The document discusses the future of payments in the 21st century and how new technologies and business models are disrupting traditional payment systems. It analyzes trends like real-time payments, use of unique identifiers like phone numbers and emails, push-based systems like PayPal versus pull-based card networks, improved security and fraud controls, lower processing costs, and the transition away from paper checks and plastic cards to digital and mobile-based payments. PayPal is highlighted as an example of a company leveraging these 21st century innovations to build a highly successful new payments platform.

1. Approach to Business Plan Credit Card Operations

2. Vision Statement To be the most profitable Credit Card in India offering maximum convenience to cardholders

3. How to achieve profitability The profitability of a card is based on marketing, keeping your expenses down, managing risk and having scale.

4. Goal and Objective Be in top 5 league in 5 years Strong brand presence Information driven project Capture customer behavior patterns Wallet share >10% Market share >6% Restrict delinquencies < 5%

5. Today’s Situation

8. The Growth of Consumer Credit Card Debt Eighty percent of all households have at least one credit card. With well over one billion Cards in circulation, the average household has about a dozen credit cards. About sixty percent of cardholders carry credit card debt from month to month. The average credit card debt for households that carry a balance is more than $10,000. Americans owe more in credit card debt than for education.

9. The growth of credit card loans has been faster than any other type of consumer loans Since 1997, credit card issuers have nearly doubled the amount of credit they offer to consumers, to more than $3 trillion dollars--about $30,000 per household. Revolving debt, which is almost entirely card debt, increased from $554 billion to $730 billion between 1997 and 2002. During the same period, credit card companies sharply increased the number of solicitations they mailed from three to five billion.

10. Credit Card Profitability Credit card profits continue to be significantly higher than for other bank lending activities. Bankcard profits increased in 2001 to their second highest level in the last five years (3.24% of outstanding balances.) Growing profits were largely driven by the increasing “interest rate gap” between the benchmark rate set by the Federal Reserve, which dropped significantly, and interest rates charged by card issuers to consumers. In 2001, the Federal Reserve cut interest rates by 4.75%, but major bankcard issuers cut their rates by only 1.35% on average.

11. Regulatory changes In response to reckless lending practices, federal regulators have begun to require lenders to be more responsible. In January of 2003, the Federal Reserve Board, FDIC, and other bank regulators issued new regulations requiring credit card companies to tighten up “account management and loss allowance practices”--such as the use of very small required minimum payments that keep consumers’ liable for their debts for many years— that may endanger the financial stability of the lending institutions.

13. Six Value Themes And Their Key Strategic Attributes Outlines various strategies that are differentiated from the customer’s perspective, namely 1. Offers the lowest price 2. Has superior convenience 3. Offers higher service quality 4. Provides advice

14. 5. Acknowledges the importance of its best customers 6. Personalizes and tailors products and services to a segment’s or customer’s particular needs.

15. Disruptive innovations Discount and online brokerage: The disruptions in this industry are still occurring Asset securitization: How it transformed mortgage lending Credit scoring and the disruption of consumer lending

16. Disruptive innovations Account aggregation: Will this be a disruptive innovation, and to whom? EBPP and Internet banking: Why they have not been disruptive so far The greatest disruptive risks to core deposits, the life-blood of retail banking P2P payments: Can they expand beyond their current niche market in online auctions? The potential for ACH and ATM networks to disrupt online credit card payments

17. Disruptive innovations The possible offering of Digital ID's by non-banks such as Microsoft and AOL Real time payments by big-bank consortia supplemented by technology providers Dynamic-sweep of consolidated asset and liability accounts, such as the Virgin One product .

18. Disruptive innovations Disruptive technology theory is a particularly timely topic in today's financial services environment as it helps to explain why successful firms with established products are at risk of being pushed aside by new technologies and market entrants that will, over time, get better and become a serious threat

20. Branch Constraints Segmentation, as it's currently practiced in banking, tends to be most useful for back-office, targeted marketing programs; Web sites, where messages can be personalized; and call centers, where customers can be routed to operators depending on their profiles. Applying segmentation in the branches, however, has proven problematic.

