Cards and Payments in Asia-Pacific Asia Pac Exec Summ Contents.pdfFigure 24: Citi - source of revenue growth 2006-2007 (Source: Citibank) . . . . . . . . .92 Figure 25: GE Money –

Cards and Payments in Asia-Pacific

Troung Mellor

Cards and payments in Asia-Pacific

Truong Mellor

© 2009 iii

Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Regional overview and market forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Report outline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2New trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Keys to success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Chapter 1: Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Post boom and bust: challenges ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8No risk, no reward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Chapter 2: Country level summaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13India 16Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18The Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Chapter 3: Market demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Asia-Pacific: The decoupling theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Consumer spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Consumer confidence in the Asia-Pacific region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Population growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Cultural propensity for card spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Non-bank players in the Asia-Pacific region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Chapter 4: Acquiring and processing structure . . . . . . . . . . . . . . . . . . . . . 35Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Asia-Pacific – potential challenges and areas of growth . . . . . . . . . . . . . . . . . . . . . . . 36Country overviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

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Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43New Zealand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Third Party Processors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44HSBC and Global Payments joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44China UnionPay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Chapter 5: Regulatory Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49Regulators and the cards industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50Boom and bust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Effects of the crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Basel II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Chapter 6: Product Mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Cards vs . other payment products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Credit vs . Debit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Debit case studies – Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61Debit case studies - China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62Commercial Cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63Islamic cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64Prepaid cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Chapter 7: Risk management infrastructure . . . . . . . . . . . . . . . . . . . . . . . 71Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71Non-performing loans (NPLs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72Credit risk in Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74Delinquencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75Credit reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Risk culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Chapter 8: Technology developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81Contactless payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83EMV migration - Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85External developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86e-commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86Mobile payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88Case study: GCASH - Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89Future Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

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Chapter 9: Market growth dynamics and competitive intensity . . . . . . . . . 91Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

Building information management and analytics expertise . . . . . . . . . . . . . . . . . . . . . . . . . . 93Strengthening risk management expertise in parallel with portfolio growth . . . . . . . . . . . . . . 93Developing deep product management expertise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94Optimising cardholder acquisition and portfolio management approaches . . . . . . . . . . . . . . . 94

Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94Cambodia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100India 102Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Chapter 10: Economies of scale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121Scale benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122Relative scale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124Domestic and international player strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125Consolidation in the Asia-Pacific region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126Alliances and co-branding – an effective way to drive growth? . . . . . . . . . . . . . . . . . 127

Chapter 11: Strategic market positioning and customer segmentation . . 129Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129Strategic segmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130Marketing landscape in the Asia-Pacific region . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131Customer segmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132Risk-based segmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133Product-based segmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Chapter 12: Customer loyalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137General principles relating to customer loyalty management . . . . . . . . . . . . . . . . . . 138Rewards schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138Customer retention and attrition management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140Revolve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141Customer relationships in the Asia-Pacific region . . . . . . . . . . . . . . . . . . . . . . . . . . . 141Loyalty management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

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Chapter 13: Customer relationship management and customer service . . 157Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157Establishing a strategy for customer service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158The return of CRM initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158CRM - Technology applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159Best practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Chinatrust Commercial Bank (CTCB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162Bank of the Philippine Islands (BPI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162United Overseas Bank (UOB) Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

Emerging trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

Chapter 14: Operational efficiency and continuous business redesign . . 165Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165Outsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166

Future trends in outsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167Targeting efficiency and measuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168Continuous business redesign (CBR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

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List of figures

Chapter 2: Country level summariesFigure 1: Australia – cash advances on credit cards 2003-2008 (Source: Reserve

Bank of Australia) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Figure 2: Hong Kong credit card figures – number of accounts 2008 (Source: HKMA) . 14Figure 3: Hong Kong credit cards – total receivables 2008 (Source: HKMA) . . . . . . . . 15Figure 4: Malaysia – cards in circulation 2008 (Source: Bank Negara Malaysia) . . . . . 19

Chapter 3: Market demographicsFigure 5: GDP growth figures for various APAC markets (Source: CIA World

Factbook 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Figure 6: Consumer expenditure growth, 2009 est . (Source: Economist

Intelligence Unit (EIU)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Figure 7: MasterCard Worldwide Index of Consumer Confidence 2008 (Source: Master

