Global Consumer
Credit Development
Learnings
Evangelos Stefatos
Senior Director
Business Line Development
Payment Card 2007
Kiev, Ukraine
7th June 2007
Discussion Topics
Global Consumer Lending
Country Segmentation
Learnings from Credit Leaders
Product and Industry Developments Around the World
Information Classification as Needed
2
Presentation Identifier.2
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).
Key Observations
2006 Global Consumer Lending
• Global consumer credit
(including mortgage and nonmortgage credit) estimated at
$22T, or around 90% of personal
disposable income (PDI) and
personal consumption
expenditure (PCE)
$24 T
2006 Figures (US $ in Trillion)
$22 T
• Non-mortgage credit estimated
at $6T, around 25% of PDI / PCE
$6 T
$1.5 T
PCE
Consumer Non-Mortgage Credit Card
Credit Consumer Credit
Segmentation Sizing Estimate
• Credit cards represent 25% of
non-mortgage credit; the rest
includes auto loans, retail
financing, personal loans, etc.
Source: Global Insight; Morgan Stanley
Information Classification as Needed
3
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Regional Consumer Lending Environment
At the regional level, opportunity for growth of non-mortgage
lending varies according to level of country maturity.
Key Observations
2006 Non-Mortgage Regional Sizing
• 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”).
% of Disposable Income
110% = Total Consumer Credit
95%
75%
40%
25%
25% = Non-Mortgage
20%
US / Canada Asia Pacific
Europe
20%
Latin America
Non-Mortgage Regional Sizing
• In newly developed regions like
Asia Pacific, penetration of nonmortgage credit is high as the
growing upper-middle class
consumers are very responsive
to all forms of credit vehicles.
Source: Morgan Stanley
Information Classification as Needed
4
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Credit Card Growth Opportunities
Opportunity exists to shift share from alternative consumer lending
vehicles – especially in emerging countries.
Credit Card Debt as % of Consumer Non-Mortgage Debt
40%
35%
30%
Global Average
25%
20%
15%
10%
5%
Fr
an
ce
ia
In
d
Ita
ly
an
y
er
m
G
Ja
pa
n
ra
zi
l
B
Sp
ai
n
S
U
K
U
da
or
ea
K
an
a
C
A
us
tr
al
ia
0%
Source: Morgan Stanley (2002 Data); general purpose credit card receivables as % of all non-mortgage loans.
Information Classification as Needed
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Presentation Identifier.5
Discussion Topics
Global Consumer Lending
Country Segmentation
Learnings from Credit Leaders
Product and Industry Developments Around the World
Information Classification as Needed
6
Presentation Identifier.6
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
Information Classification as Needed
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Presentation Identifier.7
Economic Development
Segmentation of Visa Business by
Market Economic Development
> $10K
$2K to $10K
< $2K
Personal Consumption
Expenditure (PCE) per Capita
Information Classification as Needed
8
Presentation Identifier.8
6%
2%
Economic Development
Visa Debit Development
Visa Debit RSV as % PCE
Long Term High Potential Economies
China
Egypt
India
Indonesia
2%
6%
Visa Credit Development
Visa Credit RSV as % PCE
< $2K
PCE per Capita
Information Classification as Needed
9
Presentation Identifier.9
6%
2%
Visa Debit Development
Visa Debit RSV as % PCE
Economic Development
Emerging Economies
S. Arabia
Brazil
S. Africa
Mexico
Russia
Poland
Argentina
2%
$2K to $10K
Thailand
Turkey
6%
Visa Credit Development
Visa Credit RSV as % PCE
< $2K
PCE per Capita
Information Classification as Needed
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Presentation Identifier.10
> $10K
Portugal
UK
Italy
Spain
U.S.
Australia
Germany
Japan
UAE
Greece
Ireland
6%
Sweden
France
2%
Visa Debit Development
Visa Debit RSV as % PCE
Economic Development
Developed Economies
2%
$2K to $10K
6%
Visa Credit Development
Visa Credit RSV as % PCE
< $2K
PCE per Capita
Information Classification as Needed
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Presentation Identifier.11
Credit Card Clustering
Segmentation Criteria
PCE per
Capita
NonCredit Card
Marketing
Credit card Credit Risk
Mortgage
% of NM
Acceptance
Mgmt
Portfolio Mgt
Lending
Lending
Developed
Credit
• Sample Countries: US, UK,
Canada, Australia, Taiwan
Emerging
Credit
• Sample Countries: Thailand,
Turkey, Brazil, S. Africa, Mexico
Established
Charge
• Sample Countries: Japan, Spain
Established
Debit
• Sample Countries: France, Italy,
Germany
Long Term
• Sample Countries: China, India,
Indonesia, Egypt, Russia*
Criteria
• PCE per
capita
bands:
<$2K, $2$10K,
>$10K
• Nonmortgage
credit of
PDI bands:
>20%, 520%, <5%
• Credit card
share of
nonmortgage
bands:
>20%, 1020%, <10%
• Merchant
acceptance
of credit
cards
• Credit
bureau and
scoring
• UW, line
assign,
collections
Information Classification as Needed
• Prospect /
customer
data mining
• Pricing,
products,
distribution
• Active PM
12
Presentation Identifier.12
Developed Credit Environment
“Current State”
Developed
Credit
•
•
Regulatory pressure on pricing
Slower growth in prime segment
Merchant Value
Proposition
Lending
Infrastructure
Opportunity Areas
•
•
Mass affluent products
Selective subprime / niche segments
•
Merchant value proposition
Responsible
Lending
Product
Innovations
Common Themes and Opportunities
Refine all aspects of consumer lending proposition to
optimize value to merchants, consumers, and issuers.
