Palisade Conference

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Palisade Conference

  1. 1. “Our  culture  encodes  a  strong  bias  either  to  neglect  or  ignore  VARIATION.    We  tend  to  focus  instead  on  measures  of  central  tendency,  and  as  a  result  we  make  some  terrible  mistakes,  o:en  with  considerable  prac<cal  import[ance].”    -­‐Stephen  Jay  Gould,  naturalist,  1941-­‐2002
  2. 2. ANALYTICS:The New PlasticsAndrew  Pulvermacher  CMA,  CPIM,  MBABest  Buy
  3. 3. Cafe R!kAppetizers Andrew Pulvermacher Story of Risk ManagementMain Course Best Buy Risk Management at Best Buy Change MGMT
  4. 4. No Introduction Required
  5. 5. Introduction Required
  6. 6. Analy5cs Gameriza5on Execu5ve  Decision  So?ware
  7. 7. 2004
  8. 8. Built Business Intelligence system that simulated customerbehavior and automated inventory management.Changed company pricing methodologies. ImprovedNOP Rates by 600bps in less than 8 weeks!
  9. 9. Designecd Crop Insurance Models to estimate crop yieldsand pricing by county; reducing risk of insuranceselections based on ‘averages’
  10. 10. Rebuilt Best Buy’s credit card portfolio through Analytics byfocusing on consumer purchasing patters (andinfluencers).
  11. 11. Turn Risk into Cash
  12. 12. $50Billion
  13. 13. Why  should  I  care  about  Banks,  Credit  Cards,  and  the  Fed?
  14. 14. "e Ame#can Payment Indu$ry
  15. 15. The PAYMENT INDUSTRYYESTERDAY TODAY TOMORROW
  16. 16. (when  Pea  Green  was  cool…)
  17. 17. Back in theDay (when  Pea  Green  was  cool…)
  18. 18. Back in the DayTo access your funds for (when  Pea  Green  was  cool…)payment, your Cards/Checkswere processed manually
  19. 19. Back in the DayTo access your funds for (when  Pea  Green  was  cool…)payment, your Cards/Checkswere processed manuallyThis led to an inordinate amount of waste as manualhandling was involved which led to DAYS for funds tobe processed and also led to fraudulent transactions
  20. 20. Back in the Day (when  Pea  Green  was  cool…)Interchange was introduced to protect banks from fraud risk associated with a paper-based credit card system. 80% of the cost covered Fraud.Interchange was a ‘per- transaction’ fee the merchant paid based on the method of consumer payment
  21. 21. Today…
  22. 22. Today… Manual processing is replaced with electronic funds transfers via Point- of-Sale terminals. Funds no longer take DAYS to clear, but SECONDS Fraud is nearly eliminated
  23. 23. So… what about the cost VISA and MasterCard OWN the Networks that process over 85% of all Credit Card TransactionsWhen youswipe yourcard… The Transaction is processed over a ‘Network’
  24. 24. To capture market share, Card Brands funnel Interchange fees back to issuing banks. 1971 2011*Propor<on  of  Interchange  Fee  going  to….
  25. 25. Unless  you  ascribe  to  Soviet  Economics,  CAPITALISM  thrives  on  COMPETITION2  of  the  largest  Card   Visa/MasterCard’s  major  clients  are   big  banks.    BrandsVISA MasterCard 5  of  the  largest  banks  control… Bank of America Capital One Control   80% CHASE Citi HSBC 90% Revenue of   Revenue of  
  26. 26. Economics of theTransactionsThe Merchant establishes thebusiness relationship withYOU.You CHOOSE to buy fromthe Merchant based on factorssuch as service and price.What value do you place on theBanker being involved with thetransaction…
  27. 27. The CARD BRAND The BANKER $10The MERCHANT The CUSTOMER
  28. 28. ISSUE ONLY “And  I’ll  give  x%  of  the   MY CARD Transac<on  Fee” The CARD BRAND The BANKER $10The MERCHANT The CUSTOMER
  29. 29. ISSUE ONLY “And  I’ll  give  x%  of  the   MY CARD Transac<on  Fee” The CARD BRAND The BANKER You can only have this Brand Card $10The MERCHANT The CUSTOMER
  30. 30. ISSUE ONLY “And  I’ll  give  x%  of  the   MY CARD Transac<on  Fee” The CARD BRAND The BANKER You can only have this Brand Card $10 $1000 “OMG! I love this!”The MERCHANT The CUSTOMER
  31. 31. ISSUE ONLY MY CARD $38 The CARD BRAND $2 The BANKER $40 You can only have this Brand Card $10 $960 $1000 “OMG! I love this!”The MERCHANT The CUSTOMER
  32. 32. ISSUE ONLY MY CARD $38 The CARD BRAND $2 The BANKER Would you pay $40 to have the $40 ability to use a major card brand? You can only have this Brand Card $10 $960 $1000 “OMG! I love this!”The MERCHANT The CUSTOMER
  33. 33. ISSUE ONLY MY CARD $38 The CARD BRAND $2 The BANKER Would you pay $40 to have the $40 ability to use a major card brand? (why  should  a  merchant?) You can only have this Brand Card $10 $960 $1000 “OMG! I love this!”The MERCHANT The CUSTOMER
  34. 34. $50billion
  35. 35. $50 $1.75billion billion
  36. 36. PROBABILITYMANAGEMENT
  37. 37. Region FICO Frequency Customers Shopping Seasons ProductsPrice Store   Employees Demand Experience Margin Systems
  38. 38. 4 Key Insights to Change Management1. Cash 2. Customer Behavior (Transactions) 3. Customer Experience 4. Operations 31
  39. 39. $1.75billion 32
  40. 40. ASP: $375
  41. 41. ASP: $375
  42. 42. ASP: $375
  43. 43. ASP: $375
  44. 44. Increase  Throughput -­‐Cardholders -­‐Card  Usage Loyalty SG&A Opera5onsFrequency Interchange  Exp Applica<onsSpendProfitability

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