Card) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Chapter 4: Acquiring and processing structureFigure 8: Interchange fee levels in Australia (Source: Reserve Bank of Australia) . . . . 39Figure 9: Number of card-based transactions, China 2005-2007 (Source:

People’s Bank of China (PBoC)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Figure 10: Total payment card transaction amount (RMB trillion), China 2005-2007

(Source: PBoC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Chapter 5: Regulatory EnvironmentFigure 11: Card penetration in China as % of retail sales 2005-2007 (Source: PBoC) 53

Chapter 6: Product MixFigure 12: Korean credit card companies net income/revenue 2004-2007 (Source: FSS

Korea) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58Figure 13: Australia – growth in outstanding card balances May 2005-May 2008

(Source: Reserve Bank of Australia) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Figure 14: Australia – debit card statistics 2003-2008 (Source:

Reserve Bank of Australia) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62Figure 15: China – number of debit cards issued (million) 2003-2006 (Source: PBoC,

China UnionPay) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Chapter 7: Risk management infrastructureFigure 16: Chart: Asia-Pacific NPL ratio – 2000-2008 (Source: Asian Development Bank,

IMF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

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Figure 17: Asia – risk-weighted capital adequacy ratios 2000-2008 (Source: Asian Development Bank, IMF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Figure 18: Singapore – credit card write-off rate 2004-2008 (Source: Monetary Authority of Singapore (MAS)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Figure 19: Hong Kong – credit card delinquencies 2005-2008 (Source: HKMA) . . . . . 76Figure 20: Chart: Hong Kong – credit card delinquencies 2005-2008 (Source: HKMA) 77

Chapter 8: Technology developmentsFigure 21: Japan – contactless technology networks 2007-2008 (Source: Nikkei Ryuutsuu

Shinbun (May 2008), Nihon Keizai Shinbun (June 2007)) . . . . . . . . . . . . . . . . . . . 83Figure 22: Asia-Pacific – numbers of Internet users 2008 (Source: Internet World Statistics)

87Figure 23: Asia-Pacific – preferred methods of online payment 2007-2008 (Source:

MasterCard Worldwide) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Chapter 9: Market growth dynamics and competitive intensityFigure 24: Citi - source of revenue growth 2006-2007 (Source: Citibank) . . . . . . . . . 92Figure 25: GE Money – emerging markets revenue 2004-2010 (Source: GE Money) . . 93Figure 26: Australia – cash advances on credit cards November 2005-2008 (Source: RBA)

95Figure 27: Cambodia – debit card issuers and accounts 2008 (Source: National Bank of

Cambodia) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98Figure 28: Cambodia – growth of credit to private sector 2003-2008 (Source: Asian

Development Outlook 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Chapter 10: Economies of scale Figure 29: American Express - Operating expenses as a % of revenue (pre-tax) 2005-2007

(Source: Amex Annual Report 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122Figure 30: Capital One – operating expenses as % of total revenue 2004-2007 (Source:

Capital One) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123Figure 31: Krungthai Card – expenses as % of total revenue 2004-2007 (Source: KTB Web

site) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123Figure 32: Anticipated banking merger/acquisition activity, 2007 (Source:

PricewaterhouseCoopers: Survey of 230 Financial Executives across Asia, 2007) 127

Chapter 11: Strategic market positioning and customer segmentationFigure 33: Predominant marketing approaches of Asia-Pacific banks (Source: Asian Banker

Research, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Chapter 12: Customer loyaltyFigure 34: Average monthly spend – rewards vs . non-rewards (Source: Rewards Study

2007, MasterCard Advisors) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139Figure 35: Likelihood of customer attrition – rewards vs . non-rewards (Source: Rewards

Study 2007, MasterCard Advisors) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

Chapter 13: Customer relationship management and customer serviceFigure 36: Asia-Pacific CRM priorities 2007-2008 (Source: Financial Insights) . . . . 161

© 2009 ix

List of tables

Chapter 3: Market demographicsTable 1: CAGR of consumer expenditure, 2000-2009 . . . . . . . . . . . . . . . . . . . . . . . . 27Table 2: Average monthly wage growth 2004-2009 ($US) . . . . . . . . . . . . . . . . . . . . . 27Table 3: % of households earning > $5000 in Asia-Pacific region, 2004-2009 est . . . 28Table 4: Population and median age, Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Table 5: Table: Average number of cards per person, Asia-Pacific, 2007 . . . . . . . . . . 31Table 6: Credit card payment patterns, Asia-Pacific 2007 . . . . . . . . . . . . . . . . . . . . . 31

