the turkish credit_cards_experience_2010
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Growing Customer Base Through Customised Solutions in Credit Cards Business
June 2010
:askbmm consulting Gulbahar Mahallesi Avni Dilligil Sokak No:5 Celik Is Merkezi C Blok Kat::4 Daire:16 Mecidiyekoy Sisli 34387 ıstanbul Turkey T: +90 212 347 7260 F: +90 212 347 7275 www.askbmm.com
askbmm consulting is a boutique management consulting firm that uses strategic insight, tailored solutions and a collaborative working style to help clients achieve sustainable results.
Disclaimer
The initial market briefing included in this presentation has been produced by askbmm askbmm has prepared this document within a limited timeframe and has relied heavily in its analysis upon previous industry experience,
publicly available data such as press reports, annual reports, websites and market reports askbmm cannot be held accountable for any investment, restructuring or another strategic decisions made upon the basis of this limited
data gathering exercise. Any opinions expressed here are preliminary nature, based upon judgement of the data collected to date. This report is collected from publically available data
No person may rely on any advice or information contained in this report or provided in any presentation made by askbmm. Any use or reliance by such other persons on askbmm’s advice or information is entirely at their own risk. askbmm shall have no liability for any loss or damage arising out of any such use or reliance
© askbmm 2010: Customised Solutions in Credit Cards Business 2
Agenda A Case Study : Turkish Credit Card Market
Innovative System The Enhanced Loyalty and Profitability
Introduction to askbmm consulting
3 © askbmm 2010: Customised Solutions in Credit Cards Business
bank was the last to step in the air miles competition
The rival department store, in association with Garanti Bank launches a similar card with reward points redemption at the merchant option
Turkish Credit Cards : Milestones of The Last Decade Turkish banks were forced to introduce innovative features (independent air miles and lucky draws) as competition to sustain and increase customer base got tougher
© askbmm 2010: Customised Solutions in Credit Cards Business
2000 2001 2003 2002 2004 2005 2006 2007 2008 2009
Advantage was a spinoff from a department store’s deferred payment card launched in early 1999
Garanti bank launches first official credit card of Turkish Airlines. Along with earning air miles, card offers deferred payment as well
Turkey’s oldest bank retaliates to market shifts introducing reward awarding and deferred payment option card. Rewards are equal to 1 TL and redeemed at merchants at face value
More banks shift credit cards features towards rewards redemption at merchants and deferred payments. Yapı Kerdi converts its credit card base to world system
Last to join this paradigm shift, Akbank was the first to directly link rewards to monetary value
As competition increase banks began seeking to ad new features. Akbank introduces new card which also rewards independent air miles on top of previous options
Paradigm Shift Deferred payment options with credit cards
End of an Era Now reward points converted to face value and redeemed at merchants as opposed to previous catalogue system
Joins Bonus rewarding system
Joint air miles programme with Pegasus Airlines introduced. Holders can still earn reward point and miles
New Features Travellers are the new target. Banks offering additional independent air miles with reward points
Yapı Kredi bank launches its air miles featured credit card programme
Consolidation of Credit Card Systems
As competition to increase credit card base, akbank launches credit card that also offers a monthly lucky draw of high ticket items such as cars, apartments, boats, TVs etc.
