The European Wealth Management and Private Banking Market Outlook Optimizing Customer Value in a Demanding Marketplace

FINANCE

The European Wealth Management and Private Banking Market Outlook Optimizing customer value in a demanding marketplace

By Barbara Kubis-Labiak

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Copyright © 2004 Business Insights Ltd This Management Report is published by Business Insights Ltd. All rights reserved. Reproduction or redistribution of this Management Report in any form for any purpose is expressly prohibited without the prior consent of Business Insights Ltd. The views expressed in this Management Report are those of the publisher, not of Business Insights. Business Insights Ltd accepts no liability for the accuracy or completeness of the information, advice or comment contained in this Management Report nor for any actions taken in reliance thereon. While information, advice or comment is believed to be correct at the time of publication, no responsibility can be accepted by Business Insights Ltd for its completeness or accuracy. Printed and bound in Great Britain by MBA Group Limited, MBA House, Garman Road, London N17 0HW. www.mba-group.com

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Barbara Kubis-Labiak

Barbara has a BA (Hons) in Business and Management and is currently at the end of her MSc in International Finance degree. Barbara started her career working as an intern for the European Commission in Brussels, and then in 1999 she joined Datamonitor Financial Services department as an analyst. Barbara's work at Datamonitor involved various projects and reports, including the FinTab project, where she helped to develop an online data resource covering the insurance, banking, investments and payment cards sectors. Barbara also authored a number of reports: Retirement Provision in Germany 2001-2008, Retirement Provision in Germany 2002, European Mutual Funds 2001, UK Wealth Management, Distribution of life insurance and pensions in Europe 2002 and Central and Eastern European Life and Pensions 2002, as well as consultancy projects, for example Motor insurance distribution in central Europe, Competitors in occupational pensions in Germany, Bausparkassen in Germany and many others.

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Table of Contents

The European Cards and Payments Market Outlook Securing profit under competitive threat

Executive Summary 10

European plastic cards market 10 European plastic cards statistical overview 10 Co-branding 12 Card loyalty schemes 13 Product development 13

Chapter 1 Introduction 16

Introduction 16 Report structure 16 European plastic cards market 16 European plastic cards statistical overview 17 Co-branding 17 Card loyalty schemes 17 Product development 17

Chapter 2 The European Plastic Cards Market 20

Introduction 20 The merchant acquisition process 20 The players 20 The process 22 The transactional information process: 22 The transactional fund process 23 European market issues 24 The transfer to chip cards under EMV 24 Testing of terminals 25 Intra-regional interchange fees - debate 25

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Customer focus 27 Card acceptance across Europe 27 Merchant service charges 29 Competitors 31 Payment Service Providers 31 Pricing structure 32

Chapter 3 The European Plastic Cards Statistical Overview 36

Introduction 36 Market overview 37 Pay now cards market 40 Pay later cards market 41 Competition 43 Country-by-country overview 44 France 44 Key points 44 Germany 47 Italy 49 Pay now and pay later card markets 50 Competitor analysis 52 Card issuer shares 52 Spain 53 Pay now and pay later card markets 53 Competitor analysis 55 Card issuer shares 55 UK 56 Pay now and pay later card markets 56

Chapter 4 Co-branded Cards 60

Introduction 60 Co-branding, affinity marketing and self-issued cards 60 Co-branding in the past 62 Co-branding in Europe 63 The co-branding boom 64 Country-by-country analysis 64 Europe 65 Germany 66 France 67 The UK 67 Conclusions 69

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Chapter 5 Card Loyalty Schemes 72

Summary 72 Introduction 72 Loyalty scheme 72 Price based incentives 73 Reward based loyalty schemes 74 A background to card loyalty schemes 74 Loyalty schemes in the UK 75 Europe’s loyalty schemes 76 Loyalty schemes and insurers 77 Loyalty schemes objectives and problems 78 Conclusions 80

Chapter 6 Product Development 82

Summary 82 Introduction 82 Product developments 82 Introductory offers 83 The origins of black cards 84 Sub-prime 86 Loyalty schemes 86 The Nectar card 86 Flexible cards 88 Flat rate cards 89 Conclusions 89 Switching cards 89 Pricing 90

Chapter 7 Appendix 92

Definitions and abbreviations 92 Definitions for plastic cards 92 Index 95

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List of Figures

Figure 1.1: Total Western European cards market, 2002 11 Figure 1.2: Total Western European cards market, by market share, 2002 11 Figure 1.3: Combining brand and expertise in a co-branding relationship, 2003 12 Figure 2.4: The transactional information process 22 Figure 3.5: Total Western European cards market, by market share, 2002 38 Figure 3.6: Total Western European cards market, 2002 39 Figure 3.7: Total Western European pay now and pay later cards market, 2002 42 Figure 3.8: French pay now and pay later cards market, 1998—2002 45 Figure 3.9: German pay now and pay later cards market, 1998—2002 48 Figure 3.10: Italian pay now and pay later cards market, 1998—2002 50 Figure 3.11: Spanish pay now and pay later cards market, 1998—2002 54 Figure 3.12: The UK pay now and pay later cards market, 1998-2002 57 Figure 4.13: Combining brand and expertise in a co-branding relationship, 2003 62 Figure 5.14: Percentage of UK credit cards offering loyalty schemes, 1993–2002 76 Figure 5.15: Europe’s loyalty schemes, September 2001 77

List of Tables

Table 2.1: Number of PoS terminals, split by country, 2001 28 Table 2.2: Population per PoS terminal, split by country, 2001 28 Table 2.3: Average MSCs on pay later cards, split by country, 2003 29 Table 2.4: Average MSCs on pay later cards and the number of acquirers in a market, split by country, 2003 30 Table 2.5: Average MSCs and the size of the pay later card markets, split by country, 2003 30 Table 3.6: Total Western European card market, number of cards, 1998—2002 37 Table 3.7: Total Western European card market, cards per person, 1998—2002 39 Table 3.8: Total Western European card market, average value of transactions, 1998—2002 40 Table 3.9: Total Western European card market, frequency of transactions, 1998—2002 40 Table 3.10: Total Western European pay now card market, number of cards, 1998—2002 41 Table 3.11: Total Western European pay later card market, number of cards, 1998—2002 42 Table 3.12: Total Western European pay now/pay later card market, competitors by country, 1998—2002 43 Table 3.13: Total French card market, 1998—2002 44 Table 3.14: Card issuer shares: French pay now/pay later card market, 1998—2002 46 Table 3.15: Total German card market, 1998—2002 47 Table 3.16: Total Italian card market, 1998—2002 49 Table 3.17: Card issuer shares: Italian pay now/pay later card market, 1998—2002 52 Table 3.18: Total Spanish card market, 1998—2002 53 Table 3.19: Card issuer shares: Spanish pay now/pay later card market, 1998—2002 55 Table 3.20: Total UK card market, 1998—2002 56 Table 3.21: Card issuer shares: UK pay now/pay later card market, 1998—2002 58 Table 6.22: Zero per cent introductory rate offers, UK, May 2003 84 Table 7.23: Currency and data abbreviations 94

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Executive Summary

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Executive Summary

European plastic cards market

The major issues affecting the acquiring and processing market on a European scale are the transition to Europay, MasterCard, Visa (EMV) and the conclusions of the European Commission regarding intra-regional interchange fees.

In terms of card acceptance, Spain has the most developed PoS market, with the highest penetration of terminals of the five countries studied in this report.

France has the lowest average merchant service charge (MSC). Furthermore, it appears that the greater the competition in a market, the lower the MSC.

A number of business models for acquiring and processing are apparent across Europe. However, it seems that the traditional inter-bank model is slowly disappearing.

European plastic cards statistical overview

The total European card market, in terms of number of cards, grew at a compound annual growth rate of 8.8% over the period 1998—2002.

Payment cards are increasingly used across Europe. This is indicated by the frequency of transactions increasing and the average value of transactions decreasing.

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Figure 1.1: Total Western European cards market, 2002

140,000

120,000

100,000

80,000

60,000

40,000

NUmber of cards in20,000 2002 000s,

0 France Germany Italy Spain UK Source: Datamonitor Cards and Payments Database, 2002 Business Insights

Germany is the largest European pay now cards (debit) market. Germany accounted for 42.8% of all pay now cards in 2002. Pay now cards in Germany are accepted widely, by both consumers and merchanets, this is a result of consumers being averse to the idea of card-based borrowing and high merchant fees.

Figure 1.2: Total Western European cards market, by market share, 2002

Italy 11.3% UK 33.1% France 11.6%

Spain 14.2%

Germany 29.7%

Total western European cards market shares, % Source: Datamonitor Cards and Payments Database 2002 Business Insights

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The UK is by far the largest pay later card market in Europe, representing 39.2% of the total in 2002.

The European pay later market in 2002 continues to be a highly concentrated market. Only in Italy, Spain and the UK do the top three competitors account for less than 50% of the total pay later cards market.

Co-branding

A co-branded card is a partnership card issued between a bank and another organization, whereby the card is jointly managed by both organisations and profits are split.

Figure 1.3: Combining brand and expertise in a co-branding relationship, 2003

Bank Partner

•Brand •Brand •Issuing expertise •Customer base •Credit risk management •Targeting expertise

Assets •Service expertise •Distribution platform

•Product development •Customer database •Datamining •Promotion •Service •Sales •Points accounting system •Loyalty programme

Resources

Source: Datamonitor, MasterCard International Business Insights

Affinity cards involve the card issuer making a default donation to the partner organisation every time the card is used.

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Affinity partnerships are most often between banks and not-for-profit groups, while co-branding partnerships are usually run with large commercial groups.

The UK market rapidly developed similar competitive and structural features to those of the United States during the 1990s; co-branding took off 10 years later and the UK market saw a surge in the number of co-branded cards beyond the end of the decade.

With the Rabattgesetz abolished (a federal law which banned discounts to customers on the basis of credit cards) and France likely to open up during the next few years, two of Europe’s largest card markets are opening up.

Card loyalty schemes

This report defines a loyalty scheme as the one where the customer is rewarded with added value goods and services for changing their purchasing behaviour or attitudes favorably towards the scheme.

Many of the largest issuers have spent the last decade developing and tweaking their card loyalty schemes in the belief that loyalty programs are an integral part of a credit card package and a valuable tool in boosting customer loyalty and card usage.

However, in recent years the voice of opposition has been growing and skeptics argue that loyalty schemes are costly to run and are often not used by the customer.

The launch of Nectar (the UK multi-retailer loyalty scheme of which Barclaycard is a founding member) and the development of themed cards by the French retail finance house Cetelem, are ensuring that loyalty is once more returning to favor.

Product development

Introductory offers on credit cards typically provide low rates to new customers for a limited time. The tool is used to attract customers to the idea of credit cards in the

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hope that they will remain with the issuer once the low rate is raised to the standard rate.

Only a few years ago, gold and platinum cards were seen as exclusive and sought after by the elite. Today, these cards have become more widely used, as gold cards from Lloyds TSB, for example, are available to anyone earning £12,000 or more a year.

The prime market is well served in the UK but a large number of credit-worthy individuals are not able to gain access to credit cards.

While the variety of offerings on the market have been subsidized by the peripherals of introductory rates, prestige, loyalty schemes and flexible or flat rate cards, pricing remains a significant factor for consumers when selecting a card.

