Presented by:Sanjoy SenManaging Director & Head of Consumer Bank – MENAInnovation in Cards & GrowthOpportunities within th...
Agenda2The State of the WorldConclusionDrivers of InnovationThe OpportunityThe New Realities
State of the world – Change in customer behaviour3Increasing number of under-banked Rise of alternative lendingWrite-offs ...
State of the world – Change in the payment landscape4While payments continue to grow, debit growth is happeningat the expe...
New Realities5Innovative new business models are emerging which could help banks tosustain competitiveness as the payment ...
Payment Channels6A) Point-of-Sale (POS) B) Online ShoppingC) Mobile Payment D) Person-to-Person (P2P)Payment battlefield i...
Payment Trends7Internet users (millions)% population1.1 1.31.72.33.23.84.430%40%49%66%72%80%2000 2006 2008 201031%297 3184...
What is the customer need?8SafetyConvenienceCreditRewardsStatusHaving a Credit Card is NOT a customer need
Banks will stay9Banks move slowly and resistdisruption of their core businessTechnology companies are likely todevelop wor...
Who is driving innovation?Type and level of innovationContinuous,IncrementalGamechangerStep ChangeMarket PlayerBanks / Iss...
Payroll Card11Continuous,IncrementalGamechangerStepChange An electronic paymentsolution An electronic accountwhich is pr...
Mobile Banking12Continuous,IncrementalGamechangerStepChange Allow customer to accessbanking services from themobile devic...
Gift Card / Loyalty Card13Continuous,IncrementalGamechangerStepChange Closed-loop / open-loopPre-Paid Card Cards made fo...
Continuous,IncrementalGamechangerStepChangeVisa SimplyOne14 A multi-application chip cardthat combines Debit and Creditin...
Continuous,IncrementalGamechangerStepChangeContactless and Mobile Payment Convenience Auto-top-up feature for transit ca...
Mobile Innovations target each component of the retailexperience16Source: McKinseyMobile to generate demand, consummatetra...
Continuous,IncrementalGamechangerStepChangeMobile Payments via Zong Mobile payments servicefor online games and socialnet...
Continuous,IncrementalGamechangerStepChangeMobile Credit Card POS with Square18 Proprietary applicationturns smart phones...
Continuous,IncrementalGamechangerStepChangePayPal Easy and secure Internetand Person-To-Person(P2P) payments No need to ...
Continuous,IncrementalGamechangerStepChangeM-PESA20What is it? BenefitMarketPlayer5 Newentrant Mobile P2P payment bySafar...
Continuous,IncrementalGamechangerStepChangeSocial lending21What is it? BenefitMarketPlayer5 Newentrant Marketplace for mo...
Leveraging Social Media22Earning trust, building relationships and empowering communitiesIncrease brandawarenessCommunicat...
Agenda23The State of the WorldConclusionDrivers of InnovationThe OpportunityThe new realities
If Facebook was a nation24Banks have to think and act like a digital companywhile retaining a strong focus on security and...
Conclusion25SafetyConvenienceCreditRewardsStatusBanks won’t go away, BUT …..Customer needs:Payment channels:A) POS B) Onli...
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Sanjoy Sen - World Cards Conference - Key Note Presentation - Global Trends & Innovation in Cards & Payments - March 2012

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  • Allow me to start with the changed customer behaviorTop left:Customers are deleveraging across the worldAs you see on the chart, the UK total lending volume stagnates since the beginning of the crisis, same applies to the Middle EastTop right:Write-offs came down significantly from peak levels but are still high compared to the long term averagesBottom left:Increased write-offs during the crisis led to a wide-spread deterioration of credit scoresThis in combination with banks across the globe tightening their credit policies resulted in an increasing number of under-banked Bottom right:With the broad decline in credit scores, alternative lenders emerged: payday lenders, pawn brokers, credit unions or home credit.