4
Source : Company web sites, BKM, Trade Press, askbmm research
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
0
5
10
15
20
25
30
35
40
45
50
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Yearly Spending per Credit C
ard
# of
Cre
dit C
ards
(mill
ion)
# of Credit Cards Spendings per credit card (US$)
Turkish Credit Cards : Impact of Deferred Payment Options Today all Turkish banks offer credit cards with differed payment options at competitive interest rates and shifted towards instant points redemption (at the merchant)
© askbmm 2010: Customised Solutions in Credit Cards Business
Introduction of deferred credit cards (enabling installments) and shift from catalogue points to points redemption at merchants
Financial crises
Number of credit cards offering deffered payments increase and bank partnerships (using same brand, IT systems, model etic)
Consolidation of various banks credit cards systems under the leading 4 brands
Further consolidation of credit cards brands (other banks to join this wave)
CAGR
c. 25%
c. 7% Siginificant increase in number of merchants offering deffered payments and point redemptions
5
Source : Central Bank of Turkey, Banking Regulations and Supervision Agency, BKM, Trade Press, askbmm analysis
Turkish Credit Cards : Impact of Deferred Payment Options While the average number of transactions seems to be stagnated at CAGR c. 2% it is mainly due the significant increase in number of credit cards
© askbmm 2010: Customised Solutions in Credit Cards Business
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
0 10
20 30
40 50
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Transaction Value Tran
sact
ions
/Yea
r
# of transactions per credit card Average Transaction
Financial crises
Increase in # of POSs CAGR
c. 2%
c. 7%
6
Source : Central Bank of Turkey, Banking Regulations and Supervision Agency, BKM, Trade Press, askbmm analysis
Turkish Credit Cards The Turkish credit card is still under penetrated compared to other countries and there is a considerable growth potential
© askbmm 2010: Customised Solutions in Credit Cards Business
0
10,000
20,000
30,000
40,000
50,000
60,000
-0.5 0 0.5 1 1.5 2 2.5 3 3.5
GD
P / C
apita
$
Number of Credit Cards / Population
GDP/Capita vs. Number of Credit Cards/Population 2009
UNITED STATES
JAPAN CANADA
SOUTH KOREA
UNITED KINGDOM
FRANCE SPAIN
GERMANY
SAUDI ARABIA
RUSSIA
MEXICO
THAILAND JORDAN
TURKEY BRAZIL
* The size of the spheres corresponds to the population
7
Source : TUIK, BKM, Central Bank of Turkey, Lafferty Group Research, Trade Press, askbmm analysis
Turkish Credit Cards : Consumer Perspective Turkish consumers prefer lower limit credit cards that are compatible to their monthly income and they tend to consume only 50% of this limit
The most commonly used credit cards (at 88%) are those with a limit cap less than US $3,000. Turkish consumers prefer to use lower limit cards parallel to their monthly income
Only 11% of Credit card holders use more than 85% of the card limit whereas 75% of the holders only utilises up to 50%
Number of cards ownership differs with S.E.S groups as in the S.E.S A segment consumers on average owns +3 cards whereas in C segment this number goes slightly below 2
Deferred payment option became the leading factor for the usage of credit cards. Instant points redemption at the merchants ranks second in the top reasons of using and selecting a credit card
Consumers tends to choose deferred payment option with purchases above US $50 - “Consumers today are able to make high value purchases benefiting
from the deferred payment feature/option allowing us the retailers to increase our sales” BMD Chairman
- “[credit cards] penetration rate increase had a positive effect on consumer allowing them to change life styles as the range of products now purchase increase” AMPD, Chairman
- “Instant reward points redemetion [at our shops] motivates the customers to continue shopping despite the economic downturn - Mehmet Nane, CEO, Teknosa
With 62% of the consumers owning two or more credit cards, the ability to offer wider usage of installments is the determining factor in the choice of credit cards
© askbmm 2010: Customised Solutions in Credit Cards Business
$0 $20 $40 $60 $80
$100 $120 $140 $160
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009E
US
$ (b
illio
n)
Acquiring Volume ( Retail & Cash )
Siginificant increase in number of merchants offering deferred payments/points redemption over credit cards
CAGR
c. 30%
0
0.5
1
1.5
2
2.5
$0
$500
$1,000
$1,500
$2,000
$2,500
2005 2006 2007 2008
Average Credit Card Limit Credit Cards/Consumer
8
Source : Central Bank of Turkey, Banking Regulations and Supervision Agency, BKM, Trade Press, askbmm analysis
Turkish Credit Cards : Merchant Perspective
Merchants claim that the increase in number of customers, hence sales volume is due to two major factors: 1. increase in number of credit cards; and 2. deferred payment option
Today an average of 44% of total purchases are made through credit cards (electronic and durable goods are at 50% where grocery is at 40%) increasing from a low 15% in the beginning of the century
78% of merchants believe that they would run out of business if they hadn’t introduced credit cards/deferred payment options
45% of merchants stated that purchases via credit card increased during economic crises allowing them access to cash and funds
Close to 90% of sports activity tickets are sold through deferred payment credit cards
In 2008 c 2.7 million air travel tickets were sold via points
Merchants, turned towards credit cards offering deferred payment and points redemption as the solution to offset the limited purchase power and increase sales
© askbmm 2010: Customised Solutions in Credit Cards Business
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009E
POS
(000
)
# of POS Machines at Merchants CAGR
c. 30%
9
Source : Central Bank of Turkey, Banking Regulations and Supervision Agency, BKM, Trade Press, askbmm analysis
Turkish Credit Cards : Incorporated Risk The eye catching growth and profits comes at a cost. c. 3% of card holders fail to pay their credit card debts during the legal period creating a none performing loan volume at c. US $2,690 million
Only 20% of credit card holders do not pay the full amount/debt on time of which c. 48% pay the minimum amount only
