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Credit Card & Merchant Businesses Nicholas L.A. Kennett General Manager Cards & Financing Products

Credit Card & Merchant Businesses Nicholas L.A. Kennett General Manager Cards & Financing Products November 2001. Disclaimer.

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Credit Card & Merchant Businesses Nicholas L.A. Kennett General Manager Cards & Financing Products

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  1. Credit Card & Merchant Businesses Nicholas L.A. Kennett General Manager Cards & Financing Products November 2001

  2. Disclaimer The material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation, 7 November 2001. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate.

  3. Outline • Credit card environment in Australia • Regulatory environment • Profitability drivers • CBA Card - Strategy and Vision • Delivering the vision • The future

  4. Cards Environment in Australia • Highly competitive • Significant growth • Key players and market share • Consumers seeking convenience and security • Sophisticated payments environment • Ansett collapse • Re-regulation

  5. Average Daily Number of Transactions for Month of May million 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1993 - 94 1994 - 95 1995 - 96 1996 - 97 1997 - 98 1998 - 99 1999 - 00 2000 - 01 Cheques Direct Debit Direct Credit Australian Payment Trends Cheques Direct Credit Debit Cards Credit Cards Direct Debit Debit Cards Credit Cards Source: RBA

  6. Regulatory Environment • Worldwide focus • RBA designation of the ‘Schemes’ • developing standards • interchange fees • access regime to the credit card systems • review expected in November 2001 • consultation period • final decisions in early 2002

  7. Possible Market Impact of Regulatory Changes • Reduced interchange income to issuers • Reduced interchange expense to acquirers • Potential risk of ‘contamination’ of payments system • Potential backlash to surcharging • Higher cardholder fees • Unequal position with “closed” schemes • Less funding for loyalty • Pressure on commercial cards • Less technology investment

  8. Business Impact of Potential Regulatory Changes • Best placed institutions will have: • large portfolio • balanced issuing and acquiring profile • high ratio of interest/interchange income • low cost rewards programme • broad portfolio of merchants

  9. Profitability Drivers • Card numbers • Spend/spend per card • Revolve rate • Margin and fees • Number of merchants • Number of ATMs • Merchant turnover • MSF • “On-us” transactions • Loss/Fraud rates Issuing Acquiring

  10. CBA Cards - Vision and Strategy • Market share of profit • Leverage customer base, distribution channel & scale • Mono-line discipline with multi-product relationship • Sustainable business model • Integrated issuing, acquiring and ATM business • Packaged offerings • Focus on ROTE, service and alliances

  11. CBA Cards - a Scale Business • 10m CBA Customers • #1 in cardholders • #1 in merchant relationships • #1 in ATM terminals • True Awards • Woolworth's Ezy Banking alliance • Partner relationships

  12. Issuing Strategy • Focus on sustainable market share of profit • acquisition, retention and activation programmes • usage as a credit tool • usage as a relationship tool • NIM management • loss management • convergent business models • loyalty costs • CRM/relationship packaging • Service • Distribution management

  13. Issuing Results

  14. Credit & Fraud Losses Mkt. aver. Credit (bps) Mkt. aver. Fraud (bps) 1998-99 1999-00 2000-01

  15. CBA Acquiring • #1 market share • 150,000 Merchants • 4,000 ATMs • 35% market share • Growing at 25 %+ pa • Key initiatives: • Mobile • E-commerce • Low capital requirement

  16. Acquiring Results - Market Share Credit Cards • Loyalty programs • Convenience • Corporate purchasing • Revolving lines of credit • Online purchasing % 29.9 30 21.6 20 10 1996 1997 1998 1999 2000 2001 Debit Cards • Convenience - EFTPOS • Security - no cash • Control - own funds • Global - ATM/EFTPOS % 46.3 40 24.8 20 1996 1997 1998 1999 2000 2001 * Source : RBA 2001 reports

  17. Acquiring Strategy • Leverage scale • Convergent opportunities • Leverage relationship with corporate relationships • New acquiring markets • Support customer move to online acquiring • Drive down losses

  18. Acquiring Fraud Losses bps 0.80 0.60 0.40 0.20 1998-99 1999-00 2000-01

  19. The Future • Consumer - convenience and security • Merchant - convenience, security and price • Regulation - ongoing • Technology - Pin@POS, 3DES, 3D Secure/SPA, Chip • The winner will have a sustainable business model, options, strong distribution and scale

  20. Credit Card & Merchant Businesses Nicholas L.A. Kennett General Manager Cards & Financing Products November 2001

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