  • Top left:The payment market in contrast is still growingTop right:Regulators post crisis across the world are tackling financial services: Greater capital requirements, fostering competition among market players, ring fencing retail operations and pricing / interest rate caps as we have seen in the Middle EastBottom left:As we discussed on the previous slide, customers are deleveraging and the number of credit cards as well as the their outstandings are declining in the developed worldBottom right:One clear winner of deleveraging is debit
  • Top left:Credit cards are going through a midlife crisis. Interest rates are at all time highs and regulators pressure rates and feesCost of funds are at all time lows with little downward potentialGood news on cost of credit which stabilized due to improved environmentWith moving towards the more affluent segments, acquisition costs are expected to increase given the intensified competitionIncreased regulation will impact Operating Expense Top right:More and more customers have banking relationships with more than one bank and the likelihood to switch is increasingTop reason for customers to switch is serviceBottom left:Mobile payments will become realityBottom right:And the digital transformation will reach its tipping point
  • Before we discuss the opportunity, let’s define the battlefieldOffline and Point-of-Sale transactions have still by far the biggest payment volumeOnline as we will see is growing fast across the world with the Middle East still to catch upLike Online, Mobile Payments is an area that is growing fastLast but not least, Person-to-Person Payments
  • POS is growing again – as we discussed earlier, debit cards are outgrowing credit cardsOnline Shopping is gaining momentum in all parts of the worldMobile Payments are growingP2P is growing slowly
  • Questions:Are card issuers really the only players that can meet these customer needs?Big internet players such as Amazon already entered the payment space in the US with Amazon Checkout for B2C. How could Apple change the consumer payment landscape?How much of the payment space could be stolen by Telecoms entering the field?
  • We have different players in the industry:Banks / IssuersProcessorsRetailersAssociations (Visa / MasterCard)Technology providers and new entrantsThe type and level of innovation varies by player. Banks and issuers have been focusing on continuous and incremental innovations. Associations have been very innovative in step changes. However, Game Changers will come from new entrants from other industries
  • Retailers have been focusing on innovations such as loyalty and gift cards . They can be open-loop or closed-loop.Closed-loop means: Gift card only works at one particular merchant or one group of merchantsOpen-loop means: PrePaid cards utilising Visa / MasterCard, hence are accepted worldwideCiti supports open-loop prepaid cards in various markets, e.g. the USCard can be made for any occasion, birthday, bridal shower, anniversary …High end retailers have custom packaging as well which can really take thegift to the next level and it can add a personal touch to a gift that is often thought to be impersonal. Gift Cards can also be open-loop, which means they can be used anywhere where Visa/MC is acceptedOther Benefits for retailer:Consumers spend more with gift cards 77% of gift card recipients reported spending more than the initial value of their gift card with an average increase of $39178% of consumers have purchased or received a gift card in the past 12 months2The average gift card buyer has purchased 4.7 cards in past 12 monthsEnhance brandConnect with customers and build your brand awareness A gift card recipient is receiving an endorsement of the merchant from the card purchaserGift cards attract new customersKeep profits in-houseSome merchants opt to use “store credit” via gift cards for merchandise returnsBalance on activated cards is held by the merchant until redemptionReduces fraud and is inexpensive to accept as a form of payment
  • Another example is mobile banking which brings Citi’s banking services to the customers fingertips. The Middle East is leading in terms of mobile penetration, for example we have 2 handsets per inhabitant in the UAECustomers can either download an application or use their embedded mobile internet browser to access all banking services that they can do online (check accounts, transfer locally / internationally, pay bills etc.)As additional mobile feature they can also locate the nearest branch
  • Retailers have been focusing on innovations such as loyalty and gift cards . They can be open-loop or closed-loop.Closed-loop means: Gift card only works at one particular merchant or one group of merchantsOpen-loop means: PrePaid cards utilising Visa / MasterCard, hence are accepted worldwideCiti supports open-loop prepaid cards in various markets, e.g. the USCard can be made for any occasion, birthday, bridal shower, anniversary …High end retailers have custom packaging as well which can really take thegift to the next level and it can add a personal touch to a gift that is often thought to be impersonal. Gift Cards can also be open-loop, which means they can be used anywhere where Visa/MC is acceptedOther Benefits for retailer:Consumers spend more with gift cards 77% of gift card recipients reported spending more than the initial value of their gift card with an average increase of $39178% of consumers have purchased or received a gift card in the past 12 months2The average gift card buyer has purchased 4.7 cards in past 12 monthsEnhance brandConnect with customers and build your brand awareness A gift card recipient is receiving an endorsement of the merchant from the card purchaserGift cards attract new customersKeep profits in-houseSome merchants opt to use “store credit” via gift cards for merchandise returnsBalance on activated cards is held by the merchant until redemptionReduces fraud and is inexpensive to accept as a form of payment