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Chapter 1

Introduction

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Chapter 1 Introduction

Introduction

This introduction summarizes the rationale behind the report. It details the catalysts behind the report, the methodologies employed in researching and generating the data and information. It also outlines the structure of the report, illustrating the information that will be covered in each chapter. The “European Plastic Cards and Payments Market Outlook”, is a compendium to the card payment industry, providing a concise data and analysis enriched tool to help understand the dynamics of this rapidly changing market. It provides in-depth and up-to-date standardized data across five European pay now and pay later card markets, incorporating comprehensive scheme and competitor information, complemented by analytical explanations of market trends and their influences on consumer attitudes. The relevant key issues in the market further support the statistical data in this report at present.

Report structure

The report structure incorporates main European cards and payments data (Chapter 2 and Chapter 3), and at the same time introduces the most important issues surrounding the European plastic cards market at present including co-branded cards and loyalty card schemes, as well as development of new products in the cards and payments market (Chapter 4, Chapter 5 and Chapter 6 respectively).

European plastic cards market

This chapter explains how the merchant acquisition process works from the cardholder’s purchase through to the issuer billing the cardholder. It provides key data on all of the cards markets covered in the report and contains country comparisons, key trends and issues on a European level.

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European plastic cards statistical overview

This chapter offers the data necessary to help understand the dynamics of the rapidly changing cards market. It provides in-depth and up-to-date standardized data across five European pay now and pay later card markets, incorporating comprehensive scheme and competitor information. It also offers comparative data and analysis of the European market, segmented by country and card type. The five countries included are France, Germany, Italy, Spain, and UK.

Co-branding

This chapter defines the concept of co-branding, providing the definitions and analysis necessary to understand the concept. It demonstrates how co-branding functions, looking at it from both the UK and European perspective.

Card loyalty schemes

This chapter introduces the concept of loyalty schemes and offers in-depth analysis of the issues that are influencing the cards industry at present and that are likely to have influence over the next few years. It provides some background to the controversy surrounding loyalty schemes and examines what constitutes a loyalty scheme, how they have developed over time, and what the card loyalty landscape currently looks like.

Product development

This chapter focuses on product development in the UK plastic cards market in 2002, highlighting the most important issues and the key trends behind the evolution of different types of cards.

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Chapter 2

The European Plastic Cards Market

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Chapter 2 The European Plastic Cards Market

Summary

In terms of card acceptance, Spain has the most developed PoS market, with the highest penetration of terminals of the five countries studied in this report.

France has the lowest average merchant service charge (MSC). Furthermore, it appears that the greater the competition in a market, the lower the MSC.

A number of business models for acquiring and processing are apparent across Europe. However, it seems that the traditional inter-bank model is slowly disappearing.

Introduction

This chapter outlines the merchant acquisition process, providing definitions of the key market players and details of how the system operates. It acts as a comprehensive introduction to the statistical overview presented in Chapter 3. The definitions necessary to understand the merchant acquisition are given at the beginning of this chapter in order to provide the reader with an easier understanding of the merchant acquisition process.

The merchant acquisition process

The players The cardholder: the person to whom a financial transaction card is issued or any additional person authorized to use the card;

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the issuer: the financial institution, which holds the contractual agreement with the cardholder and issues the card. The issuer holds an issuing license from the scheme (see definition below), which gives access to a payment and withdrawal network. In addition, the issuer is responsible for the marketing and the distribution of the card to its clients;

the merchant: any retail outlet that meets the qualifications to accept card payments. Merchants can trade on the high street, Internet or through mail order and telephone order (MO and TO);

the acquirer: the acquirer enables the merchant to accept card payments. It is responsible for handling all of that merchant’s card-based transactions and is often involved in providing equipment such as acceptance terminals. Acquiring activities require a license from the card scheme. In certain markets acquirers are also required to be issuers;

the transaction processor: deals with the settlement of transactions. Its role is to manage the exchange of transactional information (clearing) and the actual fund transfer;

the scheme: the card scheme provides the network over which transactions take place. The major international schemes are Visa, MasterCard, American Express and Diners Club. The role of the schemes includes implementing marketing programs to support the brand, the development of new products and the processing of international transactions. Furthermore, the schemes lay down the rules and regulations that must be followed by all members;

the payment service provider (PSP): they enable higher risk merchants to accept card payments, usually over the Internet or other high risk channels. They take on financial risks on behalf of acquirers, therefore allowing merchants with no trading history to accept payments on-line. In addition to this, they also carry out the security and authorization checks required for this payment channel.

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The process

The acquisition process involves some or all of the players defined above. While it is a standard process, the number of parties involved varies and depends on the range of services provided by the acquirer. Certain acquirers, for instance, keep transaction processing in-house, while others outsource this to third parties. The number of parties involved also varies according to the distribution channels used by the merchant. Many Internet retailers, for example, are acquired by PSPs, who then pass on the transactions to traditional acquirers.

The merchant acquisition process can be broken down into the following two parts:

The transactional information process: Figure 2.4: The transactional information process

Cardholder makes purchase with card CARDHOLDER MERCHANT

The issuer Transactional information is invoices the transmitted to the cardholder acquirer

CARD SCHEME International transactions sent to card scheme

TRANSACTION MERCHANT CARD ISSUER PROCESSOR ACQUIRER Transaction details Transactions sent to the card issuer dispatched according to scheme and payment function Source: Datamonitor Business Insights

The cardholder purchases goods or services and pays for them by card; the merchant records the transaction electronically or manually and submits to the acquirer the transactional information: the cardholder’s identity, the merchant’s identity and the value of the transaction. The acquirer sorts the transactions and passes them onto the processor. The processor then sorts and delivers the transactions to the relevant card

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issuer or to the card scheme in the case of international transactions and the card issuer invoices the cardholder’s account or debits the cardholder’s account directly.

The transactional fund process

The merchant acquiring process incurs a number of costs. The merchant and not the cardholder meets these costs. As a result, while the cardholder pays the full value of transaction to the card issuer, certain funds are deducted from the total transaction amount as the funds travel back round the chain to the merchant. The merchant therefore receives the transaction amount less a certain percentage of the total value. The two most important fees that are levied are: the merchant service charge (MSC) and the interchange fee. There is also a network fee, which is paid to the card scheme for the use of the network.

The MSC is the fee that the merchant pays to the merchant acquirer for accepting and processing transactions. For credit cards, the fee is a percentage of the total value of the transaction, while for debit cards a flat fee, regardless of the transaction value, is levied. The merchant acquirer sets the MSC. Typically the level of the MSC varies from merchant to merchant. Larger concerns, such as supermarkets, which are well-established companies accepting a high volume of transactions, will typically pay a lower fee than a smaller merchant, such as a corner shop that accepts a relatively low value of transactions. In setting MSCs merchant acquirers must obviously consider what costs they need to cover. The interchange fee (see below for explanation) is one of these costs.

Interchange is the fee paid by the merchant acquirer to the card issuer. The level of the interchange fee varies according to the contract linking the issuer with the acquirer and the rules in practice in a specific country.

It is important to note that American Express and Diners Club often work on what is known as a ‘closed loop’ basis with regards to merchant acquisition. This means that they themselves hold the relationships with merchants and co-ordinate their own acquiring and processing. As such, in addition to forming a relationship with an acquirer

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to accept MasterCard and Visa branded cards, merchants must also form a separate relationship with American Express or Diners Club in order to accept their cards.

European market issues

There are two major issues that touch the acquiring and processing market on a European scale; the transition to chip cards under EMV and the decisions that have been made by the European Commission regarding interchange fees. Each of these issues is discussed in more detail below.

The transfer to chip cards under EMV

In a bid to combat spiraling fraud rates, many card markets across the world have made the decision to transfer from magnetic stripe to chip cards. In order to ensure that these chip cards are interoperable, the card schemes devised a set of standards known as EMV (Europay, MasterCard, Visa).

In Europe, all of the cards markets are making the transfer to chip cards under EMV. Even markets that have had chip cards for a long time, such as France, must make the transition, as the type of chip cards currently used in these markets do not meet EMV specifications.

The deadline for the completion of the changeover to EMV is the beginning of 2005. All the markets studied here are in the process of making the transition to EMV requirements. Yet there are concerns that this deadline will not be met.

Potential delays stem from the necessary upgrade of card acceptance terminals. In particular there are concerns regarding merchant-owned terminals, as many merchants are not yet convinced of the pressing need to upgrade terminals in time for the deadline. Their reluctance to upgrade is mainly due to cost factors; indeed many merchants want to see how trials progress before making the investment to upgrade terminals. The cost of making such an upgrade varies enormously, as it is dependent of a number of factors,

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such as the number and type of terminal required. In addition to actual terminal upgrade, the process will incur extra costs such as staff training and customer education.

It can, however, be argued that the changeover to chip will ultimately mean costs savings for merchants, in spite of the large initial outlay. For example, reduced levels of fraud will mean less risk of chargeback for merchants and therefore less costs, while to a less significant extent, the use of PIN at PoS will bring about cost savings through the reduced usage of till roll.

Testing of terminals

Another factor, which may hinder the transition to chip card terminals, is the fact that all terminals have to be tested by MasterCard to ensure that they are compliant with EMV specifications. Clearly, it is a process that is necessary, but obviously it is a huge undertaking and there are concerns as to whether all compliance checks can be carried out before the deadline.

Intra-regional interchange fees - debate

The European Commission has been investigating the Visa card scheme since 1997. The investigation began when European retailer association, EuroCommerce, officially complained to the EC regarding what it viewed as the anti-competitive practices of Visa. Among the anti-competitive practices that it highlighted were:

The intra-regional (cross-border within the EU) interchange fee;

the ‘Honor all Cards’ rule, whereby merchants displaying the Visa sign, must accept all types of Visa card;

the ‘No Discrimination’ rule, whereby merchants are not allowed to levy extra charges for credit card usage or offer discounts for cash purchases;

the ‘Issue before acquire’ rule, which means in order to become an acquirer, the organisation must first of all be an issuer;

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cross-border issuing and acquiring rules.

Following a lengthy investigation into EuroCommerce’s complaint, the EC ruled in August 2001 that these practices, with the exception of interchange, were not anti- competitive. EuroCommerce has appealed against this ruling and an outcome is expected within the next two years.

With regard to the interchange fee, the EC stated its conclusion that the fee was restrictive of competition. However, it also stated that it was prepared to take a favourable decision on an exemption based on compromise proposals submitted by Visa. The compromise proposals relating to the level of the intra-regional interchange fee included the proposal to reduce these fees for Visa card products in the European Union (EU). This would be achieved by the introduction of a flat rate fee for pay now cards and a gradual reduction of the percentage based fee for pay later card products. It also proposed that the average fee for pay now products would be reduced to €0.28 as soon as technically possible and the average fee on pay later products would be reduced to 0.7% by 2007.

In July 2002 the EC issued its final decision to exempt intra-regional interchange fees from competition regulations, following Visa’s amendments to the system. One of the main implications of the EC ruling will be to exert further downward pressure on MSCs. However, given the gradual reduction of interchange, any impact on MSCs is also likely to be gradual rather than immediate.

Of greater importance, perhaps, are the domestic investigations into interchange, such as those that are currently coming to a close in the UK, as they will hit domestic players the hardest.

In many ways reductions in interchange can be seen as beneficial for acquirers, as it means one of their greatest cost bases is reduced, however it can be harmful for issuers as their revenues are reduced. If reductions in interchange lead to issuers replacing

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revenue from other sources such as re-introducing/increasing annual fees and increasing interest rates, then this may adversely affect the cards market. Indeed, if consumers have to pay higher fees to own a card or pay higher interest rates, they may be more reluctant to own cards or use cards. This clearly impacts on the revenues of acquirers.