Information Classification as Needed
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Opportunities in Credit Card Environment
“Current State”
Developed
Credit
Emerging
Credit
•
•
•
•
•
Regulatory pressure on pricing
Slower growth in prime segment
Prime segment already penetrated
Large un-banked & subprime
consumers
Some acceptance challenges
Merchant
Acceptance
Lending
Infrastructure
Opportunity Areas
•
•
Mass affluent products
Selective subprime / niche segments
•
Merchant value proposition
•
Credit risk management, especially
subprime
•
•
Product differentiation
Portfolio management
Portfolio
Management
Product
Development
Common Themes and Opportunities
Strengthen fundamentals of consumer lending to improve
product economics and deepen market reach
Information Classification as Needed
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Presentation Identifier.14
Income and consumer spending in Ukraine
have been rising over the last few years
Income and consumer spending increases are favorable for growth in demand for credit
Yearly Average Nominal Wages of Persons
Employed in the Ukrainian Economy (UAH)
Yearly Nominal Consumer Spend per Capita (UAH)
7,074
12,497
6,135
9,674
4,337
7,075
3,479
5,547
2,711
2,939
4,517
3,733
2001
2002
2003
2004
2005
Source: National Bank of Ukraine, as of May 2007
2006
2001
2002
2003
2004
2005
2006
Source: Planet Retail, as of May 2007
Information Classification as Needed
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Presentation Identifier.15
Discussion Topics
Global Consumer Lending
Country Segmentation
Learnings from Credit Leaders
Product and Industry Developments Around the World
Information Classification as Needed
16
Presentation Identifier.16
Developed credit markets have very high
RSV/CSV ratios in common
Increasing credit card usage at POS is
correlated with sustainable credit card growth
Credit
93.1%
90.8%
89.1%
RSV/CSV Ratio
87.2%
83.0%
82.5%
80.8%
68.4%
7.1%
Credit
Penetration
of PCE
A
14.7%
lia
a
tr
us
N
ew
13.6%
nd
a
al
e
Z
C
16.6%
da
a
an
4.7%
U
A
6.5%
E
U
SA
1.1%
nd
a
l
Po
7.9%
U
K
K
S.
20.8%
ea
r
o
0.0%
R
a
si
s
u
4.7%
0.1%
U
ne
i
a
kr
Source: RSV/ CSV from Visa Operating Certificates, 4QE Q42006 and subject to change; PCE from Global Insight, 2005
Information Classification as Needed
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Proposition must remain valuable
through Account Life Cycle
Retention
Usage
Activation
Acquisition
Start
Using
Get
0
1-3
Use more
Keep
Market Management
6-12
Portfolio Management
Risk Management
Reliable Information Systems
Prospect Risk and Demographic
Account Level Performance Tracking
Market Strategy
Risk Management
Value Optimization Tools and Strategy
Market Partners
Acquisition Value
Proposition
Account Mgt Value Proposition
Information Classification as Needed
Time in months
Product
Potential
Optimized with
Discrete
Streams (e.g.
credit, debit,
prepaid)
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Presentation Identifier.18
Discrete Products Serve Discrete
Customer Needs and Market Conditions
SUFFICIENT MARKET
INFORMATION
CREDIT
DEBIT
OWN FUNDS
BANK FUNDS
Prepaid
NO MARKET
INFORMATION
Information Classification as Needed
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Presentation Identifier.19
Robust and complete information structures
outside and inside the bank are fundamental to
healthy credit growth
Market
Bank
 Efficient risk management
 Ability to reach deeper
segments
 Cost efficient and reliable
account management
 Better segmentation and
product assignment
 Better segmentation and
targeting
 Optimization of Marketing
 Better estimation of overall
prospect risk through positive
campaigns
and negative information sharing
 Optimization of credit extension
 Prevention of market-wide risk
issues
 More accurate new and existing
customer risk management
 Product strategy support by
correct economics
Information Classification as Needed
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The importance of sharing and using
positive and negative information – the
case of the UK in 2005
Number of
IVAs
35000
5.00%
Charge-offs as %
of outstandings
30000
4.50%
25000
20000
4.00%
15000
3.50%
10000
5000
3.00%
Dec-02
Jun-03
Dec-03
Jun-04
Dec-04
Jun-05
“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
Information Classification as Needed
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Presentation Identifier.21
Discussion Topics
Global Consumer Lending
Country Segmentation
Learnings from Credit Leaders
Product and Industry Developments Around the World
Information Classification as Needed
22
Presentation Identifier.22
Lending Infrastructure – UK Example
Credit Bureaux in UK
Description
• 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
UK Credit Bureaux will have the most
comprehensive data fields in the world
• New field include: amount of
purchases, cash advances, and
payments; changes to credit lines;
bounced cheques; number of
authorized users
Responsible Lending, Optimum Credit Allocation and Risk Management
Information Classification as Needed
23
Presentation Identifier.23
Lending Infrastructure – Korea Example
Credit Bureau Development in Korea
Description
• 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
Responsible Lending, Optimum Credit Allocation and Risk Management
Information Classification as Needed
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Responsible Lending – US Example
Money Choices in US
Description
Consumer Financial Lifecycle
FINANCIAL
HEALTH
Income > Expenses
FINANCIAL
PRESSURES
Expenses > Income
LIFE AFTER
BANKRUPTCY
RECOGNITION
OF DILEMMA
BANKRUPTCY
SITUATIONAL
BEHAVIOR
CHANGE
DEALING
WITH DILEMMA
• 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.