  • Visa and MasterCard have big scale and the required muscle for innovations. One example is Visa SimpleOne which combines Debit and Credit in just on physical chip enabled cardMasterCard offers a similar service under the name MC FlexVisa and MasterCard have many more innovations, be it Verified-by-Visa / 3D-Secure to secure online shopping payments or Chip-Cards to reduce fraud. All these innovations are then brought to the market in collaboration with one or usually multiple issuers
  • Another example of innovations between Associations and Banks are contactless cardsCiti launched Contactless Card in IndonesiaCiti launched Transit Cards in Singapore, Hong Kong, Delhi, Washington DC and Moscow - all functioning as contactless wallet with auto top-up feature Citi trialed NFC in Bangalore and Singapore There are talks that Apple might integrate NFC with its iPhone5. If this happens and it will be smoothly integrated with iTunes, then Apple has the potential to shakeup the payment industry as well. More on NFC will be covered in a dedicated speach
  • We need to watch out for mobile innovations along all elements of the value chain starting from pre-visit over decision making, transaction and then post-visit.The Actual transaction is just one element
  • Zong is a Technology Provider in the Mobile Payment space that focuses on the new segment of purchases for online games and social network .What is it?Operates in almost 30 countries and connected to over 100 mobile carriers Allows users to buy goods from gaming and social networks through mobile phonesPurchase charge are added to monthly phone bill or deducted from prepaid planThis completely bypasses the banking systemBenefitPayment solution for the unbanked – purchase billed directly to carrier’s monthly invoice or deducted from prepaid balanceZong+ can be linked to a credit / debit card as an additional payment method
  • Service currently only available in the USRemove complexity of accepting payments from cards by eliminating need for contract with merchantsAvailability anywhere explicitly helpful for services sector, e.g. house repair visits, outdoor stands, …Lower costs: no set-up, no minimum contract period, better interchange and faster payments to merchantsEasy set up process via download from iTunes app store. The actual hardware is mailed by courier
  • Easy and secure Person-To-Person (P2P) payments over the internet without the need to exchange credit card numbers or account detailsSolves the mistrust problem: Customer gets promised goods and merchant gets the promised moneyFast / instant, secure, easy, globalOpened its API to developers Similar services are offered byAlipay and Google Checkout . More than 153 million accounts worldwide. Available in 190 markets and 23 currencies around the worldPayPal has received more than 20 awards for excellence from the internet industry and the business community -most recently the 2006 Webby Award for Best Financial Services Site and the 2006 Webby People's Voice Award for Best Financial Services Site.PayPal was founded in 1998 and was acquired by eBay in 2002.
  • An innovation clearly meeting thecustomer need for payments in a country with very low banking penetrationOf the 6.9 billion people on our planet, just 30% (2.1 billion) have bank accounts, but 75% have a mobile phoneM-PEAS isa service offered by SafariCom which is aVodafone affiliateM-PEAS was launched in 2007M-PESA is used by 35% of Kenyan adult populationM-PESAhas been a huge success in Kenya. With over 8 million subscribers, it accounted for more than USD 300 million in monthly M-Payment transfers in Nov 2009M-PESA is cost effective compared to other alternatives, i.e. 27% less expensive than the post office’s PostaPayM-PESA has a wide network of over 14,000agent outletsM-PESA has strong security features including PIN protection and value recovery in case of phone lossSimilar service is available in Bahrain called “ME2U Zain Wallet”The Me2U Zain Wallet provides banking facilities directly from the Mobile Phone. Itis a complete banking account that is powered by MODE Bahrain, BMI Bank and Nonoo Exchange, which are all licensed by the Central Bank of Bahrain. Offered services are:Save money in a secure place Receive money electronically in the account Send money to other Me2U account holders Top Up your Zain Prepaid account or any other account (e.g. Wife or children) Send money home at any time, from anywhere Balance enquires 24 hours, 7 days a week Withdraw or deposit money at selected Zain and Nonoo exchange branches
  • With the rise of social networks and digital we also see a rise of social lending dis-intermediating banks for creditBorrowers get lower cost loans and lenders are promised higher returns – subject to the borrower actually paying the lenders backZopa started 2005 in the UK and bills itself as the first marketplace for Social Lending, meaning that members of the community lend and borrow money with each other, sidestepping traditional banks. The premise is that both lenders and borrowers get better rates, because Social Lending is more efficient than traditional banks, which have much more overheadsProsper is the world's largest peer-to-peer lending marketplace, with more than 1,240,000 members and over $305MM in funded loans.