Chapter 4: Acquiring and processing structureTable 7: Merchant Service Fees for credit cards (Bankcard, MasterCard and Visa) . . . 38

Chapter 6: Product MixTable 8: Australia – key credit card metrics (per account) - 2006 . . . . . . . . . . . . . . . . 58Table 9: Debit cards in circulation, 2006 (thousands) . . . . . . . . . . . . . . . . . . . . . . . . 60Table 10: Japan – prepaid figures 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Chapter 9: Market growth dynamics and competitive intensityTable 11: Indonesia – Bank Mandiri – fee based card income as % of total earnings 2005-

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

© 2009 1

Executive Summary

REGIONAL OVERVIEW AND MARKET FORECAST

Payment cards have played a major role in the Asia-Pacific region, and it is pre-dicted that several key markets will continue to see significant consumer base and spending growth. According to the Asian Development Bank, more than 300 million households in the Asia-Pacific region lack access to basic financial services. Despite the low base, credit card spending at the point of sale has grown rapidly and debit cards have increasingly shown high growth levels.

However, Asia remains a very cash-dominant society. Many areas remain isolated and rural, which will impede on overall growth potential. Additionally, issuers remain very cautious about growth in the Asia-Pacific region given the current global economic downturn. In the past, the most significant hurdle for indus-try growth has been the lack of effective risk management, and while in many countries this is being addressed through the formation of credit bureaus and the development of comprehensive data reporting systems, it is still a significant challenge.

Nevertheless, it is worth pointing out that the region did go through its own ver-sion of the credit crunch several years ago with the loan default crises in Korea, Hong Kong and Taiwan and for the most part the lessons of inadequate risk man-agement have been learned.

Widely speaking, some markets in the region will continue to grow rapidly as their economies mature and a larger consumer base is developed. The more de-veloped countries such as Australia and Japan will expand but less so. However, each market brings with it its own unique set of circumstances, such as Taiwan and its recent NPL trouble and recovery. Another example would be the Austral-ian market and its interchange battles with regulatory bodies.

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REPORT OUTLINE

The first section of the report will examine both macro and micro economic fac-tors that will be largely responsible for influencing the growth and profit of the financial cards industry in the Asia-Pacific region. These are:

● Market demographics – this chapter looks at the wider economic influ-ences that will have an effect on potential growth within the Asia-Pacific region. This includes consumer spending, consumer confidence and pop-ulation statistics, and also looks at any potential cultural trends that may play a role in the adoption of payment cards and consumer credit.

● Acquiring industry structure – this chapter focuses on merchant service fees and interchange rates that drive revenues as well as the merchant cov-erage that allows for consumers to use cards to make payments. It looks at potential regional challenges for the acquiring industry as well as possible solutions and areas for growth, and then examines both the acquiring en-vironment of several countries in the region.

● Regulatory environment – this chapter examines the causes behind the default crises seen across several Asia-Pacific markets in 2004-2005, and how regulatory bodies have reacted. It also looks at fresh challenges seen in markets such as China that are seeing an increased foreign presence in the market, and the process of Basel II implementation process through-out the region, and will highlight the varying approaches that regulators have adopted in order to meet these new risk management requirements.

● Product mix – the main focus of this chapter is the various card products (debit, credit and prepaid) that are available in the Asia-Pacific region, the opportunities they present for volume and transaction value growth as well as the various challenges that specific markets will present. Prepaid opportunities are examined in close detail across several countries.

● Risk management infrastructure – this chapter looks at two key areas where sound risk management practices can be established in light of credit card default issues faced in several key markets seen in recent times. The expan-sion of credit reporting bureaus and the challenges they face are assessed in several different markets, and the main factors that companies must focus on to develop a ‘risk culture’ are also outlined and explained.

● Technology developments – this chapter looks at influence of technology on the growth and profitability levels of the Asia-Pacific payment cards industry. The growth and underlying potential of mobile banking, prepaid applications and contactless technology within several key markets has only recently come to the fore, and these are examined in greater detail.

● Level of competitive intensity – this chapter looks at markets across the region, individually, examining which of the factors covered in the previ-ous chapters will play a significant role in the growth and development of the cards market.

These influences will combine to drive growth and profitability levels in the mar-ket. The chapters in this section explain the trends in these variables across the different countries in the region and their overall impact on the industry.