Customer focus

This section provides card acceptance statistics and considers MSC and interchange levels in the five European markets assessed in this reporti.

Card acceptance across Europe

It is perhaps no surprise to learn that France, which has one of the most developed card markets of the five analysed in this report, had the most card acceptance terminals in 2001. However, France was closely followed by Spain, where great strides have been made in recent years in terms of modernizing the banking infrastructure. Indeed, Spain now has one of the most developed card acceptance infrastructures in the world and its ATM network is second only to Japan.

A smaller population is not, however, an excuse that Germany can use. Indeed, its acceptance infrastructure falls someway behind those of France, Spain and the UK. The explanation for this is that cards are infrequently used in Germany and merchants are therefore not inclined to go to the expense of being able to accept cards. Also, high MSCs discourage merchants from accepting cards.

i The data in this section is taken from the Blue Book, which is produced by the European Central Bank (ECB). The most recent figures on card acceptance terminals currently available from the ECB are from 2001. More recent data is not yet available.

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Table 2.1: Number of PoS terminals, split by country, 2001

Number of terminals France 904,265 Germany 435,680 Italy 748,294 Spain 853,055 UK 772,000

Source: Datamonitor, ECB Business Insights

In examining PoS terminals in terms of penetration (population per terminal), Spain is once again a leading player. Indeed, in 2001 it had the astounding penetration rate of just 47 people per terminal. France and the UK were once again shown to be strong players using this metric, while Germany occupied bottom place with a penetration level of 189 citizens per PoS terminal.

Table 2.2: Population per PoS terminal, split by country, 2001

Population per terminal France 66 Germany 189 Italy 77 Spain 47 UK 78

Source: Datamonitor, ECB Business Insights

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Merchant service charges

To some extent, it can be argued that it is meaningless to talk of average MSCs. After all, MSCs are specific to a merchant and they vary widely according to a number of factors, including the volume of transactions accepted by the merchant, the value of transactions accepted by the merchant, the trading channels used by the merchant and the stability of the merchant (i.e. how long they have been in business).

In comparing the MSCs for the five countries examined in this report, France is shown to have the lowest average MSC of around 0.8%. This is an extremely low figure and can largely be attributed to low levels of interchange and high levels of competition between acquirers.

France is followed by the UK at around 1.7%. In less developed card markets, such as Germany, the MSC reaches as much as 2.3%.

Table 2.3: Average MSCs on pay later cards, split by country, 2003

Average MSC, % France 0.8 Germany 2.3 Italy 1.8 Spain 2.2 UK 1.7

Source: Datamonitor acquirer interviews Business Insights

When it comes to establishing what makes average MSCs higher in one country than another, competition is an influential factor. Indeed, there is a noticeable trend that in countries where there are more acquirers, MSCs are typically lower. One clear example is France, where there are 11 players competing for business, with the result that the average MSC of 0.8% is the lowest in Europe.

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Table 2.4: Average MSCs on pay later cards and the number of acquirers in a market, split by country, 2003

Number of acquirers Average MSC, % France 11 0.8 Germany 3 2.3 Italy 8 1.8 Spain 3 2.2 UK 6 1.7

Source: Datamonitor acquirer interviews Business Insights

In addition to competitive forces, the size of the cards market is another factor to be considered when looking at levels of MSCs. There is a general trend that the larger the market, the lower the MSC. The obvious explanation for this is that in the larger cards markets, there is obviously greater potential for higher volumes of business. Higher volumes mean that acquirers have more room to cut their prices and operate on lower margins.

Table 2.5: Average MSCs and the size of the pay later card markets, split by country, 2003

Number of cards Average MSC, % France 33,902 0.8 Germany 20,800 2.3 Italy 18,261 1.8 Spain 25,229 2.2 UK 63,350 1.7

Source: Datamonitor acquirer interviews Business Insights

Continuing with the trend that larger card markets (in terms of card numbers) typically benefit from lower MSCs, it is unsurprising that the more developed markets, in terms of card usage and transaction values, also benefit from lower MSCs.

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Competitors

The market structures in European merchant acquiring and transaction processing can broadly be classified into two categories:

Those that involve interbank association;

those that do not involve interbank associations.

Of the five markets studied here, the UK is the only country that does not have interbank associations related to acquiring and processing. Indeed, UK banks acquire merchants directly: some of these banks may outsource processing while others keep it in-house.

The four other countries studied here all have interbank associations involved in acquiring and processing. However, there are a lot of differences between these markets in terms of the role that the interbank association plays.

Gradually, it seems interbank associations are losing their power and there are many example of this happening. In Italy, for example, many banks are choosing to operate outside of CartaSi. The only market for which this is not true is France, where the interbank association does not acquire or process transactions directly.

Payment Service Providers

Payment Service Providers (PSPs) enable high-risk merchants to accept card payments, usually over the Internet or other high-risk channels such as MO/TO. They take on financial risks on behalf of acquirers, therefore allowing merchants with no trading history to accept payments. In addition to this, they also carry out the security and authorization checks required for the online payment channel. The two core services offered by PSPs are:

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Payment Gateway technology: this service is available to acquired merchants - that is merchants who have a merchant ID with an acquiring bank. Here, the PSP acts as an interface between the merchant and the acquirer by providing the merchant with a secure site over which to accept card payments and carries out all necessary security checks. Upon the card’s authorization, the payment details are passed onto the acquirer, which then deals with the transaction in the normal fashion. In order to use this service the merchant must use a PSP recognized by its acquirer;

bureau services: this is for merchants who do not have a merchant ID, normally due to a lack of trading history. This service provides all the security features of the Payment Gateway. However, with this service the PSP holds the agreement with the acquirer. PSPs usually hold agreements with a limited number of acquiring banks for Bureau services. Therefore, when a payment made over the website has passed all security checks the transaction details are passed to the PSP’s acquirer. The acquirer then deals with the transaction in the normal manner. As regards remittance, the acquiring bank moves the money to an account controlled by the PSP. The PSP then deducts its processing fee and settles with the merchant. Settlement is normally carried out on a monthly basis, with the PSP holding the money in the bank account until the agreed settlement date.

Pricing structure

Pricing strategies obviously vary between PSPs. Typically, those merchants that use bureau services will need to pay a set-up fee and an annual charge to the PSP, while those that only use the payment gateway services will not pay such fees.

Both categories of merchant will pay a transaction fee, which is generally a percentage of the transaction value. The level of the transaction fee will be decided on a case-by- case basis, this is particularly true for larger merchants. In some instances, smaller merchants using bureau services will pay a standard fee.

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As PSPs only settle with bureau merchants on a monthly basis, they also earn money on the interest accrued on the funds held in their accounts until the settlement date. This source of income is known as a float. While there are no exact figures available as to the amounts made in this way, floats are thought to contribute substantially to PSP revenue and profit lines.

In addition to income from payment acceptance and floats, PSPs are also seeking to earn extra revenue from selling extra services, such as those mentioned above, namely site design, anti-fraud packages and so on.

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Chapter 3

The European Plastic Cards Statistical Overview

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Chapter 3 The European Plastic Cards Statistical Overview

Summary

The total European card market, in terms of number of cards, grew at a compound annual growth rate of 8.8% over the period 1998—2002.

Payment cards are increasingly used across Europe. This is indicated by the frequency of transactions increasing and the average value of transactions decreasing.

Germany is the largest European pay now cards market. Germany accounted for 42.8% of all pay now cards in 2002. Pay now cards in Germany are accepted widely, by both consumers and merchanets, this is a result of consumers being averse to the idea of card-based borrowing and high merchant fees.

The UK is by far the largest pay later card market in Europe, representing 39.2% of the total in 2002.

Introduction

This chapter provides comparative data and analysis of the European cards and payments market, segmented by country and card type. It analyses France, Germany, Italy, Spain and the UK, looking at the cards and payments market from both a European perspective, as well as on a country-by-country basis.

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Market overview

The total European card market, in terms of number of cards, grew at a compound annual growth rate of 8.8% over the period 1998—2002. The UK continues to be the largest card market in Europe, accounting for 33.1% of the total five-country market in 2002.

Table 3.6: Total Western European card market, number of cards, 1998— 2002

000s 1998 1999 2000 2001 2002 CAGR France 31,563 32,910 37,943 40,151 42,792 7.9% Germany 88,238 92,509 103,349 106,778 110,190 5.7% Italy 25,612 30,346 33,345 37,370 41,895 13.1% Spain 34,331 38,746 44,190 48,758 52,752 11.3% UK 84,151 91,069 100,722 110,621 122,769 9.9%

Total 263,895 285,580 319,549 343,678 370,398 8.8%

Source: Datamonitor Cards and Payments Database 2002 Business Insights

Germany was the second largest card market in Europe in 2002. The difference between the UK and German market remains as the German market is dominated by the pay now sector and is a relic of the EC card system, while the UK is a relatively balanced market, where pay now and pay later roughly each represent 50% of the market. The UK market also remains the more profitable for issuers as most pay later cards are revolving cards. In contrast, most pay later cards in Germany remain as to be deferred debit cards.

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Figure 3.5: Total Western European cards market, by market share, 2002

Italy 11.3% UK 33.1% France 11.6%

Spain 14.2%

Germany 29.7%

Total western European cards market shares, %

Source: Datamonitor Cards and Payments Database 2002 Business Insights

Over the period 1998—2002, Italy was the fastest growing card market in Europe in terms of the number of cards per person. However, it was the smallest in terms of the actual number of cards compared to the UK (largest), followed by Germany, Spain and France.

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Figure 3.6: Total Western European cards market, 2002

140,000

120,000

100,000

80,000

60,000

40,000

NUmber of cards in20,000 2002 000s,

0 France Germany Italy Spain UK

Source: Datamonitor Cards and Payments Database 2002 Business Insights

Table 3.7: Total Western European card market, cards per person, 1998— 2002

1998 1999 2000 2001 2002 CAGR France 0.5 0.6 0.6 0.7 0.7 7.5% Germany 1.1 1.1 1.3 1.3 1.4 5.9% Italy 0.4 0.5 0.6 0.7 0.7 12.9% Spain 0.9 1 1.1 1.2 1.3 10.7% UK 1.4 1.6 1.7 1.9 2.1 9.6%

Source: Datamonitor Cards and Payments Database 2002 Business Insights

The UK continues to be the European country with the highest card penetration in 2002, where 2.1 cards are held per person. In comparison, France and Italy remained the countries with the lowest penetration of less than one card per person in 2002.

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Table 3.8: Total Western European card market, average value of transactions, 1998—2002

€ 1998 1999 2000 2001 2002 CAGR France 56 58 54 53 51 -2.2% Germany 120 121 120 120 119 -0.3% Italy 139 144 141 138 132 -1.2% Spain 64 70 65 64 66 0.6% UK 45 46 48 50 51 3.0%

Europe average 85 88 86 85 84 -0.3%

Source: Datamonitor Cards and Payments Database 2002 Business Insights

Italy and Germany remain the two countries with the highest average value of transactions of €132 and €119 respectively in 2002. Both France and the UK reported the lowest average value of transactions.