  • I think everybody has to acknowledge that Social Media is here to stay but the dynamics are different from traditional media. Direct selling does NOT work in Social MediaTo be successful, be clear on the objective, is it:Increased brand awareness?Communication to customers?Understanding of customer preferences?Complaint listening?Only then define the channelSome example:Citi’s Click-to-Chat. Prospect customers and existing customers can visit the website and initiate a life chat with the customer service centreOpen Forum is a social community sponsored by American Express that targets small business owners and provides videos, articles, expert blogs, success stories and advice from other business owners and limited networking opportunities. It functions as a hybrid between a networking community and a conventional portalNew ZealandsASB Bank launched a virtual branch on Facebook
  • We looked at the different payment channels and examples for innovationsIt is imperative that you focus on the customer need – again, having a credit card is not a needSo watch out for disruptive innovations from new entrantsContinue to enhance payment functionalities to address customer needs Develop a comprehensive strategy for mobile bankingCreate a solution for contactless payments
  • Sanjoy Sen - World Cards Conference - Key Note Presentation - Global Trends & Innovation in Cards & Payments - March 2012

    1. 1. Presented by:Sanjoy SenManaging Director & Head of Consumer Bank – MENAInnovation in Cards & GrowthOpportunities within the NewGeneration Payment SystemsPresented at:The World Cards and Payments Summit 2012Dubai, 22-Feb-2012
    2. 2. Agenda2The State of the WorldConclusionDrivers of InnovationThe OpportunityThe New Realities
    3. 3. State of the world – Change in customer behaviour3Increasing number of under-banked Rise of alternative lendingWrite-offs remain highCredit card write off as % of outstanding ProjectionDeleveraging customers (UK)Total lending (£bn) Adjusted growth rateSource: Bank of EnglandCustomers are deleveraging; write-offs remaining high. Tightening ofbank policies fosters the rise of alternative lenders such as payday lenders
    4. 4. State of the world – Change in the payment landscape4While payments continue to grow, debit growth is happeningat the expense of credit in an increasingly tightly regulated worldPayments still growingDecline of Credit Cards Rise of debitTightened RegulationGreater capitalrequirementsConsumerprotectionRetailring fenceInterest rate /pricing capsSource: British Bankers’ Association (BBA), Mintel Debit and Credit Cards, July 2011
    5. 5. New Realities5Innovative new business models are emerging which could help banks tosustain competitiveness as the payment and consumer credit markets open upCredit card going through midlife crisisMobile payments will be common placeMobilepaymentsMobilebankingMobilemarketingTipping point for digital transformationP&L item Outlook Observation+ interest, IC, fees+ Interchange, feeAPR at all timehigh, regulatorypressure- Cost of fund All time lows- Cost of credit Depends on recovery- Acquisition costs Intensified competition- Operating Expense RegulationCustomers gearing up for easier switching50%35%More than 1 banking relationshipLikely to switch bankE&Y Survey among GCC customersMore than 1banking relationshipLikely toswitch bankSource: Ernst & Young, PWC
    6. 6. Payment Channels6A) Point-of-Sale (POS) B) Online ShoppingC) Mobile Payment D) Person-to-Person (P2P)Payment battlefield is expanding
    7. 7. Payment Trends7Internet users (millions)% population1.1 1.31.72.33.23.84.430%40%49%66%72%80%2000 2006 2008 201031%297 318443420456 4712006 2007 2008 2009 2010 20113 4 6 81014 13 14 14 1512349 89 10112003 2004 2005 2006 2007 2008 20092010 2011 2012Credit ($ bn)Debit ex ATM($ bn)A) Point-of-Sale (POS) B) Online Shopping3.5 41519 190.2 135102008 2009 2010 2011 2012FAfricaMiddle EastC) Mobile Payment D) Person-to-Person (P2P)Growth across all channels; highest growth in online and mobile payments
    8. 8. What is the customer need?8SafetyConvenienceCreditRewardsStatusHaving a Credit Card is NOT a customer need
    9. 9. Banks will stay9Banks move slowly and resistdisruption of their core businessTechnology companies are likely todevelop work around solutionsBanks can be exposedto full disintermediationBanks cannot compromise on security,reliability and reputationBanks rarely have all systems / capabilities in place to compete inthis fast evolving markets. Acquisitions and partnerships are a way out.
