the turkish credit_cards_experience_2010

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)


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


$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


Turkish Credit Cards The Turkish credit card is still under penetrated compared to other countries and there is a considerable growth potential


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


$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


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


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


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


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


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


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


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


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


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


Our Services

Strategy Marketing and Sales

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

Innovation Support (Mavericks)

CRM, Customer Services, Contact

Centres Management Service Effectiveness Screening, Evaluation

and Selection

Sales and Distribution Channels’

Management

Sales Force Enhancement

Strategic Market Due Diligence

Pricing and Pricing Strategies

Financial Restructuring

Post Merger Integration

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

  We do not only promise to do the job, but we also help in reinventing the job"

  We support in building the confidence and provide the tools necessary to find faster, better and cheaper solutions that caters to your opportunity needs

Tailored Service Facts and Evidence Not Opinion

World-class Analytical and Execution

Capabilities   We tailor our service to the need

and not entirely rely on a tried and true off the shelve expertise

  We stay at client site to ensure recommendations are being implemented properly and are achieving expected results

  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


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


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"[email protected]"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"


Kerem Barut - Managing Partner


  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 "


  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"[email protected]"Skype:keremone!


  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)"


Alper Uyar - Partner


  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)


  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"[email protected]"Skype:alper.uyar!


  Financial Services/Private Equity: Garanti Leasing, Garanti Factoring, NBFS, The International Investor (do-car), Garanti Bank Moscow

  Automotive : Dogus Oto


Dr. Melike Mermercioğlu- Partner


  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"


  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"[email protected]"Skype:melikemermerci!


  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)"


the turkish credit_cards_experience_2010

Business

turkish credit cards

askbmm askbmm

credit cards spendings

credit cards business4

credit cards business5

credit card us

credit cardwith

credit cardvalue