Table 3.9: Total Western European card market, frequency of transactions, 1998—2002

Tx/card/year 1998 1999 2000 2001 2002 CAGR France 93 96 99 104 118 6.2% Germany 35 36 35 36 37 1.4% Italy 25 22 22 22 24 -1.0% Spain 34 33 34 34 37 2.1% UK 51 54 54 55 55 1.7%

Europe average 48 48 49 50 54 3.3%

Source: Datamonitor Cards and Payments Database 2002 Business Insights

France is the country with the highest frequency of transactions per card per year, leaving all other countries lagging behind. It also recorded the strongest growth in frequency of transactions between 1998 and 2002. Italy is the opposite; with frequency of transactions more than four times lower than France in 2002.

Pay now cards market

Germany remains the largest pay now card market in Europe. Germany accounted for 42.8% of all pay now cards in 2002. The strong pay now market is the result of

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consumers being averse to the idea of card-based borrowing and high merchant fees, thus limiting acceptance. Both consumers and merchants widely accept pay now cards in Germany.

Italy has the lowest number of pay now cards in Europe, with 11.3% of the European pay now cards market share in 2002. Although Spain is also low in terms of the number of pay now cards, it reported the strongest growth of 9.8% compounded annually between 1998 and 2002.

Table 3.10: Total Western European pay now card market, number of cards, 1998—2002

000s 1998 1999 2000 2001 2002 CAGR France 8,040 8,116 8,737 8,580 8,890 2.5% Germany 73,000 76,000 85,500 87,500 89,390 5.2% Italy 17,000 19,776 20,204 21,441 23,634 8.6% Spain 18,948 21,035 24,676 26,387 27,523 9.8% UK 42,529 46,083 49,729 54,305 59,419 8.7%

Total 159,517 171,010 188,846 198,213 208,856 7.0%

Source: Datamonitor Cards and Payments Database 2002 Business Insights

Pay later cards market

The UK is by far the largest pay later card market in Europe, representing 39.2% of the total number of cards in 2002. Germany, although having the largest population of any European country is only the fourth largest pay later card market in 2002 with 12.9% of the total in 2002. Consumers here continue to be unconvinced by the idea of card-based borrowing. The Italian pay later card market saw the fastest growth of 20.7% compounded annually over the period 1998—2002. This is based on the continuing success of issuers in providing Italian consumers with the right products.

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Table 3.11: Total Western European pay later card market, number of cards, 1998—2002

000s 1998 1999 2000 2001 2002 CAGR France 23,523 24,794 29,206 31,571 33,902 9.6% Germany 15,238 16,509 17,849 19,278 20,800 8.1% Italy 8,612 10,570 13,141 15,929 18,261 20.7% Spain 15,383 17,710 19,513 22,371 25,229 13.2% UK 41,622 44,986 50,993 56,316 63,350 11.1%

Total 104,378 114,569 130,702 145,465 161,542 11.5%

Source: Datamonitor Cards and Payments Database 2002 Business Insights

Figure 3.7: Total Western European pay now and pay later cards market, 2002

Pay now 100,000 90,000 80,000 70,000 60,000 50,000 Pay later 40,000 30,000 20,000 Number of cards in 2002 000s, 10,000 0 France Germany Italy Spain UK

Source: Datamonitor Cards and Payments Database 2002 Business Insights

Italy, Spain and the UK are markets, where a near balance between the pay now and pay later markets exists. All other markets, with the exception of France are pay now dominated card markets.

In France the market is dominated by deferred debit cards, which are classed as pay later cards. The number of instant debit cards in France is limited.

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Competition

Germany continues to be the most concentrated pay now market in Europe, with the top three competitors accounting for 85.5% of the total market. This shows the problems of the German retail banking market, which continues to be in the hands of the Stated owned savings bank Sparkassen. The European pay later market in 2002 continues to be a highly concentrated market. Only in Spain and the UK do the top three competitors account for less than 50% of the total pay later cards market.

Table 3.12: Total Western European pay now/pay later card market, competitors by country, 1998—2002

Pay now Pay later No of cards, % market No of cards, % market 000s share 000s share France France BNP Paribas 3,283 36.9% Credit Agricole 11,100 24.4% Caisses d’Epargne 1,626 18.3% Credit Mutuel 7,200 15.9% Credit Agricole 1,397 15.7% Caisses National 11,100 11.0% d’Epargne

Germany Germany Sparkassen 45,000 50.3% Sparkassen 6,000 28.8% Volks-und 26,200 29.3% Volks-und 2,804 13.5% Raiffeisenbanken Raiffeisenbanken Deutsche Bank 5,300 5.9% Bankgesellschaft 1,633 7.9% Berlin

Italy Italy Banca Intesa 2,904 12.3% Carta Si 7,850 43.0% Unicredito Italiano 2,500 10.6% Bankamericard* 3,250 17.8% San Paolo IMI 1,987 8.4% Banca Intesa 1,397 7.6%

Spain Spain BBVA 5,977 21.7% BBVA 3,215 12.7% La Caixa 3,237 11.8% La Caixa 2,584 10.2% Cajamadrid 3,059 11.1% BSCH* 1,700 6.7%

UK UK Lloyds-TSB 10,339 17.4% Barclaycard 9,700 15.3% RBS Natwest 8,794 14.8% RBS/Natwest* 8,500 13.4% Barclays 7,883 13.3% Lloyds TSB 6,700 10.6%

*: includes American Express Figures

Source: Datamonitor Cards and Payments Database 2002 Business Insights

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Country-by-country overview

France Table 3.13: Total French card market, 1998—2002

1998 1999 2000 2001 2002 CAGR No of cards, 000s 33,102 34,927 40,428 42,751 42,792 6.6% No of transactions, m 3,084 3,358 4,016 4,432 5,066 13.2% Value of transactions, €m 171,270 195,602 216,941 233,131 259,034 10.9%

Source: Datamonitor Cards and Payments Database 2002 Business Insights

Key points The total number of cards in France over the period 1998—2002 grew at a compound annual growth rate of 6.6%;

the French card market is dominated by pay later cards, which accounted for 79.2% of the total card market in 2002, however nearly all pay later cards in France are deferred debit cards;

French consumers are using cards increasingly in their day-to-day lives. This trend was also helped by the familiarity of French consumers with payment cards through experiences with private label cards, which is a large sector in the French market.

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Figure 3.8: French pay now and pay later cards market, 1998—2002

Pay later

100% 90% 80% 70% 60% 50% Pay 40% now 30% 20% 10%

Total pay now and pay later0% % cards, 1998 1999 2000 2001 2002

Source: Datamonitor Cards and Payments Database 2002 Business Insights

Overall, Visa is the largest player in the French card market, accounting for 52.9% of all cards in 2002. This is the result of Visa’s strong position in the larger French pay later card market.

American Express and Diners are players in the French niche T&E (travel and entertainment) market. But whereas American Express has been constantly, although slowly, growing, Diners declined over the period 1998—2002.

The number of domestic cards also declined over the period 1998—2002. This is primarily the result of these cards being re-labeled with Maestro and Visa, to add international payment functionality and improving their appeal to French consumers.

Visa was the leading pay now card scheme in France in 2002 with a 44.3% share of the market. Maestro, the pay now brand owned by MasterCard, has been growing impressively over the past six years. This is mainly the result of its growth from a small cardholder base.

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The French pay now market remains small in comparison to the French pay later card market, this is due to the dominance of deferred debit cards, however the pay now cards acceptance amongst consumers seems to be fairly good. Also, the number of domestic pay now cards in France has been declining over the period 1998—2002.

As mentioned above, the French pay later card market consists of mainly deferred debit cards. The more profitable revolving card market is largely in the hands of French private label players. However, French pay later players largely benefited from the experience of consumers with private label cards. As consumers become familiar with the idea of card based borrowing, they increasingly start to take out pay later cards from banks.

Table 3.14: Card issuer shares: French pay now/pay later card market, 1998—2002

Pay now Number of cards, 000s Market share, % BNP Paribas 3,283 36.9% Caisses d’Epargne 1,626 18.3% Credit Agricole 1,397 15.7% Others 2,584 29.1%

Total 8,890 100.0%

Pay later Number of cards, 000s Market share, % Credit Agricole 11,100 24.4% Credit Mutuel 7,200 15.9% Caisses National d’Epargne 5,000 11.0% Others 22,190 48.7%

Total 45,490 100.0%

Note 1: All pay now competitor data for 2002 are estimated. Note 2: Figures for pay later cards provided by NATEXIS Banques Populaires

Source: Datamonitor Cards and Payments Database 2002 Business Insights

BNP Paribas accounts for the largest share of the French pay now cards market, with 36.9% in 2002. In 2002 Credit Agricole was the largest competitor in the French pay

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later segment with a market share of 24.4%, and the top three competitors accounted for almost 50% of the French pay later cards market.

Germany

The total card numbers in Germany experienced a constant, but slow growth over the period 1998—2002. This is the result of the German cards market being dominated by pay now cards, which in turn is the result of German consumers’ conservative attitudes towards card based borrowing and cheaper available credit options through the Giro system.

Table 3.15: Total German card market, 1998—2002

1998 1999 2000 2001 2002 CAGR No of cards, 000s 88,238 92,509 103,349 106,778 110,190 5,7% No of transactions, m 3,092 3,308 3,567 3,795 4,079 7.2% Value of transactions, €m 371,381 398,762 427,616 455,044 483,998 6.8%

Source: Datamonitor Cards and Payments Database 2002 Business Insights

Also until now, the German banks have been hesitant to promote credit cards. This might change in the near future as foreign players are increasingly looking to enter the German banking and card market.

MasterCard dominates the German overall card market, with a market share of 90.6% in 2002. This is the result of MasterCard’s dominance of the much larger German pay now card market through its Maestro brand. This dominance stems from the re-labeling of EC cards in Germany with the Maestro brand to add international functionality. The re- labeling of these cards, which have been issued since 1968, will also involve the removal of the EC logo by 2004. The EC guarantee finished at the end of 2001, as a result, many banks now issue new pay now cards without the EC logo and only with the Maestro sign.

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It should be noted that American Express and Diners are also only active in Germany’s pay later card market.

Acceptance of pay now cards in food retailers such as Aldi, which until now only accepted cash, should further increase the usage of pay now cards in Germany. The drivers for the German pay now market indicates that the market is very mature and has grown only marginally since 2000.

Figure 3.9: German pay now and pay later cards market, 1998—2002

Pay later

100% 90% 80% 70% 60% 50% Pay now 40% 30% 20% 10%

Total pay now and pay later0% % cards, 1998 1999 2000 2001 2002

Source: Datamonitor Cards and Payments Database 2002 Business Insights

When looking at the German pay later market, it emerges that it is faster growing, in comparison to the pay now market. The pay later market displayed a compound annual growth rate of 8.1% over the period 1998—2002 and this growth was mainly driven by new card insurance. This is caused by the market not yet being oversupplied with pay later cards therefore opening up an existing potential for high growth in this sector. German consumers are still some of the most reluctant in Europe to the idea of revolving credit. Most pay later cards in Germany are charge cards or deferred debit. This continues to pose a problem for issuers, as they cannot tap into the more profitable revolving card market.

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Pay later card acceptance in Germany by retailers and consumers is still very low. On the side of the retailers, high merchant service charges prevent more retailers from accepting pay later cards. Consumers on the other hand still look unfavorably upon card-based borrowing. As well as being the dominant force in the German pay now market, MasterCard is also the largest player in the German pay later market with a market share of 50.5% in 2002. Visa is the second largest force in the pay later market with a market share of 40.9% in 2002. Over the period 1998—2002, Visa grew at twice the rate of MasterCard.