    10. 10. Who is driving innovation?Type and level of innovationContinuous,IncrementalGamechangerStep ChangeMarket PlayerBanks / Issuers1ProcessorsTechnology providers4Retailers2Visa / MC3New Entrants, Others5Legend:Very innovative Observing10Game changers will not come from existing players but from new entrants
    11. 11. Payroll Card11Continuous,IncrementalGamechangerStepChange An electronic paymentsolution An electronic accountwhich is pre-funded by acorporate or governmentclient Individuals receiving payments use theprepaid card to draw on the funds No credit allocation: simply a better wayto pay an individual Not a bank account: beneficiary cannotadd funds to the card Solution fully complies with the WagesProtection System (WPS)regulations in the UAE Migration from credit to debitWhat is it? BenefitMarketPlayerIssuer1
    12. 12. Mobile Banking12Continuous,IncrementalGamechangerStepChange Allow customer to accessbanking services from themobile device Convenience Service at their fingertipsWhat is it? BenefitMarketPlayerBanks /Issuers1
    13. 13. Gift Card / Loyalty Card13Continuous,IncrementalGamechangerStepChange Closed-loop / open-loopPre-Paid Card Cards made for every occasion No expiration date No service or maintenance feesWhat is it? BenefitMarketPlayerRetailer2Closed loop Open loop
    14. 14. Continuous,IncrementalGamechangerStepChangeVisa SimplyOne14 A multi-application chip cardthat combines Debit and Creditin one Card Similar to MasterCard Flex Debit card issuers: Opportunity tocross-sell a convenient and appealingcredit card Consumers: One card Retailers and businesses: Debitcustomers have access to creditWhat is it? BenefitMarketPlayerVisa / MC3
    15. 15. Continuous,IncrementalGamechangerStepChangeContactless and Mobile Payment Convenience Auto-top-up feature for transit cards15What is it? BenefitMarketPlayerBanks /Issuers13 Visa / MC  Contactless Card forpayments and transit
    16. 16. Mobile Innovations target each component of the retailexperience16Source: McKinseyMobile to generate demand, consummatetransactions and broadcast to social network
    17. 17. Continuous,IncrementalGamechangerStepChangeMobile Payments via Zong Mobile payments servicefor online games and socialnetworks Allows Users to makemicro payment viainternet, if they have postpaid mobile phone Payment solution for the unbanked –added directly to customer’s mobile bill No exchange of financial informationOnly one-time PIN is provided via SMS By-passes the banking system17What is it? BenefitMarketPlayer4 Techprovider
    18. 18. Continuous,IncrementalGamechangerStepChangeMobile Credit Card POS with Square18 Proprietary applicationturns smart phones/tablets(iPhone, Android, iPad) intosmart POS machines Accept credit card payments anywherewhere internet / WIFI is available Lower costs; easy set up Eliminate needs for merchantsWhat is it? BenefitMarketPlayer4 Techprovider
    19. 19. Continuous,IncrementalGamechangerStepChangePayPal Easy and secure Internetand Person-To-Person(P2P) payments No need to exchange credit cardnumbers or account details Solves the mistrust problem: Customergets promised goods and merchantgets the promised money Fast / instant, secure, easy, global19Pay OnlineShop for what you wantquickly and secureSend MoneySend money to just aboutanyone with an emailaddressGet PaidAccept online payments foritems you sellWhat is it? BenefitMarketPlayerTechprovider4
    20. 20. Continuous,IncrementalGamechangerStepChangeM-PESA20What is it? BenefitMarketPlayer5 Newentrant Mobile P2P payment bySafariCom (Vodafone Affiliate) Vodafone partnered withCiti Transaction Services forinternational remittance No bank account required, just a mobilewith SMS / text messaging capability
    21. 21. Continuous,IncrementalGamechangerStepChangeSocial lending21What is it? BenefitMarketPlayer5 Newentrant Marketplace for money  Borrowers get low-cost loans Lenders get high returns No bank in the middle
    22. 22. Leveraging Social Media22Earning trust, building relationships and empowering communitiesIncrease brandawarenessCommunicateto customersUnderstandpreferences /needsListen tocomplaintsDefineObjectiveSocial Networks,Blogs, MicroBlogs, OnlineVideos, Widgets,Product casts,Financial SocialNetworksExamplesLive ChatDefineDelivery Channel
    23. 23. Agenda23The State of the WorldConclusionDrivers of InnovationThe OpportunityThe new realities
    24. 24. If Facebook was a nation24Banks have to think and act like a digital companywhile retaining a strong focus on security and reliability
    25. 25. Conclusion25SafetyConvenienceCreditRewardsStatusBanks won’t go away, BUT …..Customer needs:Payment channels:A) POS B) Online ShoppingC) Mobile Payment D) P2P Watch out for new entrants anddisruptive innovations Broaden digital capabilities Create a platform for innovation Get success through strategicpartnerships

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