Responsible Lending, Consumer Education
Information Classification as Needed
25
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Product Innovations – UK Example
Payment Rate Incentives in UK
Description
• 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
Barclaycard “Flexi-Card”
• Another way of implementing riskbased pricing  those who can afford
to pay more are generally lower risk
anyway
Responsible Lending, Budgeting, Customer Empowerment
Information Classification as Needed
26
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Merchant Value Proposition – US Example
The Visa Incentive Network (VIN) is a robust platform that enables
Merchant partners to deliver value to Visa consumer credit cardholders
Visa Incentive Network (VIN) in US
Issuers
VIN Database
Send CMF files to
VIN at least monthly and
participate in Merchant offers
Merchants
Provide merchants
access to highly desirable rewardsmotivated cardholders
VIN Targeting
Segmentation on cardholder spend behavior
across entire universe to optimize merchant
targeting and justify best in market
merchant offers
Increase
utilization
and loyalty
Merchant Offers
Drive revenue
and new
customers
Offers are branded
with Issuer’s Rewards
program assets
All-party value, Loyalty, New Customers
Information Classification as Needed
27
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Portfolio Management – Brazil Example
Private Label Conversion in Brazil
Description
• 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
Over 1 million Visa accounts from
conversion of C&A private label portfolio!
• 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
Reaching New Segments, Expand Credit Potential
Information Classification as Needed
28
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Product Innovations – Taiwan Example
Platinum Cards for Women in Taiwan
Description
• 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
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.”
• Complimentary airport
parking, 24-hour roadside
assistance, annual vehicle
servicing
• Free Business Class upgrade
on local carrier
Affinity, Segmentation
Information Classification as Needed
29
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Product Innovations – Spain Example
Spain Leader in Mass Customization
Description
• 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
Affinity, Segmentation
Information Classification as Needed
30
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Portfolio Management – Turkey Example
Bonus Card in Turkey
Description
• 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)
Efficient Account Management, Rewards, Security
Information Classification as Needed
31
Presentation Identifier.31
Multi Segment Co-brand– Germany
Example
Description
LandesBank X-box Visa
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
Empowering repeat use, Segmentation, Serving unbanked segments
Information Classification as Needed
32
Presentation Identifier.32
Product Development – México Example
Installment Cards in Mexico
Tarjeta Congelada (“Frozen Card”)
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)
Responsible Lending, Reaching “Deeper” Segments
Information Classification as Needed
33
Presentation Identifier.33
Product Innovation and Cross-selling
– Philippines Example
Description
Loan Disbursement - Philippines
Chinatrust Loan Combi card
Behavior Change, Retention, Convenience
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
Information Classification as Needed
34
Presentation Identifier.34
Dual Line Private Label / Gen. Purpose
US Example
Dual Line Cobrand - US
Wells Fargo / Pella Dual Card
Description
 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 instore
Affinity, Convenience, Enhancing POS Usage
Information Classification as Needed
35
Presentation Identifier.35
Multi-product Co-brand–
US Example
Combi-product Innovation - US
Starbucks Duetto Credit/Prepaid Card
Description
• 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
Information Classification as Needed
36
Presentation Identifier.36
Instant Issuance Co-brand
– Peru Example
Mall instant issuance - Peru
Megaplaza Interbank Visa Credit Card
Description
• 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
Enhancing POS Usage, Instant Gratification of POS Demand
Information Classification as Needed
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Presentation Identifier.37
In Summary
Long-term success in
credit requires
Overall
 The Ukraine economy is
 Positive and negative market
growing and demand for
information sharing and use
credit is expected to continue
 Robust information systems
to increase
in and out of the bank
 Products will get more
 Discrete product offerings and
sophisticated and credit
product reporting that allow
consumers will only get
products to reach full potential
savvier and more demanding
 Consumer propositions that
 Demands on banks for
maintain value and appeal
efficient and informed risk
management will only
increase as consumer credit
exposure increases
 Strategies aimed at
encouraging RSV spend
Information Classification as Needed
38
Presentation Identifier.38
Thank you