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Global Consumer Credit DevelopmentLearnings
Evangelos StefatosSenior DirectorBusiness Line Development
Payment Card 2007Kiev, Ukraine7th June 2007
Presentation Identifier.2Information Classification as Needed 2
Discussion Topics
Global Consumer Lending
Country Segmentation
Learnings from Credit Leaders
Product and Industry Developments Around the World
Presentation Identifier.3Information Classification as Needed 3
Global Consumer Lending Environment
At the aggregate level, consumer lending and credit card industry expected to grow at similar rate as economic growth (personal disposable income).
20
06
Fig
ure
s (
US
$ i
n T
rill
ion
)
PCE
Segmentation Sizing Estimate
$24 T
2006 Global Consumer Lending
Source: Global Insight; Morgan Stanley
$6 T
Consumer Credit
$22 T
Non-Mortgage Consumer Credit
$1.5 T
Credit Card
• Global consumer credit (including mortgage and non-mortgage credit) estimated at $22T, or around 90% of personal disposable income (PDI) and personal consumption expenditure (PCE)
• Non-mortgage credit estimated at $6T, around 25% of PDI / PCE
• Credit cards represent 25% of non-mortgage credit; the rest includes auto loans, retail financing, personal loans, etc.
Key Observations
Presentation Identifier.4Information Classification as Needed 4
Regional Consumer Lending Environment
At the regional level, opportunity for growth of non-mortgage lending varies according to level of country maturity.
% o
f D
isp
os
ab
le I
nc
om
e
US / Canada
Non-Mortgage Regional Sizing
110% = Total Consumer Credit
2006 Non-Mortgage Regional Sizing
Source: Morgan Stanley
Asia Pacific
95%
Europe
20%
Latin America
• In mature countries like US, Canada, and UK, mortgage lending taking share away from non-mortgage due to ease of home refinancing (some consumers view their home equity as “ATM machines”).
• In newly developed regions like Asia Pacific, penetration of non-mortgage credit is high as the growing upper-middle class consumers are very responsive to all forms of credit vehicles.
Key Observations
25% = Non-Mortgage
40%
75%
20%
25%
Presentation Identifier.5Information Classification as Needed 5
Credit Card Growth Opportunities
Opportunity exists to shift share from alternative consumer lending vehicles – especially in emerging countries.
0%
5%
10%
15%
20%
25%
30%
35%
40%
Austra
lia
Korea
Canad
a UK US
Spain
Brazil
Japan
Ger
man
yIta
lyIn
dia
Franc
e
Credit Card Debt as % of Consumer Non-Mortgage Debt
Source: Morgan Stanley (2002 Data); general purpose credit card receivables as % of all non-mortgage loans.
Global Average
Presentation Identifier.6Information Classification as Needed 6
Discussion Topics
Global Consumer Lending
Country Segmentation
Learnings from Credit Leaders
Product and Industry Developments Around the World
Presentation Identifier.7Information Classification as Needed 7
Regional View of Visa Credit Business
Large Variation Around the World
Visa Credit RSV as % of PCE
<2% 2-6% >6%
Need an alternative way to compare development of credit environments
Presentation Identifier.8Information Classification as Needed 8
Segmentation of Visa Business by Market Economic Development
Personal Consumption Expenditure (PCE) per Capita
< $2K
$2K to $10K
> $10K
Eco
no
mic
Dev
elo
pm
ent
Presentation Identifier.9Information Classification as Needed 9
Long Term High Potential Economies
PCE per Capita
< $2K
Eco
no
mic
Dev
elo
pm
ent
ChinaEgyptIndia
Indonesia
Vis
a D
eb
it D
ev
elo
pm
en
tV
isa
De
bit
RS
V a
s %
PC
E
Visa Credit DevelopmentVisa Credit RSV as % PCE
2% 6%
2%
6%
Presentation Identifier.10Information Classification as Needed 10
Emerging Economies
PCE per Capita
< $2K
$2K to $10K
Eco
no
mic
Dev
elo
pm
ent
S. ArabiaBrazil
S. Africa
Mexico
Russia
Poland
ArgentinaThailand
Turkey
Vis
a D
eb
it D
ev
elo
pm
en
tV
isa
De
bit
RS
V a
s %
PC
E
Visa Credit DevelopmentVisa Credit RSV as % PCE
2% 6%
2%
6%
Presentation Identifier.11Information Classification as Needed 11
Developed Economies
PCE per Capita
< $2K
$2K to $10K
> $10K
Vis
a D
eb
it D
ev
elo
pm
en
tV
isa
De
bit
RS
V a
s %
PC
E
Visa Credit DevelopmentVisa Credit RSV as % PCE
2% 6%
2%
6%
Eco
no
mic
Dev
elo
pm
ent
Sweden
FrancePortugal UK
Italy SpainU.S.