21. Branch as a selling unit This disparity reflects the transactional nature of branch traffic. Despite the efforts of institutions to turn their outposts into &quot;sales centers,&quot; most customers still come into their local branch to make deposits and cash checks. This orientation makes it difficult for branch employees — particularly those on the teller line — to attempt sales pitches or referrals when customers are lining up for service.

22. What are the best execution choices? The execution choices boil down to: • Do it Yourself • Choose a Partner • Back a start up • Acquire a company All of these are viable options and should be carefully evaluated. Whichever option is chosen the business and technology architecture are vital and it is important to phase the investment and keep testing market acceptance.

23. Recommendation Partner with a mobile service provider Credit Card business separate from Retail Banking Out source Application processing, outbound telemarketing and delinquency follow up Use software for end to end processing Fraud control by advanced technology

24. Payments in a 21C (Twenty first Century) World Payments are a high stakes business. Providers make money through net interest income, foreign exchange and fees. The Boston Consulting Group has estimated that globally payment revenues to providers are in excess of $200bn + a year. As an industry the payment industry is bigger than the software industry.

25. What is a 21C Payment? How does 21C affect payments? Where are the opportunities? Who will win/lose in this high stakes game? What are the best execution choices?

26. PayPal PayPal is an example of early success utilizing 21C type of thinking in the payment world. It has done some amazing things on the revenue side and cost side. PayPal acquires 25,000 new customers a day with a fully loaded acquisition cost (Marketing + Set Up cost) of less than one dollar.

27. How does 21C affect payments? There are six major 21C trends that payment architects should take into account: 24*7 Real Time Customers want to exchange value instantly, anytime and from anywhere. Currently some payment systems such as credit/debit/ATM cards enable this but they do it in a manner, which involves many handoffs. Other payment systems such as checks, wire transfers, ACH etc are not 24*7 /Real time.

28. Design 21C design will seek to eliminate friction in payments at the lowest possible cost. For instance if everyone in the world had a PayPal account then all funds transfers would be zero cost funds transfers.

29. Unique Identifiers Two new globally unique identifiers have emerged for a large number of entities. They are cell phone numbers and email ID’s. The nice thing is that they are unique and public. The old way of routing a payment required the originator to know the bank name, branch, location and account number of the recipient. In addition a trained funds transfer person needed to structure a message correctly.

30. Unique Identifier PayPal used email as the only identifier that an originator needed to know to route the payment correctly. The nice thing about email and cellular numbers is that they can also be used for notification.

31. Push v/s Pull or Credit v/s Debit Card systems are pull systems. You give the card to a merchant who pulls money from your card account. PayPal on the other hand is a push system. You send the money and no one can pull money from your account. Both push and pull systems can be compromised but push systems are inherently safer because the opportunities for the system to be compromised are much fewer.

32. Privacy/ Security The customer today perceives no risk in handing out a check or their card to a stranger. However, they perceive a major risk in putting their card number on the Internet. The truth is that the most secure option for them is to give their card numbers, bank account information etc. to only a few trusted entities on the net. Today with scanners/ skimmers etc it is relatively easy to create fraudulent checks/cards and much harder to compromise the security systems of banks or entities such as PayPal.

33. Fraud Control The ability to prevent scalable fraud using pattern recognition and other devices is another element that PayPal has leveraged. It has a fraud rate of less than 50 basis points even though account opening and transacting is pretty simple.

34. Process Design PayPal makes money with an average payment size of $50 because its operating cost to process payments is about 0.75 cents. This can be driven down even lower and the players who can do this in a scalable fashion will win just as Dell and Wal-Mart did.

35. The Future Transformation takes time in the payment world. The demise of paper checks has been predicted for years but over 60 billion paper checks are still written each year in the US. 4G trends will ultimately lead to the elimination of plastic cards. It will be number of years before that happens but the trends are clearly visible.

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