month ($100) Card holder makes full or partial payment to the card issuer (minimum to $100) Merchant bank or acquiring company reimburses merchant less merchant service charge Interchange network reimburses merchant Bank for amount of Transaction less interchange fee($98. 50) Merchant bank or acquiring company submits transactions to interchange network ($100) Credit Card Issuer $98. 50 ($100) Interchange Network ? Years of Citi Bank ¶s Entry in Asian Countries Hong Kong (1902) Taiwan (1964) Australia (1965) The Philippines (1902) Guam (1969) Singapore (1902) India (1902) Malaysia (1904) Indonesia (1918) Thailand (1967) Korea (1967) Population Statistics 797 300 800 300 250 200 167. 7 150 Population(In Millions) Urban Population(In Millions) 100 69 50 16. 514 0 5. 6 5 42 31 16. 9 6 2. 7 3 19. 8 14 11 61. 9 55 Countries Economy 12 11 9. 7 9. 8 8. 7 8 8 7. 6 7. 37. 4 6. 8 6 4. 8 4 4 3. 8 Growth Rate(In percentage) Inflation(In percentage) 8. 1 7. 3 10. 8 10 2 2 1. 5 1. 2 0 Manager ·s Opinions Bob Thornton(Country Manager- Indonesia) -> History of poor consumer payment on installment debt. -> High levels of fraud in the financial sector. > Legal infrastructure in inadequate. -> Small market for card product but a potentially large population of 180 mio. ? Dave Smith(Country Manager- Singapore) -> Small 2 mio population. -> Saturated card market with American Express. -> Late entry may result in losing money. ? Jaitirth Rao(Country Manager- India) -> Very large country with poor infrastructure. -> It ¶s a dog and delay it. ? ? Jeannine Fa rhi(Recently moved from USA to Asia) -> Poor implementation may lead to huge losses. -> Asian countries suffering from inefficient postal services. Launching the Card Market Entry Cost Card Business Operation Economics Customer Acquisition Success Probability Dollar Vs Local Currency Central Data Processing Focus on Existing Business Direct Mail Infrastructure Problem Market Entry Cost Green Field Market Development Direct Mail Take-Ones Direct Sales ¶ force Bind-Ins Market Acquisition Facilitates quick entry into market. Easily leverage existing Operations infrastructure and Human Resources in order to consolidate the market share. Choosing of right bank very critical. Very critical to manage the acquired organization ¶s workforce to match up Citi bank ¶s standards. Very difficult to divest in case of calamity. Cost implications in trainings. Card Business Operation Economics Setting a proper business Joining Fee. ? Setting a proper business Annual Fee. ? Right price to be set for Citi Bank ¶s credit card. ? Options to maintain a balance between Joining Fee and Annual Fee. ? Customer Acquisition Success Probability Prospects Reached 300000 2000000 30000 3000000 5330000 Response Number of Qualified Rate(%) RespondantsRespondants Respondants 2 1. 5 50 1 6000 30000 15000 30000 81000 4000 10000 10000 10000 34000 Card Holders 3200 8000 8000 8000 27200 Channels Direct Mail Unit Cost($) 1. 5 Take Ones 0. 25 Direct Sales 18000/Sales force person Bind Ins Total 0. 15 Only 0. 51% of success rate Dollar Vs Local Currency Advantages of Dollar as currency ? Disadvantages of Dollar Dollar would strengthen against the local currency due to its global usage. ? Extra charges for currency conversion. ? Fluctuation of exchange rate each day will hurt customers free expenditure. ? It is a global currency which is accepted everywhere. ? It is easily convertible at any bank. ? Paying in Dollars is treated by some people as a status symbol. Existing systems using Dollar as base currency and replication will not be difficult in other countries. Central data Processing Would slow down system response. ? System developers will be cut off from local markets. ? Local resources could be upgraded instead of spending on a new Centralized System. ? Focus on existing business Managers Advice in Asia pacific Focus on Existing Business Since lack of talent poo l available in the region Lack of Infrastructure to support such IT enabled product. Direct Mail Infrastructure Problem Postal Services is the backbone for Card delivery. Postal Services in Asia Pacific experience not satisfactory. ? Poor Logistics will only lead to dissatisfied customers. ? Business Problems ? Citibank wondered whether they could adopt a mass-market positioning to acquire enough credit card customers and still maintain its upmarket positioning with the current upscale branch banking customers Pricing the card too low would conflict with Citibank ¶s stated positioning however pricing it too high might mean low customer acceptance Citibank ¶s management were concerned that consumers ¶ attitudes and credit card usage patterns differed by country ? Country Profiles Australia Strengths ? Citibank considered as a Global Bank. ?Citibank making profits worldwide. ?Strong Financial backbone to launch a new product. Weakness ? Hold of Local Banks is very high. ?Austral ia is a saturated market Opportunity ? Western based developed economy ? AMEX and Diners club reputation is low ? High usage of credit card for travel and entertainment. Threat ? Hold of Local Banks is very high. ?Australia is a saturated market ? Lucrative offers already in market Hong Kong Strengths ? Citibank considered as a Global Bank. ?Citibank making profits worldwide. Strong Financial backbone to launch a new product. Weakness ? Hold of Local Banks is very high. ?Hong Kong is a saturated market Opportunity ? AMEX and Diners club reputation is low ? Rapid Industrialization. ?High annual average income. ?Active use of credit card Threat ? Hold of Local Banks is very high. ?Lucrative offers already in market. ?Hong Kong is a saturated market India Strengths ? Citibank considered as a Global Bank. ?Citibank making profits worldwide. ?Strong Financial backbone to launch a new product. Weakness ? 