Australia
GermanyJapan
UAE
Greece
Ireland
Presentation Identifier.12Information Classification as Needed 12
Credit Card Clustering
• PCE per capita bands: <$2K, $2-$10K, >$10K
• Non-mortgage credit of PDI bands: >20%, 5-20%, <5%
• Credit card share of non-mortgage bands: >20%, 10-20%, <10%
• Merchant acceptance of credit cards
• Credit bureau and scoring
• UW, line assign, collections
• Prospect / customer data mining
• Pricing, products, distribution
• Active PM
Marketing
Portfolio Mgt
Credit Risk Mgmt
Credit card Acceptance
Credit Card % of NM
Lending
Non-Mortgage Lending
PCE per Capita
Developed Credit
Emerging Credit
Established Charge
Established Debit
Segmentation Criteria
Criteria
Long Term
• Sample Countries: France, Italy, Germany
• Sample Countries: US, UK, Canada, Australia, Taiwan
• Sample Countries: Thailand, Turkey, Brazil, S. Africa, Mexico
• Sample Countries: Japan, Spain
• Sample Countries: China, India, Indonesia, Egypt, Russia*
Presentation Identifier.13Information Classification as Needed 13
Developed Credit Environment
Developed Credit
• Regulatory pressure on pricing
• Slower growth in prime segment
“Current State” Opportunity Areas
• Mass affluent products
• Selective subprime / niche segments
• Merchant value proposition
Lending Infrastructure
Responsible LendingProduct InnovationsMerchant Value
Proposition
Common Themes and Opportunities
Refine all aspects of consumer lending proposition to optimize value to merchants, consumers, and issuers.
Presentation Identifier.14Information Classification as Needed 14
Opportunities in Credit Card Environment
Developed Credit
Emerging Credit
• Regulatory pressure on pricing
• Slower growth in prime segment
“Current State” Opportunity Areas
• Mass affluent products
• Selective subprime / niche segments
• Merchant value proposition
• Prime segment already penetrated
• Large un-banked & subprime consumers
• Some acceptance challenges
• Credit risk management, especially subprime
• Product differentiation
• Portfolio management
Lending Infrastructure
Portfolio Management
Product Development
Merchant Acceptance
Common Themes and Opportunities
Strengthen fundamentals of consumer lending to improve product economics and deepen market reach
Presentation Identifier.15Information Classification as Needed 15
Income and consumer spending in Ukraine have been rising over the last few years
2,711 2,9393,479
4,337
6,135
7,074
2001 2002 2003 2004 2005 2006
3,7334,517
5,547
7,075
9,674
12,497
2001 2002 2003 2004 2005 2006
Yearly Average Nominal Wages of Persons Employed in the Ukrainian Economy (UAH)
Yearly Nominal Consumer Spend per Capita (UAH)
Income and consumer spending increases are favorable for growth in demand for credit
Source: National Bank of Ukraine, as of May 2007 Source: Planet Retail, as of May 2007
Presentation Identifier.16Information Classification as Needed 16
Discussion Topics
Global Consumer Lending
Country Segmentation
Learnings from Credit Leaders
Product and Industry Developments Around the World
Presentation Identifier.17Information Classification as Needed 17
93.1% 90.8% 89.1% 87.2%83.0% 82.5% 80.8%
68.4%
7.1% 4.7%
Austra
lia
New Z
ealan
d
Canad
aUAE
USA
Poland UK
S. Kore
a
Russia
Ukrai
ne
Developed credit markets have very high RSV/CSV ratios in common
Credit
RSV/CSV Ratio
Credit Penetration
of PCE14.7% 13.6% 16.6% 4.7% 6.5% 1.1% 7.9% 20.8% 0.0% 0.1%
Increasing credit card usage at POS is correlated with sustainable credit card growth
Source: RSV/ CSV from Visa Operating Certificates, 4QE Q42006 and subject to change; PCE from Global Insight, 2005
Presentation Identifier.18Information Classification as Needed 18
Proposition must remain valuable through Account Life Cycle
Get Use more KeepStart Using
Acquisition
Activation
Usage
RetentionU
sag
e
Time in months
00 1-31-3 6-126-12
Market Management
Risk Management
Prospect Risk and Demographic
Market Strategy
Acquisition Value
Proposition
Portfolio Management
