“Our culture encodes a strong bias either to
neglect or ignore VARIATION. We tend
to focus instead on measures of central
tendency, and as a result we make some
terrible mistakes, often with considerable
practical import[ance].”
-Stephen Jay Gould, naturalist, 1941-2002
Monday, November 28, 11
ANALYTICS:
The New Plastics
Andrew Pulvermacher CMA, CPIM, MBA
Best Buy
Monday, November 28, 11
Cafe R!k
Appetizers
Andrew Pulvermacher
Story of Risk Management
Main Course
Best Buy
Risk Management at Best Buy
Change MGMT
Monday, November 28, 11
No Introduction Required
Monday, November 28, 11
Introduction Required
Monday, November 28, 11
Analytics
Monday, November 28, 11
Gamerization
Executive Decision Software
2004
Monday, November 28, 11
Monday, November 28, 11
Monday, November 28, 11
Monday, November 28, 11
Turn Risk into Cash
Monday, November 28, 11
Monday, November 28, 11
$50
Billion
Monday, November 28, 11
Monday, November 28, 11
Monday, November 28, 11
Why should I care about Banks, Credit Cards, and
the Fed?
Monday, November 28, 11
"e Ame#can Payment Indu$ry
Monday, November 28, 11
The PAYMENT INDUSTRY
YESTERDAY
Monday, November 28, 11
TODAY
TOMORROW
(when Pea Green was cool…)
Monday, November 28, 11
Back in the
Day
(when Pea Green was cool…)
Monday, November 28, 11
Back in the
Day
(when Pea Green was cool…)
To access your funds for
payment, your Cards/Checks
were processed manually
Monday, November 28, 11
Back in the
Day
(when Pea Green was cool…)
To access your funds for
payment, your Cards/Checks
were processed manually
This led to an inordinate amount of waste as manual
handling was involved which led to DAYS for funds to
be processed and also led to fraudulent transactions
Monday, November 28, 11
Back in the
Day
(when Pea Green was cool…)
Interchange was introduced to protect banks from fraud risk
associated with a paper-based credit card system. 80% of
the cost covered Fraud.
Interchange was a ‘pertransaction’ fee the merchant paid
based on the method of consumer
payment
Monday, November 28, 11
Today…
Monday, November 28, 11
Today…
Manual processing is replaced with
electronic funds transfers via Pointof-Sale terminals.
Funds no longer take DAYS to clear,
but SECONDS
Fraud is nearly eliminated
Monday, November 28, 11
So… what about the cost
VISA and MasterCard OWN the
Networks that process over 85% of all
Credit Card Transactions
When you
swipe your
card…
The Transaction is
processed over a
‘Network’
Monday, November 28, 11
To capture market share, Card Brands funnel
Interchange fees back to issuing banks.
1971
*Proportion of Interchange Fee going to….
Monday, November 28, 11
2011
Unless you ascribe to Soviet Economics,
CAPITALISM thrives on COMPETITION
2
the largest
Card Brands
of
VISA
MasterCard
Control
80%
of
Revenue
Monday, November 28, 11
Visa/MasterCard’s major clients
are big banks.
5 of the largest banks control…
Bank of America
CHASE
Citi
Capital One
HSBC
90%
of
Revenue
Economics of the
Transactions
The Merchant establishes the
business relationship with
YOU.
You CHOOSE to buy from
the Merchant based on factors
such as service and price.
What value do you place on the
Banker being involved with the
transaction…
Monday, November 28, 11
The CARD BRAND
The BANKER
$10
The MERCHANT
Monday, November 28, 11
The CUSTOMER
ISSUE ONLY
MY CARD
“And I’ll give x% of the
Transaction Fee”
The CARD BRAND
The BANKER
$10
The MERCHANT
Monday, November 28, 11
The CUSTOMER
ISSUE ONLY
MY CARD
“And I’ll give x% of the
Transaction Fee”
The CARD BRAND
The BANKER
You can only
have this
Brand Card
The MERCHANT
Monday, November 28, 11
$10
The CUSTOMER
ISSUE ONLY
MY CARD
“And I’ll give x% of the
Transaction Fee”
The CARD BRAND
The BANKER
You can only
have this
Brand Card
$10
$1000
“OMG! I love this!”
The MERCHANT
Monday, November 28, 11
The CUSTOMER
ISSUE ONLY
MY CARD
$38
$2
The BANKER
The CARD BRAND
$40
You can only
have this
Brand Card
$960
$10
$1000
“OMG! I love this!”
The MERCHANT
Monday, November 28, 11
The CUSTOMER
ISSUE ONLY
MY CARD
$38
$2
The BANKER
$40
Would you pay $40 to have the
ability to use a major card brand?
You can only
have this
Brand Card
$960
The CARD BRAND
$10
$1000
“OMG! I love this!”
The MERCHANT
Monday, November 28, 11
The CUSTOMER
ISSUE ONLY
MY CARD
$38
$2
The BANKER
$40
Would you pay $40 to have the
ability to use a major card brand?
(why should a merchant?)
You can only
have this
Brand Card
$960
The CARD BRAND
$10
$1000
“OMG! I love this!”
The MERCHANT
Monday, November 28, 11
The CUSTOMER
Monday, November 28, 11
$50
billion
Monday, November 28, 11
$50
billion
Monday, November 28, 11
$1.75
billion
Monday, November 28, 11
PROBABILITY
MANAGEMENT
Monday, November 28, 11
Monday, November 28, 11
Monday, November 28, 11
Region
FICO
Frequency
Customers
Shopping
Seasons
Products
Price
Demand
Store
Experience
Employees
Margin
Systems
Monday, November 28, 11
4 Key Insights to Change Management
1. Cash
2. Customer Behavior (Transactions)
3. Customer Experience
4. Operations
31
Monday, November 28, 11
$1.75billion
32
Monday, November 28, 11
ASP: $375
Monday, November 28, 11
ASP: $375
Monday, November 28, 11
ASP: $375
Monday, November 28, 11
ASP: $375
Monday, November 28, 11
Increase
Throughput
-Cardholders
-Card Usage
Loyalty
Frequency
Spend
Profitability
Monday, November 28, 11
SG&A
Interchange Exp
Operations
Applications
Monday, November 28, 11
Monday, November 28, 11