The competitor market shares for the German pay now card market largely reflect the shares in the current account market. Largely, the government-owned Sparkassen and co-operative banks of the Volks- und Raiffeisenbanken Group dominate the market. In 2002, the largest competitor of the private sector banks in the German pay now card market was Bank 24/Deutsche Bank.

Italy

The Italian card market continued to grow strongly over the period 1998—2002. This can be seen in the increase in the number of cards, number of transactions and value of transactions. This market is still at an early stage of development and growth is primarily driven by new card issuance.

Table 3.16: Total Italian card market, 1998—2002

1998 1999 2000 2001 2002 CAGR No of cards, 000s 25,612 30,346 33,345 37,370 41,895 13.1% No of transactions, m 651 679 747 820 998 11.3% Value of transactions, €m 90,418 97,845 105,425 113,216 131,977 9.9%

Source: Datamonitor Cards and Payments Database 2002 Business Insights

The niche players in Italy are American Express and Diners, which have also seen strong growth. This is the result of Italian consumers being extremely brand conscious and lifestyle orientated. Both scheme operators have been successful in offering Italian

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consumers products that match their needs. Although the pay now card market is not saturated yet, the growth in this sector has been considerably slower than in the pay later segment.

The average Italian value of transaction is the highest in Europe and the frequency of use is the lowest in Europe. This indicates that Italian consumers are not using pay now cards yet for their everyday, small purchases. However, the trend of a declining average value of transaction is encouraging. Analysis of the pay now card market drivers reflect the picture of an immature pay now card market, mainly driven by new card issuance.

Pay now and pay later card markets Figure 3.10: Italian pay now and pay later cards market, 1998—2002

Pay laterr

100% 90% 80% 70% 60% 50% Pay now 40% 30% 20% 10%

Total pay now and pay later0% % cards, 1998 1999 2000 2001 2002

Source: Datamonitor Cards and Payments Database 2002 Business Insights

Although these are hopeful signs, there remains room to grow the market. Italian consumers still have a high usage of cheques and cash for small, day-to-day purchases. Italian banks can encourage a switch of cash and cheques to pay now cards by intelligent marketing campaigns and through the adaptation of the lifestyle and image appeal that has worked in the pay later market to the pay now market. Maestro, the MasterCard

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owned pay now brand dominated the Italian pay now card market with a market share of 66.0% in 2002.

The number of pay now domestic cards continued to fall over the period 1998—2002 at a compound annual growth rate of –2.4%. This was probably caused by the re-labeling of domestic cards with Visa or Maestro, to increase the attractiveness through adding international payment functionality.

The Italian pay later card market continued to display strong growth over the period 1998—2002. The number of cards and the value of transactions doubled over the period.

Revolving cards play an ever-increasing role in the Italian pay later card market. This is encouraging for issuers as the market is becoming more lucrative for them. Analysis of the Italian pay later key market drivers indicates that the frequency of transactions has been falling over the period and only started to increase again in 2002. At the same time the average value of transactions increased.

As Italian consumers are growing increasingly familiar with pay later cards, there are opportunities for issuers to launch more revolving credit products into the Italian market. Visa is the prominent player in the Italian pay later arena, with a market share of 62.0% in 2002.

MasterCard, although the dominant force in the Italian pay now card market, is only the second largest scheme operator in the Italian pay later market, however it has been growing at a much faster rate when compared to Visa. The T&E niche players are relatively popular in Italy because they offer more lifestyle tailored products, which is an important factor with the brand conscious Italian consumers.

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Competitor analysis

Card issuer shares Table 3.17: Card issuer shares: Italian pay now/pay later card market, 1998— 2002

Pay now Number of cards, 000s Market share, % Banca Intesa 2,904 12.3% Unicredito Italiano 2,500 10.6% San Paolo IMI 1,987 8.4% Others 16,243 68.7%

Total 23,634 100.0%

Pay later Carta SI 7,850 43.0% Bankamericard 3,250 17.8% Banca Intesa 1,397 7.6% Others 5,764 31.6%

Total 18,261 100.0%

Note 1: American Express figures are included in Bankamericard figures.

Source: Datamonitor Cards and Payments Database 2002 Business Insights

The largest competitor in the Italian pay now card market in 2002 was Banca Intesa with a market share of 12.3%. As is the case in the pay now market, many small and regional players are included in the ‘others’ category, displaying the fragmented Italian banking market. The Italian pay now card market competitors largely mirror the players in the Italian current account market.

Although Carta Si has a market share of 43.0% in 2002, it is not a true competitor as the company issues cards for many small banks, as a result of the Italian banking market being so fragmented. Bankamericard is the second largest pay later card issuer in Italy in 2002. Bankamericard is owned by Deutsche Bank and is the prime issuer of Visa and American Express cards in Italy.

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Spain

The Spanish card market grew at a compound annual growth rate of 11.3% over the period 1998—2002 and shows signs of continuing strong growth. It is interesting to see that the pay now and pay later markets are nearly the same size, as the pay now market dominates in most other continental European countries (with the exception of France and the UK).

Table 3.18: Total Spanish card market, 1998—2002

1998 1999 2000 2001 2002 CAGR No of cards, 000s 34,331 38,746 44,190 48,758 52,752 11.3% No of transactions, m 1,151 1,279 1,524 1,675 1,934 13.8% Value of transactions, €m 73,507 89,288 99,354 107,315 126,914 14.6%

Source: Datamonitor Cards and Payments Database 2002 Business Insights

Typically for a mature market, the frequency of transactions is increasing in Spain, while the average value of transaction started to decline over the five-year period to 2002. Although the Spanish still have a strong cash payment culture, consumers are increasingly using pay now cards for small, day-to-day purchases. Analysis of the key market drivers show that the growth in the number of cards is slowing. At the same time the frequency of transactions has started to increase.

The market is reaching saturation in terms of number of cards. In terms of usage however, there is still capacity for development. Spanish consumers are still using pay now cards to withdraw cash, rather than paying straight by card.

Pay now and pay later card markets

Visa grew at more than twice the rate of MasterCard-owned Maestro over the period 1998—2002 and it is the largest pay now card issuer in Spain, accounting for 63.0% of the market.

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Figure 3.11: Spanish pay now and pay later cards market, 1998—2002

Pay later

100% 90% 80% 70% 60% 50% Pay now 40% 30% 20% 10%

Total pay now and pay later0% % cards, 1998 1999 2000 2001 2002

Source: Datamonitor Cards and Payments Database 2002 Business Insights

In 2002 the number of Maestro cards actually declined by 2.0%. This is the result of MasterCard concentrating on the more lucrative pay later market, where it is the strongest player. The Spanish pay later market continued on its growth path over the period 1998—2002, closing slowly in on the pay now market.

The reason for strong growth in the Spanish pay later market is the strong growth over recent years in the Spanish economy, which resulted in a relatively affluent population. Consequently, Spanish consumers are now confident in borrowing money on cards.

As penetration of pay later cards increases, issuers will need to focus their attention on improving the frequency of transactions to grow their business. Interestingly, the pay later card market is almost split equally between MasterCard and Visa, with Visa maintaining the upper hand.

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MasterCard showed impressive growth over the period 1998—2002, more than doubling the number of cards issued. If MasterCard continues to grow at this speed it will take over the leading role in the Spanish pay later market in two to three years time.

Competitor analysis

Card issuer shares Table 3.19: Card issuer shares: Spanish pay now/pay later card market, 1998—2002

Pay now Number of cards, 000s Market share, % BBVA 5,977 21.7% La Caixa 3,237 11.8% Cajamadrid 3,059 11.1% Others 15,250 55.4%

Total 27,523 100.0%

Pay later BBVA 3,215 12.7% La Caixa 2,584 10.2% BSCH 1,700 6.7% Others 17,730 70.4%

Total 25,229 100.0%

Note 1: Competitor data for BBVA is estimated. Note 2: American Express figures are included in the BSCH and La Caixa figures (pay later cards).

Source: Datamonitor Cards and Payments Database 2002 Business Insights

When looking at the Spanish pay now competitors it emerges that the market is fragmented in comparison to most other European countries. In fact, the combined market share of the top three competitors was the lowest in Europe in 2002. Due to the continuing growth of the Spanish card market, various international competitors entered the market, such as Barclays and Citibank.

BBVA was the largest competitor in the Spanish pay now and pay later card market in 2002 with a market share of 21.7% and 12.7% respectively.

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Despite being the most mature card market in Europe, the UK market continued to grow relatively strong over the period 1998—2002 at a compound annual growth rate of 9.9%.

Table 3.20: Total UK card market, 1998—2002

1998 1999 2000 2001 2002 CAGR No of cards, 000s 84,151 91,069 100,722 110,621 122,769 9.9% No of transactions, m 4,279 4,955 5,426 6,126 6,703 11.9% Value of transactions, €m 194,231 229,969 261,563 307,728 341,956 15.2%

Source: Datamonitor Cards and Payments Database 2002 Business Insights

As well as being the most mature card market in Europe, the UK was also the largest market in terms of number of cards in Europe in 2002. It is also interesting to note that the pay now and pay later markets in the UK are nearly balanced.

Pay now and pay later card markets

Consumers in the UK are very familiar with payment cards and use them in their daily lives. Visa dominates overall card issuance in the UK, accounting for 58.0% of all cards in 2002. This is the result of Visa’s strong position in the UK pay later card market as well as having a substantial share of the UK pay now market in 2002.

TLFeBOOK

Figure 3.12: The UK pay now and pay later cards market, 1998-2002

Pay later

100% 90% 80% 70% 60% 50% Pay now 40% 30% 20% 10%

Total pay now and pay later0% % cards, 1998 1999 2000 2001 2002

Source: Datamonitor Cards and Payments Database 2002 Business Insights

The continued success of pay now cards in the UK can be explained by pay now cards replacing cash and cheque payments. Also, consumers are very confident in using pay now cards for everyday purchases as they have been familiar with card usage since the 1960s.

Although pay later cards are widely accepted in the UK, it is interesting to note that pay now cards are taking over as the payment tool of choice for smaller, everyday purchases.

The domestic card scheme comprises of Switch and Solo. Over the past few years however, most cards are being relabeled with Maestro or Visa, as the international payment function is brought in to the equation and thus the proposition of pay now cards to consumers is improved, since now they can be used abroad.

The UK remains one of the most profitable pay later card markets in Europe, with most cards offer revolving functions that are used regularly by consumers. As the key drivers

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for the UK pay later card market indicate the market was mainly driven by the constant growth in the average value of transaction. New card issuance played merely a secondary role.

Visa accounted for 66.0% of the UK pay later market in 2002. As well as being the largest player in 2002, Visa was also the fastest growing over the period 1998—2002.

American Express and Diners are predominantly active in the UK T&E segment. American Express dominates this market and is a more dynamic player compared to Diners. American Express, for example, entered the mainstream credit card market with its Blue product in 1998.

Table 3.21: Card issuer shares: UK pay now/pay later card market, 1998— 2002

Pay now Number of cards, 000s Market share, % Lloyds-TSB 10,339 17.4% RBS - NatWest 8,794 14.8% Barclays 7,883 13.3% Others 32,403 54.5%

Total 59,419 100.0%

Pay later Barclaycard 9,700 15.3% RBS/NatWest 8,500 13.4% Lloyds-TSB 6,700 10.6% Others 38,450 60.7%

Total 63,350 100.0%

Note 1: Pay now competitor data for the UK is estimated. Note 1: Some American Express figures are included in the pay later RBS/NatWest figures. As a result there maybe some double counting.