ChaPter 2 – exeCutive summary

© 2009 3

Key characteristics that will improve the performance of industry players are also identified and discussed in the second section. The report will look at the chal-lenges of applying these to the payment cards industry in the Asia-Pacific region. Some will clearly drive growth and profitability more than others in different markets. These are:

● Economies of scale and scope – there are huge benefits from scale in the payment card industry, and many players have been aiming for a large share position. There is a compelling requirement to set relative market share targets in order to drive growth and profitability. Relative share ad-vantage by segment is also important otherwise the risk of marginalisation is high.

● Strategic market positioning and customer segmentation – not every player will b able to gain a dominant market share position, so a disciplined ap-proach towards effective market positioning and the techniques of cus-tomer segmentation are important. Should local players not adopt a strate-gic position stance, it will be possible for international players to dominate the market, starting with the affluent segment and moving outwards from there.

● Customer loyalty – this could be viewed as more of an outcome than a loyalty and rewards scheme. There is a compelling need to build this into core product and service feature and move beyond the idea of merely con-ceptualising loyalty tools as a sales or promotional strategy.

● Customer service – excellent customer service orientation will have signif-icant positive effects and is critical to long-term success in the Asia-Pacific market. The role of the branch network in the region is important, but it must be leveraged and managed efficiently. Although Asian customers have in the past shown greater loyalty levels than in Europe and the US, relationships must be carefully nurtured in a way that is unique to the region.

● Operational efficiency and business redesign – given the current econom-ic volatility of the region, there is a core requirement for a flexible business model. This is also being driven by regulatory compliance issues and the increasing importance of risk management.

NEW TRENDS

Emerging markets: while it could be said that many Asia-Pacific markets that have previously been tapped for their growth potential have ‘emerged’ now, However there remains several countries that are still in the process of developing their financial services sector. Both Vietnam and Cambodia present issuers with significant opportunities. While Vietnam has already seen an influx of foreign in-vestment as players attempt to gain market share in a country that has witnessed high levels of GDP growth and consumer spending levels, Cambodia remains relatively under developed at this stage. However, the opportunity to establish market share and a strong foothold in the country is there for first-movers.

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Governments and their role: generally speaking, all governments aim to promote a strong and profitable high growth credit card business. To this end, they are pru-dent in their involvement on pricing, they generally seek to nurture a stronger, more concentrated and efficient banking structure and they appear to under-stand the role that payment cards can play in this.

Some points to consider:

● Australia – how has interchange regulation impended/affected industry growth?

● Malaysia – the push for Islamic banking and the influx of Middle Eastern banks

● China – foreign investors must partner with domestic players

Increased focus on financial data and information analysis: As banks across the region have developed stronger technology interfaces, there has been greater fo-cus on how to best utilise customer data in order to improve operational per-formance and drive both growth and profitability. The region has seen the forma-tion of several credit bureau organisations that can help card issuers make more informed decisions regarding their customer base.

This can greatly help with risk management procedures and help avoid the mass defaults previously seen. Comprehensive financial data can also be effective in the development of solid customer acquisition and retention initiatives, as well as product marketing and segmentation. A key element of future growth will be how the various players in the cards industry use available technology to formu-late clear market strategies in order to differentiate themselves from competitors.

Cultural preferences: These will play a significant role in the growth of card spending across the Asia-Pacific region, but high growth levels will be driven by basic demographic trends such as income eligibility, age and overall population growth. It should also be noted that in many markets such as Malaysia and Viet-nam, many of the old cultural assumptions regarding Asian society simply do not apply to a large segment of the population.

Acquiring structure: The acquiring side of the cards business in the Asia-Pacific region is increasingly consolidating into the hands of larger international play-ers. However, payment processing as an independent business model is still chal-lenged, and there are players that remain sceptical of outsourcing these operations.

ChaPter 2 – exeCutive summary

© 2009 5

KEyS TO SUCCESS

The most successful players in the payment card space across the Asia-Pacific region will be those institutions that take advantage of an economy of both scale and scope and a strong distribution network. In all likelihood, this will be the major retail banks, as they already have the required branch presence, customer base and comprehensive financial information. The tendency of regulators across the region to actively favour the strengthening of the national banking infrastruc-ture has also put them in a competitive position to take significant market share.

However, the onus is on them to move quickly in order to establish themselves in the payment card market. Global players have already made their presence felt across several countries, and the opening up of markets such as China and Viet-nam look likely to drive further foreign interest in the Asia-Pacific region.

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