While c. 40% of card holders did not pay the debt amount on time in 2001 this number fell to c.20% in 2009 clearing the clouds of the pessimist outlook
© askbmm 2010: Customised Solutions in Credit Cards Business
0
100
200
300
400
500
600
700
2005 2006 2007 2008 2009
(000
)
# Of People Who Did Not Pay Credit Cards Debt
CAGR
c. 76%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2005 2006 2007 2008 2009
(mill
ion)
Non Performing Loan (Credit Cards)
CAGR
c. 29%
0.00%
2.50%
5.00%
7.50%
10.00%
2005 2006 2007 2008 2009
% Of Card Holders Who Did Not Pay Credit Cards Debt
CAGR
c. 70%
10
Source : Central Bank of Turkey, Banking Regulations and Supervision Agency, BKM, Trade Press, askbmm analysis
Agenda A Case Study : Turkish Credit Card Market
Innovative System The Enhanced Loyalty and Profitability
Introduction to askbmm consulting
11 © askbmm 2010: Customised Solutions in Credit Cards Business
How Does The System Works Today, the cost and burden of offering additional reward points and deferred payment options is shared by the merchants whom in return have notably increased their revenues and profits
© askbmm 2010: Customised Solutions in Credit Cards Business
Merchant Bank Common Pool
Merchant offers: 1%-5% reward points at
their own cost Additional reward points
during special promotions in relation with bank
Bank offers: X% reward point from
purchase or transactions made at non partner merchants
Reward Points
Shopping with: Reward point Benefiting from deferred
payment option
Merchants at the POS can: Offer a wide range of reward
points redemption Different terms of deferred
payments (with or without interest)
Payment: Consumers benefit from
deferred payment option
Bank offers: Additional deferred
payment option based on agreement with partner merchants
Merchant Accepts: Deferred payment option
at their own cost
12
Win-Win-Win : For Banks System allow the bank to increase customer loyalty and engagement, hence profitability by leveraging merchants participation and utilising approved credit lines
© askbmm 2010: Customised Solutions in Credit Cards Business 13
Boost Customer Base
Retail client number will increase due to the facilities that the system offers
Merchants/corporate cline base will also increase as the system enables higher revenues/cash generation
Utilise Approved Credits
System enables banks to utilise their approved retail customer credit lines through deferred instalments
Facilitate ground to raise debt-capital through securitization of future credit-card receipts
Profit and Revenue Enhancement
Interest charges to customers along with higher spending volumes
Interest charges to merchant: depending on the arrangement
Lower costs as merchants share the burden
Retail customers' floats
Win-Win-Win : For Merchants At a very low cost merchants will benefit from offering a loyalty programme and credit facilities instantly and hassle-free to their customers
© askbmm 2010: Customised Solutions in Credit Cards Business 14
Higher Turnover
Big ticket items are financed at long term loans instantly and with no hassle
Customers will be able to purchase higher volumes faster
Higher Volumes
Merchants will have loyalty programme at low cost allowing customers to purchase any item instantly with reward points
Profit and Revenue Enhancement
Faster inventory turnover hence lower operational costs
Loyal customers (they wish to redeem points at the pos)
Increase in sales margins blended with interest rate
Win-Win-Win : For Customers While c 25% of purchase items are made through deferred payments, small items are purchase via reward points allowing the customers to choose payment terms and methods based on their cash flow schedules
© askbmm 2010: Customised Solutions in Credit Cards Business 15
Loan Facility
Deferred payment option allowing customers to choose payment terms and schedule their cash flow
Extended line for big ticket items instantly
SMART Loyalty Programmes
One reward pool One card for all programmes and
partners Faster rewards collections and
redemption
Access to Needs
Hassle free access to funds when needed
Access to items via multi payment options
Key Success Factors
Policy and Procedures
Devising a reasonable credit policy is of utmost importance as today’s consumer credit decisions are given in 1 hour. Credit card approvals should not take days
Limit assignment process has to be very fast and straight forward with a scoring system Availability of credit history data base
Socioeconomic, hence change in spending habits
Purchasing power is a key political and social issue Growing urbanisation results in an emerging middle-class whom willing to improve current life
standards Tendency of people to mortgage their future income in return of better life standards
Market dynamics Shift from an industrial to a service economy Need for productivity gains (better employee health)
Merchants buy-in
Merchants’ financial robustness and willingness to entre such business Size of the affiliate network and participant companies (there is a balance of critical size for
merchants to entre the system and number of credit cards offering these attributes) Sales force to develop large affiliates networks
While credit risk policy and Vendor buy in are key denominators, market dynamics and socioeconomic factors are major catalysts in ever changing trade and finance flow
16 © askbmm 2010: Customised Solutions in Credit Cards Business
Agenda A Case Study : Turkish Credit Card Market
Innovative System The Enhanced Loyalty and Profitability
Introduction to askbmm consulting
17 © askbmm 2010: Customised Solutions in Credit Cards Business
Our Services
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Organisations and Operations
Transaction Support Services
Corporate Strategy Product and Service Development
Organisation Effectiveness and
Restructuring
Commercial Due Diligence
Business Forecasting and Strategy Loyalty Programmes Operational Due
Diligence Mergers and Acquisitions
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and Selection
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Despite our short history, we have been trusted advisors on key challenges and CEO-agenda issues to leading corporations and many conglomerates across a vast range of industries
© askbmm consulting 2011 - Introduction to askbmm consulting 18
Why askbmm consulting?