Source: Datamonitor Cards and Payments Database 2002 Business Insights

The UK pay now card market is one of the most fragmented in Europe. In 2002, Lloyds TSB had the largest share of the UK pay now market. Barclaycard was the largest player in the UK pay later card market in 2002, accounting for 15.3% of the market.

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Chapter 4

Co-branded Cards

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Chapter 4 Co-branded Cards

Summary

A co-branded card is a partnership card issued between a bank and another organisation whereby the card is jointly managed by both organisations and profits are split.

Affinity cards involve the card issuer making a default donation to the partner organisation every time the card is used.

Affinity partnerships are most often between banks and not-for-profit groups, while co-branding partnerships are usually run with large commercial groups.

Introduction

Co-branding, affinity marketing and self-issued cards

Co-branding is a term that is regularly used in the world of plastic cards with varying definitions. Here the concept is defined to exclude affinity marketing and self-issued cards. Although, this is not to deny that these three card types form part of the same family.

Co-branded cards prominently carry the brand or logo of a company, which is not the issuer of the card, for example GM MasterCard is a co-branded card between General Motors and MasterCard, however, a separate bank is the issuer of the card. Commonly,

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co-branded cards involve a complicated relationship between the bank and company that is similar to a joint venture, the card is jointly managed by both organizations and profits are split. This is different from an affinity card in that, rather than splitting the profit, the card issuer makes a default donation to the partner organization every time the card is used.

Other characteristics set apart co-branding from affinity marketing. Affinity partnerships are most often between banks and not-for-profit groups, while co-branding partnerships are usually run with large commercial groups. However, this is not a hard-and-fast rule - utomobile associations and professional sports clubs are often stockmarket-listed or private commercial companies and engage in affinity marketing rather than co-branding.

More important for a full definition of co-branding is that its objective is to achieve incremental sales for the partner group, rather than strengthen emotive ties with members, customers or supporters, as is the case with affinity marketing. Also, in the case of co-branding, incentives are usually included in the form of a loyalty scheme to reward the cardholder for card usage. In the case of an affinity card, it is the partner group that is rewarded for card usage, through the donations system.

Besides co-branding and affinity, a third type of card forms part of the same family, the self-issued card. This is a card that is entirely similar to a co-branded card except for the partnership element. In the case of a self-issued card, a non-financial group majority owns and runs the issuing bank. Thus, the ‘partner’ becomes both parties in the co- branding relationship.

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Co-branding is fundamentally concerned with putting together strengths, dividing work and splitting profits.

Figure 4.13: Combining brand and expertise in a co-branding relationship, 2003

Bank Partner

•Brand •Brand •Issuing expertise •Customer base •Credit risk management •Targeting expertise

Assets •Service expertise •Distribution platform

•Product development •Customer database •Datamining •Promotion •Service •Sales •Points accounting system •Loyalty programme

Resources

Source: Datamonitor, MasterCard International Business Insights

The figure above shows the most important assets that are combined and what this means in terms of resources to be employed by each partner.

Co-branding in the past

In the late 1990s, only a small number of innovators in continental Europe targeted the niche consumer segments that were ready for standalone credit cards. Often, a small number of co-branded offers were part of this strategy.

Issuers that did adopt co-branding early in continental Europe were those that recognized credit cards as a market in itself, either because of the essence of their

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business or because of the adoption of a new strategy. Examples are American Express and Diners Club in a number of countries across Europe, but also players like Bankamericard in Italy.

Airlines became highly popular with standalone card providers for three reasons:

High level of prestige;

the advantages of their loyalty schemes;

the nature of their business traveling clientele.

Co-branding in Europe

As with many innovative marketing techniques, co-branded cards were first introduced in the United States market in the mid-1980s. The co-branded sector of the U.S. credit card market has boomed ever since and now accounts for approximately 25% of the U.S. market.

The UK market rapidly developed similar competitive and structural features to those of the United States during the 1990s and co-branding took off in the late 1990s and the market saw a surge in the number of co-branded cards until and beyond the end of the decade.

The majority of issuers in continental Europe did not promote cards as standalone products in the late 1990s and preferred debit and deferred-debit card co-operation through interbank associations. Cards were mostly issued by the bank’s own customers. Co-branding is a marketing technique primarily used by issuers to increase their credit card market share, which explains why only a small number of continental issuers were engaged in co-branding activities during the late 1990s.

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The co-branding boom

Now, the landscape is changing fast. With foreign competitors and domestic finance houses proving that credit card profits are too important for banks to ignore, markets are breaking out of the interbank mentality and are directing themselves towards competition in revolving credit cards.

To say that this provides a breeding ground for an increasing number of co-branding programmes is an understatement. It is actually through co-branding, affinity and self- issuing that the most important movements are and will be taking place. The fundamentals have been laid by retailers and finance houses, which have set up large card programmes outside bankcard frameworks for loyalty schemes and the provision of store credit. The conversion of these programs is massively shaking up the market structure.

Therefore, after sporadic upmarket airline programmes, retailers have become the new battleground for co-branding and this time the mass market is at stake.

Country-by-country analysis

In continental Europe’s largest markets, France and Germany, market structure and co- operation was not all that prevented issuers from establishing co-branded card portfolios.

Regulations in these two countries actually banned mainstream card issuers from issuing co-branded cards. Germany’s Rabattgesetz, a federal law, banned discounts to customers on the basis of credit cards, while in France interbank framework regulations banned co-branding and are still in place today.

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Europe

Two of Europe’s largest card markets likely to open up during the next few years with the Rabattgesetz abolished in Germany and France preparing for a collapse in the co- branding ban. Markets such as Spain and Italy have similar interbank roots, however, no effective ban on co-branding exists.

In these countries (Spain and Italy), the emergence of revolving credit bankcards goes hand in hand with a stronger co-branding presence. Also in these markets, it is particularly the conversion of private label and loyalty scheme cards that has the potential to revolutionize the market.

In Benelux, relatively little has happened so far, but banks like Fortis and ING have recognized that the credit card business is an industry in its own right. These banks are now looking for ways to substitute store card programs with co-branded Visa and MasterCard deals. Fortis and KBC have decided to team up with Cetelem. ING is going its own way with a dedicated cards subsidiary.

In the Mediterranean region, things are moving much faster. By dual-networking the Aurore family of store cards with Visa and MasterCard, Cetelem’s subsidiaries in Spain and Italy have effectively turned more than 20 million store cards into co-branded bank cards overnight, while foreign credit card specialists Barclaycard, MBNA and Capital One have used co-branding to overcome brand disadvantage and enter the market. Some of the domestic banks - la Caixa, Cajamadrid, Unicredito’s Clarima – have responded by the extended use of co-branding (and affinity) programmes to amplify their card offerings.

Eastern European countries are alsomaking progress in terms of co-branding programmes, although the potential to set up successful programmes in these markets remains limited by the low card spending levels that are still in existence. However, this is expected to change over the next few years.

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With these trends in view, the major card schemes are opening new possibilities for banks to compete for co-branded deals. MasterCard Europe, for example, has abolished existing regulations precluding instant discounts at the point of sale for MasterCard affinity and co-branded cards. In future, issuers will be able to allow their partners to offer instant discounts to customers if they use a co-branded card. This will give banks an extra trump card in their battle with finance houses’ standalone loyalty schemes and obsolete private label cards.

Germany

The Rabattgesetz was abridged during 2001, which opened up loyalty scheme and co- branding opportunities for issuers and merchants in Germany for the first time.

Not only did Lufthansa and Deutsche BA take advantage of this to launch co-branded cards, the recent conversion of two major loyalty schemes to co-branded credit cards has had an enormous impact on the small and traditionally stagnant German credit card market.

The first of these is Payback, a multi-retailer scheme that includes large operations such as Kaufhof, Europcar, OBI and AOL. Landesbank Baden-Wurtemberg and Loyalty Partner, the independent loyalty scheme company that operates on the part of the retailers, launched the new co-branded Payback Visa card. Hundreds of thousands of cards have been converted and the scheme has enormous further potential with a customer pool of more than 19 million members to target.

The KarstadtQuelle mail order and retail group’s loyalty card conversion has been even more successful. More than one million Klub-Karlstadt bonus point cards were converted to revolving credit cards in less than two years. However, unlike Payback, KarstadtQuelle is a self-issued card rather than a co-branded one.

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France

In France, it is not the legislator but the interbank body Groupement des Cartes Bancaires that has effectively banned co-branding from the bankcard market. It has done so on the basis that the responsibility for cards should remain fully in the hands of the issuer.

This has been but one of the measures that have been kept in place to keep non-banks out of the market. This is not to say that card-based credit does not exist in France. On the contrary, the protective shield around Cartes Bancaires’ bank cards has boosted the business of the private-label card sector, creating some of the world’s most powerful store card specialists: Cetelem, Cofinoga, Finaref and Cofidis.

These have now formed an alternative network that is strong enough to effectively threaten Cartes Bancaires’ grip on the market. As more and more banks are enticed by the huge profits that could be made by the possible co-labelling of store cards with Visa or MasterCard, the likelihood of some major players stepping out of the GCB’s agreement and teaming up with consumer finance firms under their own Visa or MasterCard license increases.

The question is when, not if, millions of co-branded cards will suddenly emerge. BNP Paribas, which owns Cetelem, is rubbing its hands. Credit Agricole has recently prepared itself with the purchase of Finaref in February 2003.

French issuers should prepare for a violent co-branding explosion. This will happen in the next two to five years, the all-important question, however, remains when exactly the co-branding ban will collapse.

The UK

The UK market, where co-branding became popular much earlier than most European countries, provides insight into some of the potential roads a co-branding boom might

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lead to. With some of the most important programmes now moving beyond a simple co- branding relationship, some of the questions new co-branders on the continent might have concerning the threat from partners taking over banking business are addressed by what has happened here.

One of the most dramatic examples of the dangers of moving beyond co-branding and into self-issuing is the Centrica-Goldfish story. Centrica, heir to the privatization of British Gas, launched the Goldfish card in 1997 through a co-branding venture with HFC Bank. The card was issued at a high rate over the next three years, reaching around the one million cards during 2001.

At this point, however, Centrica and HFC Bank had entered an extended legal battle over ownership of the customer base (the dispute began when Centrica announced in December 2000 that it planned to extend its financial services offering via a joint venture with Lloyds TSB and abandon the venture with HFC), which HFC Bank lost in court. Centrica was allowed to buy out its financial services partner in 2001, paying £85 million to gain full control over the customer base.

In fact, Centrica did not end up running Goldfish on its own. Despite growing the card business in terms of cards issued, the cost of acquiring and retaining customers in the UK’s competitive environment spiraled out of control. Reporting a loss of £30 million over the first six months of 2003, Centrica decided to pull out entirely and sold Goldfish to Lloyds TSB, which has had a 30% stake in Goldfish and been involved on the sidelines of its operations since the end of 2001.

While the Centrica story has long been interpreted as highlighting the potential danger of partnering up with a powerful, ambitious non-FS company, it serves above all to confirm what bank executives across Europe have maintained for a number of years: the value of a long tradition of banking know-how is not to be underestimated and many non-FS companies fail because they do.