Reliable Information Systems
Account Level Performance Tracking
Risk Management
Value Optimization Tools and Strategy
Market Partners
Account Mgt Value Proposition
Product Potential
Optimized with Discrete
Streams (e.g. credit, debit,
prepaid)
Presentation Identifier.19Information Classification as Needed 19
Discrete Products Serve Discrete Customer Needs and Market Conditions
BANK FUNDSOWN FUNDS
SUFFICIENT MARKET INFORMATION
DEBIT
CREDIT
NO MARKET INFORMATION
Prepaid
Presentation Identifier.20Information Classification as Needed 20
Robust and complete information structures outside and inside the bank are fundamental to healthy credit growth
Market
Efficient risk management
Ability to reach deeper segments
Better segmentation and targeting
Better estimation of overall prospect risk through positive and negative information sharing
Optimization of credit extension
Prevention of market-wide risk issues
Bank
Cost efficient and reliable account management
Better segmentation and product assignment
Optimization of Marketing campaigns
More accurate new and existing customer risk management
Product strategy support by correct economics
Presentation Identifier.21Information Classification as Needed 21
The importance of sharing and using positive and negative information – the case of the UK in 2005
Number of IVAs
5000
10000
15000
20000
25000
30000
35000
Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05
3.00%
3.50%
4.00%
4.50%
5.00%
“A PwC study of 1257 IVAs registered in July 2005 reported that:
• Insolvent individuals had, on average, taken out 11 credit cards and other types of unsecured loan
• The total average debt was around GBP 60,000, or 3-4 times gross annual income
• 75% of insolvencies were caused by living above means”Source: Precious Plastic 2006, Consumer Credit in the UK, PriceWaterhouseCoopers 2006
Charge-offs as % of outstandings
Presentation Identifier.22Information Classification as Needed 22
Discussion Topics
Global Consumer Lending
Country Segmentation
Learnings from Credit Leaders
Product and Industry Developments Around the World
Presentation Identifier.23Information Classification as Needed 23
Lending Infrastructure – UK Example
Credit Bureaux in UK
• UK market experiencing increased credit losses as a result of high consumer debt service burden
• UK already has three advanced credit bureaux providing positive & negative credit history
• Four major UK issuers agreed to share additional cardholder data to improve credit risk assessment and portfolio management
• New field include: amount of purchases, cash advances, and payments; changes to credit lines; bounced cheques; number of authorized users
Description
UK Credit Bureaux will have the most comprehensive data fields in the world
Responsible Lending, Optimum Credit Allocation and Risk Management
Presentation Identifier.24Information Classification as Needed 24
Lending Infrastructure – Korea Example
Credit Bureau Development in Korea
• Korea market experienced severe credit loss crisis in 2002-2003, following a period of exceptional growth in credit card lending
• Visa Korea demonstrated industry leadership by developing a roadmap to migrate Korea’s credit bureau system from sharing “negative only” to sharing both “negative and positive” information.
• Extensive research to compare credit bureau systems in other Asian countries (Singapore, Thailand, Australia, Hong Kong) and the United States
Description
Responsible Lending, Optimum Credit Allocation and Risk Management
Presentation Identifier.25Information Classification as Needed 25
Responsible Lending – US Example
Money Choices in US
• Visa USA developed “MoneyChoices” – an internet based consumer education program
• Integrated by Member banks through collections and delinquency prevention strategies
• Enhance consumers’ understanding of credit and general financial information
• Improve financial health to avoid delinquency, bankruptcy and charge-offs.