80% Population is in rural areas. ?Card acceptance is low. Political corruption is hi gh. ?Privatization not encouraged in 1980 ¶s. Opportunity ? Card considered as a prestigious owning. ?Higher income group will aspire. ?Credit Card penetration low. Threat ? Joining Fee and Annual fee low for local banks. ?Diners Club and AMEX already present with some market share. Indonesia Strengths ? Citibank considered as a Global Bank. ?Citibank making profits worldwide. ?Strong Financial backbone to launch a new product. Weakness ? Large National Debts. ?Political corruption. ?Banking Fraud already prevalent in country. ?Per Capita income is only $500. Opportunity ? Card considered as a prestigious owning. Threat ? 3 Banks already eating up the market chunk. Malaysia Strengths ? Citibank considered as a Global Bank. ?Citibank making profits worldwide. ?Strong Financial backbone to launch a new product. Weakness ? Politically unstable. ?Largely a rural country. ?Malaysian law very stringent towards credit card ownership. Opportunity ? Culturally acceptable to revolving credit. ?Large successful business population. ?Bank acquisition not very difficult. Threat ? AMEX with some handsome market share. ?AMEX already having a superior customer image. Foreign banks only were allowed 3 banks in Malaysia. Taiwan Strengths ? Citibank considered as a Global Bank. ?Citibank making profits worldwide. ?Strong Financial backbone to launch a new product. Weakness ? No infrastructure for new products. ?Culturally not acceptable to people to owe money. ?before 1989, laws restricted credit card business Opportunity ? Deregulation of credit allowed re cently. Threat ? 50% market share with AMEX. ?It was mostly cash oriented society. Singapore Strengths ? Citibank considered as a Global Bank. ?Citibank making profits worldwide. ?Strong Financial backbone to launch a new product. Weakness ? Minimum age requirements and income requirements. Opportunity ? Worlds largest centre for trading and services. ?High standard of living of people. ?Hold of Local banks very low. ?Card usage high in the country. Threat ? International banks having a good hold in the market. Philippines Strengths ? Citibank considered as a Global Bank. ?Citibank making profits worldwide. ?Strong Financial backbone to launch a new product. Weakness ? Political corruption. ?People awareness is very low. ?Only local currency and transactions to be adhered with. Opportunity ? Credit Card market is under development. Customer acceptance toward revolving credit. Threat ? AMEX having handsome market share. ?AMEX already having a superior customer image. ?Foreign banks only were allowed 3 banks in Philippines. Thailand Strengths ? Citibank considered as a Global Bank. ?Citibank making profits worldwide. ?Strong Financial backbone to launch a new product. Weakness ? No infrastructure for new product s. Opportunity ? High consumer affluence and spending. ?Not many Credit Card company working. Threat ? 50% market share with AMEX & Diners club. Korea Strengths ? Citibank considered as a Global Bank. ?Citibank making profits worldwide. Strong Financial backbone to launch a new product. Weakness ? No infrastructure for new products. ?Strict government regulations regarding Revolving credit. ?Only local currency card can be issued. Opportunity ? Growth in the existing Diners club market already existing in Korea. Threat ? Existing companies experiencing huge financial losses and labor problems. Positioning the Card Positioning the Citi Silver ? Positioning the Citi Gold Target market to be Upper Middle and High income population. ? Premium features with attractive offers on Air Travel and Shopping available with a high credit limit. A separate relationship manager to tackle customer issues. ? Target market to be Lower and Middle income population. ? Standard features of shopping and a lower credit limit. ? Customer care to take care of customer issues. Customer Acquisition Cost Infra, S/W Development, Cost/Card of mailing, Total Cost incurred correspondence, in acquiring 1 mio Advertising Cust Support, Merchant Cost/ Customers Costs/Country Liaison Total Cost customer direct cost customers 250000 250000 250000 250000 1600000 35000000 12000000 12000000 12000000 36600000 12000000 12000000 12000000 72600000 146. 48 48 48 72. 6 6000000 78600000 Income from Card Holders Citi Silver Card % customers 70% Citi Gold Card 30% 32 9600000 40 12000000 33000000 60100000 27100000 Joining fee 25 Total Joining fee 17500000 Annual fee 30 Total annual fee 21000000 Grand total Break Even No. of Years Total Cost —————-Total Income = No. of years for Break Even 78600000 —————-60100000 = 1. 3 years ? For reaching the break even it will take approx 1. 3 years for any country. Recommendations Countries to ENTER ? Singapore ? Malaysia ? Philippines ? Thailand ? Hong Kong ? Australia Countries NOT TO ENTER ? India ? Indonesia ? Taiwan ? Korea Recommendations Citibank should focus on Acquisition of a local Bank. ? There should be very minimal or low joining fee and a moderate Annual fee charged. ? The Bank should keep local currency as the currency of exchange. ? There should be a central as well as a local data processing system. ?