Urgency and Skill Team with Real World Experience We Reinvent The Job
Time is short, skill is absent while the organisation needs the work to be delivered immediately. askbmm steps in to fulfil the need
askbmm team of partners and managers have real world business experience and are industry experts with consulting capabilities
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We support in building the confidence and provide the tools necessary to find faster, better and cheaper solutions that caters to your opportunity needs
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Capabilities We tailor our service to the need
and not entirely rely on a tried and true off the shelve expertise
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The correct solution is dynamic, hence we go beyond the pretty reports, fancy frameworks and “analysis-paralysis” and deliver actual results with measurable impacts
Our team is made of analytically strong graduates from the world’s best universities and business schools all with real life execution experience
we go beyond the pretty reports, fancy frameworks and “analysis-paralysis” and deliver actual results with measurable impacts
© askbmm consulting 2011 - Introduction to askbmm consulting 19
We Reinvent The Process We are a team with strong discipline, who demonstrates spectacular leadership, problem solving ability and outside-the-box thinking which is more than enough to make us successful in areas even where we have little industry experience
Industry Experience Discipline and Methodology
We succeed by being a team: Who knew how to manage
crisis, how to define the problem, how to find the solution, how to inspire people, and how to lead and never
flinch under pressure.
Is it necessary to only hire people who worked for your direct competitors? Would this “industry experience” make you successful?
It is clear that industry experience is preferred, but never been a must
© askbmm consulting 2011 - Introduction to askbmm consulting 20
Ahmet Rauf Saatçi - Managing Partner
Major Industries Served! Major Practices Delivered !
Telecom (fixed and Mobile)" Real Estate" Retail and F&B (Franchising, Distribution Networks) " Aviation (Non Aeronautical Revenues) " Financial Services (Private Equity, Venture Capital,
Leasing)"
Commercial Due Diligence" Investment Opportunity Screening and M&A Support" Sales and Marketing Enhancement" Loyalty Programmes" Financial Modelling (Financial Impact Analysis)" Franchising Development "
Languages! Professional Experience! Educational Background !
askbmm Consulting- Managing Partner/Founder! Argentum Ventures NV - Investment Director" Century 21 Germany, Turkey & Greater Balkans –
Managing Director" Skytelekom - Managing Partner/Founder" Sabancı Telekom – Director, Consumer Sales" Aria/Avea – Manager, Sales Management"
Haas School of Business, UC Berkeley!- Degree in Venture Capital!
Bilkent University!- MBA!
School of Engineering and Technical Management, UCLA!- Degree in Engineering Management !
Baghdad University !- B.Sc. Civil Engineering!
Gülbahar Mah. Avni Dilligil Sokak No:5 C Blok, Kat:4 Daire:16 Esentepe, Sisli 34394 Istanbul, Türkiye"M:+90 532 3555444"M:+90 549 3555444"T:+90 212 347 72 60-61"ahmet@askbmm.com"Skype:ahmetraufsaatci"
Main Clients Served!
Telecom: Vodafone (Turkey); Umniah (Jordan)" Real Estate: The Land Holdings (Jordan) , Century 21 (Jordan, Serbia, Turkey) ; Uzel Makina (Turkey)" Financial Services: Nuqul Group (Jordan); Lehman Brothers (UK); İş Girişim (Turkey); QVT Financial (UK)" Aviation: TAV Airport Holdings (Turkey)" Logistics: Evyap port"
© askbmm consulting 2011 - Introduction to askbmm consulting 21
Kerem Barut - Managing Partner
Major Industries Served! Major Practices Delivered !