Description
Consumer Financial Lifecycle
FINANCIALHEALTHIncome > Expenses
LIFE AFTERBANKRUPTCY
FINANCIALPRESSURESExpenses > Income
RECOGNITIONOF DILEMMA
DEALINGWITH DILEMMA
BANKRUPTCY
SITUATIONALBEHAVIOR
CHANGE
Responsible Lending, Consumer Education
Presentation Identifier.26Information Classification as Needed 26
Product Innovations – UK Example
Payment Rate Incentives in UK
• Launched in October 2005, Barclaycard Flexi-Rate encourages cardholders to repay credit card balances more quickly
• APR varies based on payment rate:
• 9.9% APR (payment > 10% balance);
• 12.9% (5% < payment < 10%)
• 16.9% (2% min < payment < 5%)
• Strong PR and consumer value in current UK environment, without giving up too much profitability
• Another way of implementing risk-based pricing those who can afford to pay more are generally lower risk anyway
Description
Barclaycard “Flexi-Card”
Responsible Lending, Budgeting, Customer Empowerment
Presentation Identifier.27Information Classification as Needed 27
Merchant Value Proposition – US Example
VIN TargetingSegmentation on cardholder spend behavioracross entire universe to optimize merchant
targeting and justify best in marketmerchant offers
VIN DatabaseIssuers Merchants
Merchant Offers
Send CMF files toVIN at least monthly and
participate in Merchant offers
Offers are branded with Issuer’s Rewards
program assets
Offers are branded with Issuer’s Rewards
program assets
Provide merchantsaccess to highly desirable rewards-
motivated cardholders
Increase utilization and loyalty
Drive revenue and new
customers
Visa Incentive Network (VIN) in US
The Visa Incentive Network (VIN) is a robust platform that enables Merchant partners to deliver value to Visa consumer credit cardholders
All-party value, Loyalty, New Customers
Presentation Identifier.28Information Classification as Needed 28
Portfolio Management – Brazil Example
Private Label Conversion in Brazil
• Private label cards in emerging credit environments tend to target growing middle class consumers who need financing for big ticket household items
• Consumer finance specialists dominate this segment by mastering credit risk management and retailer distribution channel
• Large global opportunity to convert private label credit card to Visa –successful conversion case studies seen in US, Europe, AP, and LAC
• Example – C&A Brazil had 12 million private label cards (targeting segments C/C- segment); average credit line of US$150; decision to convert to Visa to grow spending and revolving
Description
Over 1 million Visa accounts from conversion of C&A private label portfolio!
Reaching New Segments, Expand Credit Potential
Presentation Identifier.29Information Classification as Needed 29
Product Innovations – Taiwan Example
Platinum Cards for Women in Taiwan
• Targeting women
– Business executives; entrepreneurs in 30’s to 40’s; high income earners
• Wide Array of Benefits
• Complimentary VIP club memberships (Howard Plaza)
• Preferential discounts at selected merchants
• Complimentary airport parking, 24-hour roadside assistance, annual vehicle servicing
• Free Business Class upgrade on local carrier
Description
Headline : “Rose Platinum Ladies Love And Know How To Be Pampered.”
Body copy : “Taishin Platinum Lady’s Card treats its women the way they deserve.”