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Still, the UK market equally provides examples of retailers that have succeeded in becoming successful card issuers themselves. Supermarket chain Tesco, for example, fared much better than Centrica while operating a company along similar lines, i.e. a joint venture in which RBS only has a minority stake. Its credit card, like Goldfish, is therefore not a co-brand but a self-issued card. It incorporates the highly successful BA Miles programme that was incorporated into its original Clubcard loyalty card and has since become one of the most successful credit card products in the UK market today.

Marks and Spencer’s is an even more salient example of a retailer setting up its own bankcard rather than co-operating with a financial partner. The retailer is currently in the process of piloting the conversion of its highly successful private label card.

Conclusions

The transformation of market structures towards a more competitive model and the development of revolving credit go hand in hand with a surge in co-branding. Co- branded cards will be among the most important tools issuers can use to turn structures around.

When counting private label schemes, revolving credit cards are actually common in Europe already and it is their conversion, in combination with the conversion of retailer loyalty schemes that will make sure the evolution towards more revolving credit will accelerate in many markets. Foreign card specialists, like Capital One, Barclaycard and MBNA have a presence in some of the most attractive markets and they have a proven track record in advanced partnership marketing in the UK.

It is important to note that finance houses have existing relationships with the most important retail chains already and – regulations allowing - these can be converted by dual-networking with MasterCard or Visa. This means that the most interesting programmes are going to fall outside of the hands of high street banks. Also, some of the most important retailers are looking to go it alone and issue the cards under their own financial subsidiaries. Some of Europe’s most important store card conversions are

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unlikely to need a bank. El Corte Ingles in Spain for example runs several millions of store cards through its own internal finance house, named Financiera El Corte Ingles.

Another possible future scenario is partners with little financial services expertise, could make use of a co-branded venture as a stepping-stone into the wider financial services arena. Staying away from partnerships altogether - for this reason, at least - is not an advisable option. Retail groups with strong ambitions in financial services will have their go no matter what. Options galore: another financial company could co-operate with them, they can buy up a small bank or finance house, or simply hire and buy the expertise in themselves.

It is at least as important not to engage in relationships half-heartedly, so that this should not be taken too far. Rather than entering partnerships with a suspicious mind, issuers should seek ways to work with partners that do have wider plans in the long term, account for their ambitions and plan ahead together in a constructive way. It is a large, powerful and motivated partner that will dedicate most energy to the partnership and will bring most potential to the card.

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Chapter 5

Card Loyalty Schemes

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Chapter 5 Card Loyalty Schemes

Summary

This report defines a loyalty scheme as the one where the customer is rewarded with added value goods and services for changing their purchasing behaviour or attitudes favorably towards the scheme owner.

However, in recent years the voice of opposition has been growing and skeptics argue that loyalty schemes are costly to run and are often not used by the customer.

Introduction

This chapter starts by providing background to the loyalty scheme argument and defining what constitutes a loyalty scheme. To understand why loyalty schemes are such a contentious issue, the second part of this chapter analyses the historical development of loyalty schemes over the past couple of decades.

Loyalty scheme

The credit card market is a highly lucrative proposition for many financial services organizations, and as such, many of the major European card markets recently have

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been characterized by a plethora of aggressively priced new entrants and an increasing number of credit cards in issue. With consumers holding more cards in their wallets than ever before and using each card less frequently, it should come as no surprise that customer loyalty is a hot topic for every issuer.

Against this backdrop, a number of the largest issuers have spent the last decade developing and tweaking their card loyalty schemes in the belief that loyalty programs are an integral part of a credit card package and a valuable tool in boosting customer loyalty and card usage. However, in recent years the voice of opposition has been growing. Many skeptics argue that loyalty schemes are costly to run and are often not used by the customer. So should card loyalty schemes be confined to the marketing scrap heap? Recent developments would suggest not. The launch of Nectar (the UK multi-retailer loyalty scheme of which Barclaycard is a founding member) and the development of themed cards by the French retail finance house Cetelem, are ensuring that loyalty is once more returning to favor.

A loyalty scheme is where the customer is rewarded with added value goods and services for changing their purchasing behaviour or attitudes favorably towards the scheme owner.

Based on this broad definition, researchii has shown that loyalty schemes fall into two broad categories: priced based incentive schemes and reward based loyalty schemes.

Price based incentives

In the broadest sense of this definition, offering a highly attractive ‘market-beating’ price could be considered a method of keeping customers loyal, and therefore as a type of

ii Conducted by Datamonitor in 2002 to 2003

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loyalty scheme. Such a strategy tends to be adopted by genuine price leaders or as a one-off acquisition strategy. In the card market, price based schemes can be categorized into three broad categories:

Low rate offerings (these are usually relatively simple offering customers low or ‘market-beating’ interest rates to encourage them not only to borrow more, but also to prevent them switching to another card);

fee based offerings (such initiatives tie customers into a credit card through monthly or annual fees, whilst offering lower rates of interest on outstanding balances);

discount based offerings (offer cardholders discounts if they use their card on certain partners’ products).

Reward based loyalty schemes

In general, reward based loyalty schemes are used to support a premium service proposition and protect against more price-competitive rivals, by offering customers visible rewards for remaining loyal. Reward based loyalty schemes fall into two broad categories: cash back reward schemes (customers receive a small percentage of their spend back each month) and points based reward schemes (customers receive points depending on the amount they spend, which can be redeemed for tangible rewards including goods, vouchers and discounts).

A background to card loyalty schemes

Modern day loyalty schemes originated in the late 1960s on the petrol station forecourt, as a way for fuel retailers to build a premium brand proposition and generate loyalty where location, convenience and price had previously been the deciding factors. Loyalty schemes were originally operated using paper tokens or stamps, which were issued to customers to be redeemed for specific products from the retail outlet or from a catalogue.

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Loyalty schemes were quickly adopted by other customer-facing retail industries, with large grocery retailers and some card issuers introducing them in the late 1980s and early 1990s. Schemes were typically constructed with big ticket rewards, the idea being that the longer customers have to save for their reward, the longer they will remain loyal. However, retailers found that there were a number of problems associated with big ticket reward structures, notably they tended to offer a limited range of rewards that did not always appeal to all customer groups and many customers became disencharted or disinterested with schemes that did not show quick rewards.

To overcome these problems, later schemes introduced smaller ticket rewards in an attempt to keep customers engaged. However, these schemes also had their disadvantages, in particular, retailers found that they did not facilitate long term loyalty. Today, most successful contemporary loyalty schemes try to offer a mix of big ticket and small ticket rewards to suit as many customers as possible.

With a few notable exceptions, UK credit card issuers have had a longer history of offering loyalty schemes compared to their continental European counterparts. This is due to the relatively mature nature of the UK credit card market, since issuers face tougher competition for customers than other European countrie, while consumers have more credit cards in their wallets on average than those in other European countries.For this reason, this chapter draws many of its examples from the UK market.

Loyalty schemes in the UK

Since their introduction in the mid to late 1980s, more and more UK card issuers have introduced a loyalty scheme of one type or the other.

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Figure 5.14: Percentage of UK credit cards offering loyalty schemes, 1993– 2002

60.0 Points based Cash back reward scheme scheme 50.0

40.0

30.0

20.0

offering a loyalty scheme a loyalty offering 10.0 Percentage of UK credit cards cards credit UK of Percentage

0.0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Note: Percentage taken from issuers listed in Moneyfacts in August of each year.

Source: Datamonitor, Moneyfacts Business Insights

Figure 5.14 shows that loyalty schemes have grown in popularity over the last 10 years, although this growth in popularity has not been smooth as schemes have come in and out of fashion. Recently, smaller card issuers have started to offer loyalty schemes but due to the high costs involved in setting up and administrating a comprehensive points based reward scheme, many have opted for cash back schemes. Currently the UK card loyalty market is relatively saturated with numerous issuers offering points or cash back reward schemes.

Europe’s loyalty schemes

As European card markets have started to mature, loyalty schemes have also become more popular amongst the largest card issuers. Figure 5.15 highlights that almost half of Europe’s largest issuers now operate some form of card loyalty scheme. Although these vary in sophistication, all are points based reward schemes.

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Figure 5.15: Europe’s loyalty schemes, September 2001

UK Barclaycard RBS Lloyds-TSB

Spain La Caixa BBVA BSCH LoyaltyLoyalty schemescheme

Italy Deutsche Bank Banca diRoma San Paolo IMI No loyalty scheme

France Crédit Lyonnais Crédit Agricole Crédit Mutuel

Volks-und Bankengesellschaft Germany Sparkassen Reiffeisenbanken Berlin

Top three card issuers by number of cards in issue, 2001

Source: Datamonitor Business Insights

Loyalty schemes are relatively popular amongst the major issuers in the UK, Spain and Italy, where the largest in each country offer some form of loyalty scheme. In the French credit card market, the two largest issuers – Crédit Agricole and Crédit Mutuel – do not offer a loyalty scheme. This is highly significant considering that they account for over 45% of the market in terms of cards in issue. Of the top three issuers, only Crédit Lyonnais (with 11% of the market) offers a loyalty scheme. None of the top three card issuers in Germany currently offer a card loyalty scheme. This can partially be attributed to tighter data protection and advertising legislation. However, the recent introduction and subsequent success of the Payback card – a multi retailer points based loyalty scheme – may change German issuers traditional view of loyalty.

Loyalty schemes and insurers

Despite the fact that loyalty schemes are now offered by almost half of the largest European card issuers, they remain a contentious issue. In fact, the voice of opposition

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from issuers and market experts is as loud now as it has ever been. The crux of critics’ arguments is that loyalty schemes do not appeal to enough customers, especially in today’s loyalty saturated marketplace, to make them a financially viable tool for retention. Furthermore, many critics argue that issuers would be better served scrapping their loyalty schemes to offer lower prices, as consumers will eventually wake up and demand more competitive prices rather than receive unwanted rewards.

This belief has recently been supported by the reassessments of loyalty schemes made by some of the largest UK corporations. HSBC, for instance, scrapped its seven-year-old Choice points program in October 2001 because an internal review revealed that few people used the program and redeemed their points. In its place, HSBC is promoting special offers based on cardholders’ spending habits. The bank believes that this more personalized service will be more popular and will improve customer loyalty. Outside the card market, the UK supermarket chain Asda recently discontinued its long running loyalty scheme because it believed consumers ultimately prefer lower prices.

However, the high profile introduction of the Nectar card (a UK multi-retailer loyalty scheme backed by Sainsbury’s, Barclaycard, BP, and Debenhams) and the impending battle between Nectar and Air Miles has brought interest in loyalty schemes back to the fore again. Other pioneering schemes in Europe such as the use of smart card technology by Garanti Bank in Turkey have also played their part in reinstalling interest in card loyalty schemes.

Loyalty schemes objectives and problems

Loyalty schemes are employed to increase customer retention, customer data, customer acquisition and card usage. The success of a loyalty scheme in meeting these four objectives depends on its structure, the technology it employs, the range of rewards it offers, and ultimately the nature of its customer base. However, no matter how successful an individual scheme is at meeting these four objectives, all schemes must overcome two fundamental problems if they are to be truly successful. The first problem is the cost of administration, which does not make the loyalty scheme an efficient

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method for delivering discounts, and the second is about the scheme not appealing to all cardholders. The second problem embraces the issues of poor structure of loyalty schemes and lack of user-friendliness.