Telecom (Fix & Mobile)" Financial Services (Private Equity, Insurance)" Retail and F&B (Franchising, Distribution Channels) " Health Care and Pharmaceuticals (CDD, SOP)"
Commercial Due Diligence" P&P" Distribution Channels" CRM and loyalty programmes " Financial Modelling "
Languages! Professional Experience! Educational Background !
askbmm Consulting- Managing Partner/Founder! Avs Technologies – CEO" Sabancı Telekom – CS&MO" Aria/Avea –Sales Director" Turkcell – Prepaid (Hazır Kart) Unit head"
Istanbul Üniversitesi!- MBA!
Istanbul Teknil Üniversitesi!- B.Sc. İnşaat Müh.!
Gülbahar Mah. Avni Dilligil Sokak No:5 C Blok, Kat:4 Daire:16 Esentepe, Sisli 34394 Istanbul, Türkiye"M:+90 533 492 0707"T:+90 212 347 72 60-61"kerem@askbmm.com"Skype:keremone!
Main Clients Served!
Telecom: Vodafone (TR), Turkcell (TR), Ucell (Uz)" Financial Services : Lehman Brothers (UK); Acıbadem Sigorta (TR), Ray Sigorta (TR), Turk Nippon Sigorta (TR)" Healthcare & Pharma: Medek (TR), Sanovis (TR)" Construction: Schneider Electric (TR)"
© askbmm consulting 2011 - Introduction to askbmm consulting 22
Alper Uyar - Partner
Major Industries Served! Major Practices Delivered !
Financial Services (Leasing, Factoring, Banking, Private Equity, Venture Capital)"
PE Advisory Services (Opportunity Screening, Investment Decision, M&A Support)
Financial Restructuring, Debt Advisory, Financial Turnarounds
Start-ups (Operational Systems Design, Pricing Methodologies, Pre And Post-license Business /Operational Plans)
Languages! Professional Experience! Educational Background !
Askbmm Consulting- Partner/Industry Expert" Fleetcorp – CEO and BOD Member" Turkish Factoring & Leasing - CEO" Dogus Otomotive – Board Member" Garanti Factoring – CEO" Aktif Leasing – CEO"
Middle East Technical University!- Associate in Political Science!
School of Management and Economy, Boğaziçi University!- B.Sc. Economics!
Gülbahar Mah. Avni Dilligil Sokak No:5 C Blok, Kat:4 Daire:16 Esentepe, Sisli 34394 Istanbul, Türkiye"M:+90 532 313 8986"T:+90 212 347 72 60-61"alper@askbmm.com"Skype:alper.uyar!
Main Clients Served!
Financial Services/Private Equity: Garanti Leasing, Garanti Factoring, NBFS, The International Investor (do-car), Garanti Bank Moscow
Automotive : Dogus Oto
© askbmm consulting 2011 - Introduction to askbmm consulting 23
Dr. Melike Mermercioğlu- Partner
Major Industries Served! Major Practices Delivered !
Construction Textile, Apparels And Fabrics ICT Automotive"
Strategic Management, Management By Projects Redesign Of Operational Systems And Processes,
Total Quality And Quality Assurance Systems, MIS Organizational Restructuring, Human Resources
Costing"
Languages! Professional Experience! Educational Background !
askbmm Consulting- Managing Partner/Founder! Kavrakoğlu Consulting- Principal" Aksa Chemicals– Executive Consultant/Advisor to
the Board of Directors" Co-author of 3 books
Istanbul Technical University !- PhD Management Sciences !
Imperial College, University of London!- MSc. Management Sciences !
School of Management and Economy, Boğaziçi University!- B.Sc. Business and Economics!
Gülbahar Mah. Avni Dilligil Sokak No:5 C Blok, Kat:4 Daire:16 Esentepe, Sisli 34394 Istanbul, Türkiye"M:+90 532 611 6340"T:+90 212 347 72 60-61"melike@askbmm.com"Skype:melikemermerci!
Main Clients Served!
Telecom: Vodafone (Turkey), Turkcell, Superonline, Empa" Retail: Darty (Turkey)" Automotive: Nissan (Turkey), Renault Mais! Pharmaceuticals: Istanbul Pharmacies Cooperation (Turkey)" Manufacturing: Cevher Makina Sanayii, Ege Seramik, Aviation: TAV Airports Holding (Turkey); TAV Operation Services (Turkey)"
© askbmm consulting 2011 - Introduction to askbmm consulting 24
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