Affinity, Segmentation
Presentation Identifier.30Information Classification as Needed 30
Product Innovations – Spain Example
Spain Leader in Mass Customization
• La Caixa is leader in product customization and design
• Focus on deep customer segmentation and multi-segment strategy oiptimization
• Strength in customer lifecycle relationship management
• Multiple and differentiated products
• Unique card designs
Description
Affinity, Segmentation
Presentation Identifier.31Information Classification as Needed 31
Portfolio Management – Turkey Example
Bonus Card in Turkey
• Europe’s largest multi-branded credit card program
• Launched in 2000, flexible and easy to use EMV-chip based rewards program
• Multi-branded revolving credit card with over 1000 merchant partners in single rewards pool
• Sophisticated CRM and rewards system – cash back pool, installment, discounts
• Over 4 million credit cards (20% market share in Turkey)
Description
Efficient Account Management, Rewards, Security
Presentation Identifier.32Information Classification as Needed 32
Multi Segment Co-brand– Germany Example
Description
LandesBank X-box Visa
Empowering repeat use, Segmentation, Serving unbanked segments
Co-brand product set with Microsoft Xbox tapping a new youth segment for the bank
• Xbox Visa Premium – Embossed, floor limit card – instalment
• Xbox Young – Unembossed, managed credit line
• Xbox Prepaid – Unembossed, reloadable no credit line
Results
• 77% of cards issued as prepaid
• 60% of cardholders aged 18-25
• New revenue stream/market
• Basis for future cross-sales
Presentation Identifier.33Information Classification as Needed 33
Product Development – México Example
Installment Cards in Mexico Description
• Leading Visa issuer in México launched new revolving credit card product
• Targeting entry level (C / C-) segments
• Credit lines of ~US$300 to $500 (about equal to monthly income)
• Fixed monthly payment – minimum payment set at 10% of credit line
• Translates to higher percentage of O/S balances (typically 5-8% in México)
• Customer can choose to pay in full (no prepayment penalty)
• Domestic use only; basic card benefits
• Promise to review account for future upgrade (higher credit lines, international acceptance, more card benefits)
Tarjeta Congelada (“Frozen Card”)
Responsible Lending, Reaching “Deeper” Segments
Presentation Identifier.34Information Classification as Needed 34
Product Innovation and Cross-selling – Philippines Example
Loan Disbursement - Philippines Description
Chinatrust Loan Combi card Value Proposition
Bill Pmt, Fund Transfer, Net / Phone Banking
Loan reload once loan is at least 50% paid
Convenience, choice and control
Bank Benefits
Back-office and front-office cost savings
Check handling cost savings
Interest income from float or unused loan
Revenue streams - POS, ATM fees, etc.
Cross-selling
Customer retention and extended account relationship
Results
100,000 cards issued
92% of personal loans disbursed this way
Behavior Change, Retention, Convenience
Presentation Identifier.35Information Classification as Needed 35
Dual Line Private Label / Gen. Purpose US Example
Dual Line Cobrand - US Description
Wells Fargo / Pella Dual Card
Affinity, Convenience, Enhancing POS Usage
Targeted to retailers with private label portfolios
Suitable for home furnishing and other big ticket financing
Two distinct revolving lines of credit
Private label (percentage of total line)
Visa general purpose card
One billing statement with detailed transactions for both lines.
Potential for differential rates and features
One monthly payment for both accounts
Allows retailers to ensure there will be a portion of line available for purchases in-store
Presentation Identifier.36Information Classification as Needed 36
Multi-product Co-brand– US Example
Combi-product Innovation - US Description
Starbucks Duetto Credit/Prepaid Card• Visa and Starbucks Card functionality
• “Closed-loop” prepaid card, used to buy Starbucks products
• Visa general purpose credit card used in Starbucks and everywhere else
• Cash reloads from credit to prepaid card
• 3% back on Visa auto-reload purchases
• 1% Starbucks Duetto dollars back, on all Visa purchases
• 40% higher average reloads on Duetto than on Starbucks prepaid-only
• 58% percent of cardholders say will buy more Starbucks products with Duetto
• 47% of Duetto cardholders have an improved image of Starbucks
Affinity, Enhancing POS Usage
Presentation Identifier.37Information Classification as Needed 37
Instant Issuance Co-brand– Peru Example
Mall instant issuance - Peru Description
Megaplaza Interbank Visa Credit Card
Enhancing POS Usage, Instant Gratification of POS Demand
• Visa Co-brand program launched in shopping mall to compete directly with Ripley and Falabella (anchor stores with strong Private Label programs)
• Bank developed process to approve and deliver Visa cards (Embossed Visa Flag) in 20 minutes.
• “Fill out the application, go shopping and come back in 20 minutes”
• Sales pitch: “6 months with no interest for 1st purchase today”
• Sales module in food court and promoters along the mall
• Instant prize through a game with credit card application
• Results: 10,000 cards in first 3 months and delivering 100 instant cards daily
Presentation Identifier.38Information Classification as Needed 38
In Summary
The Ukraine economy is growing and demand for credit is expected to continue to increase
Products will get more sophisticated and credit consumers will only get savvier and more demanding
Demands on banks for efficient and informed risk management will only increase as consumer credit exposure increases
Overall
Positive and negative market information sharing and use
Robust information systems in and out of the bank
Discrete product offerings and product reporting that allow products to reach full potential
Consumer propositions that maintain value and appeal
Strategies aimed at encouraging RSV spend
Long-term success in credit requires
Thank you