The major weakness of all loyalty schemes, and certainly of points based schemes, is the high set-up costs, high administration costs and potentially high exit costs that any issuer offering a scheme must bear. For example, Sainsbury’s Reward Card, which was dropped for the Nectar card, was estimated to cost in excess of £100 million to maintain annually. In addition, with exit potentially difficult, as Sainsbury’s and Barclaycard have recently discovered, issuers that launch a new loyalty scheme must be prepared to maintain it for the foreseeable future to avoid upsetting and ultimately losing customers.

Issuers have taken two approaches to overcoming these high costs, namely to spread the cost of the scheme between a number of partner issuers (Nectar is a good example in the UK), and to offer cash back schemes that incur a fraction of the costs associated with points based reward schemes.

Another weakness that troubles many loyalty schemes is their lack of broad customer appeal. Critics give a number of reasons for this lack of appeal, for example that many loyalty schemes are poorly structured (many schemes offer either big ticket or small ticket rewards, whereas they would be better served opting for a mass market proposition by offering a mix of both). Also, many loyalty schemes are not user-friendly and do not engage the customer. The main cause of this is that they use magnetic stripe card technology and issue rewards in voucher form at irregular intervals. Also, consumers are becoming more financially aware, preferring lower prices rather than rewards at a premium price. Furthermore, many industry commentators believe that customers will eventually wake up to the loyalty scheme ‘rip-off’ of higher prices for rewards that are not always wanted.

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Conclusions

Card issuers are introducing a number of current developments to overcome some of the aforementioned problems. New loyalty schemes are following a mass-market proposition, with a mixture of big ticket and small ticket rewards to meet all customers expectations (Barclaycard’s Nectar loyalty card is a good example). Loyalty cards are starting to use chip technology to facilitate user-friendly real time redemption of loyalty points. New loyalty developments in the United States, based on offering cash back depending on the amount of interest a customer is charged, are starting to address the problem that loyalty schemes traditionally appeal to less profitable customers.

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Chapter 6

Product Development

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Chapter 6 Product Development

Summary

Introductory offers on credit cards typically provide low rates to new customers for a limited time. The tool is used to attract customers to the idea of credit cards in the hope that they will remain with the issuer once the low rate is raised to the standard rate.

The prime market is well served in the UK but a large number of credit-worthy individuals are not able to gain access to credit cards.

Introduction

This chapter focuses on the product development in the UK plastic cards market in recent years, highlighting the most important issues and the key trends behind the evolution of different types of cards. This chapter analyses product development providing relevant examples from the cards industry.

Product developments

The following were the most important developments in the UK in the past 18 to 24 months:

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Introductory offers.

black cards;

sub-prime;

loyalty schemes;

flexible cards;

flat rate cards.

Introductory offers

Introductory rates typically offer low rates to new customers for a limited time. The tool is used to attract customers to the idea of credit cards in the hope that they will remain with the issuer once the low rate is raised to the standard rate. Balance transfer rates are a different concept used to attract existing cardholders away from other issuers. Characteristically offering low or 0% interest rates on balances transferred for a period of six to nine months, the offer is eye-catching to revolvers, which are the most profitable type of customer for credit card issuers.

Therefore, introductory offers attract new customers and balance transfer offers are illustrative of how issuers are trying to poach limited market share from other players.

Credit cards may charge different rates on cash advances and purchases, however, and consumers must be wary that low introductory rates may apply only to the balance transfer itself, not to any future purchases.

Introductory and balance transfer offers have burgeoned since 2002 and encouraged a degree of switching among credit consumers. It has been stated that credit customers could save a collective £2.25 billion or £87 each, but research from the British Bankers Association indicates that only 2% of credit card balances were switched to zero rate introductory offers, compared to 79% of balances that attract interest.

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Only the larger players have introductory offers as well as balance transfer offers, and even less have loyalty schemes running in conjunction with these offers. Since not many customers are switching, it seems that the larger incumbents can subsidize such offers, and still have brand attractiveness supplemented by loyalty schemes serving as effective retention tools.

Table 6.22: Zero per cent introductory rate offers, UK, May 2003

Card issuer Card type Period of offer Standard APR Rewards Abbey National Credit card M/V 1st 6 months 15.90% No Classic Bank of Scotland M'card/ Visa 1st 5 months 17.90% No Birmingham MidshiresClassic Visa 1st 5 months 17.90% No Premier Capital One Bank MasterCard 1st 6 months 12.90% No Egg Visa Until 1.10.03 13.90% Cashback Classic Halifax M'card/ Visa 1st 5 months 17.90% No Leeds & Holbeck MasterCard 1st 6 months 16.90% No Building Society before 1.07.03 Classic Lloyds TSB M'card/ Visa Until 1.07.03 17.90% No MasterCard/ Marbles Visa 1st 6 months 14.90% No 1st 6 months Morgan Stanley MasterCard before 1.07.03 14.90% No Cashback 1st 6 months MasterCard before 1.07.03 16.90% Cashback Nationwide BS Visa Classic 1st 6 months 13.90% No PC World Marbles MasterCard 1st 9 months 14.90% No MasterCard/ RBS Advanta Visa Until 1.10.03 14.90% No Classic RBS M'card/ Visa 1st 6 months 16.90% No Advantage Sainsbury's Visa 1st 5 months 13.90% Air Miles MasterCard/ Tesco Visa Until 1.10.03 14.90% Clubcard

Source: Datamonitor Business Insights

The origins of black cards

American Express was the first to categorize a pecking order for plastic, introducing the gold card in the UK in 1980. Platinum cards appeared on the market 11 years later. Not long ago, gold and then platinum cards were the exclusive cards sought after by the

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elite. Nowadays these cards have become more commonly used, as gold cards from Lloyds TSB are available to anyone earning £12,000 a year, and platinum to earners over £15,000 a year. Capital One also offers platinum cards to those earning over £10,000. The dilution of the prestige associated with these cards came with its increased accessibility, and the new ‘black’ card is an attempt to reinstill some of the class value into the market.

The number of high net worth individuals in Britain is soaring. Recent statistics from the Inland Revenue indicate that the number of people earning over £100,000 has doubled in the last four years to 326,000. The total liquid wealth of these high net worth individuals is set to top £10 billion by 2006. It is hardly surprising, therefore, that the market players are seeking growth from these prosperous clients.

NatWest launched its invitation-only NatWest Black card in July 2002. Aimed at the growing high net worth segment, the card will take on the Amex Centurion card by offering a 24-hour personal assistance service, worldwide access to executive airport lounges, and a preferential Air Miles earning rate. The Centurion card is topped only by the exclusive MasterCard Signia card, issued in the UK only by Coutts & Co., bankers to the Queen and with a required minimum income of £20,000 a month, it seems this type of credit is only for those who do not need it.

NatWest Black is available to those who earn over £70,000 and will be accepted at 20.2 million outlets worldwide - four times the acceptability of its closest rival. Halifax followed suit in September 2002 with the launch of the ‘Carbon’ card, available to those who earn over £75,000. Lloyds TSB, which has five million credit card customers, is also looking at whether to launch an upmarket credit card aimed at affluent customers, revamping its current prestigious range.

Whether the new black cards will enjoy the same status as the invitation-only Centurion card or whether they will end up devaluing the black card remains to be seen.

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Sub-prime

The gold card has had its day and there are real growth opportunities now to attract affluent customers. For the UK market to reach the sort of levels seen in the U.S., where 75% of adults have a card, banks may have to sign up less affluent parts of the population, which the banks refer to as ‘sub-prime’ customers. The prime market is well served in the UK but a large number of creditworthy individuals are not able to gain access to credit cards. This untapped market is predominantly made up of moderate and low-income households, individuals with impaired credit history, limited or no credit history and the self-employed.

Banks have already started to move into this area. Last year Barclaycard, part of Barclays, bought the UK credit card activities of Providian Financial, the U.S. issuer. HSBC bought Household International in March 2003.

RBS entered this market with the launch of the Universa card. It is interesting that this was done through subsidiary Style Financial Services, and is probably an attempt to avoid brand contamination.

HBoS partnered with SAV credit to serve as the customer interface for the Aqua card. With interest rates ranging from 20.9% to 32.9%, the card is less than competitive but is attractive to the section of the population that cannot get a credit card. Launched in April 2002, the card will allow HBoS to collect valuable profitability data from the market for this non-standard market.

Loyalty schemes

The Nectar card

September 2002 saw the launch of the UK’s largest loyalty scheme at a cost of £30 million. It is aimed at the millions of people who shop at Sainsbury's, Debenhams and BP service stations, or who carry a Barclaycard. Nectar came under press investigation

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in November 2002 when it became apparent that the converted Nectar points were, on occasion, worth as little as half the previous scheme. Barclaycard moved to correct this.

The much-hyped new rewards scheme will enable people who use any or all of these companies to earn points and redeem them for items ranging from electrical goods and flights to family days out and restaurant meals. Sainsbury's or Debenhams shoppers receive two points for every £1 spent, while BP customers get one point per liter of petrol. Barclaycard holders get one point for every £2 spent - though if they spend their card in a partner outlet they get points from both. Generally, the scheme returns one penny for every pound a customer spends. However, according to Richard Campbell, marketing director of LMUK (Loyalty Management UK Ltd), one in two households have a Nectar card.

According to Keith Mills, chairman of LMUK, a six-month research consumer research programme was undertaken before launching the Nectar card. The main findings of the research were:

There was a considerable amount of consumer frustration about existing loyalty schemes;

many customers would enrol with the schemes, end up with lots of different loyalty cards, but then just would not get around to using them;

consumers believe it is just too much hassle to go through a wad of plastic cards to find the right card at the right time;

consumers felt that they did not accrue much value from the programme.

This was followed by another research group session to identify what type of rewards they would ideally want to enjoy from a loyalty programme. The result of this was that LMUK discovered that the group’s preferred rewards included eating out, cinema tickets, days out at tourist attractions, groceries and wine, holidays, flights and travel.

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There is still some contention in the market over the value of loyalty schemes, especially given the cost needed to implement them. HSBC withdrew its loyalty scheme in 2001. Egg cut its cashback offer in half to 0.5%, as did Halifax. Alliance & Leicester was defeated and sold its portfolio to MBNA. While these innovative ideas contribute to market growth, it is those with effective data analysis and risk management capabilities that will remain the most successful. Chip cards do provide information that will allow for better data and risk management, but it is an expensive venture especially with the pending reduction in interchange fees.

Soon there will be little income to fund such schemes. The market may start to see a reduced offering from credit card issuers, simply because they will no longer be able to afford to subsidize loyalty schemes.

Flexible cards

The entry of American issuers to the UK in the past five years has prompted a flurry of marketing activity and a number of new products, as much from existing UK issuers as from the new players. There has been a move away from charging a standard annual fee and fixed interest rate, giving a wider choice of rates and benefits to suit lifestyles.

The offer basically involves choosing the configuration of APR, cashback and annual fee – so, for example, if the consumer tends to pay bills in full and on time, the APR is of less concern. By selecting a higher level, the consumer can then get more in cashback and less of the annual fee. A lower APR necessitates sacrificing the cashback and consumers will pay a higher annual fee.

Accucard was first in this market, followed by Virgin in 2002, which is issued by MBNA. Over 2003, a number of other issuers entered this market, namely the MBNA More Than card and HBoS. Lloyds TSB showed particular interest by acquiring Accucard and launching the createcard.

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Flat rate cards Contrary to the plethora of introductory and balance transfer offers that are in abundance in the market, Halifax has unveiled a flat rate offering. Aimed at those who never pay off their credit card balance in full, Halifax’s flat rate card charges 10.8% APR - plus benefits such as free purchase protection to cover most major items against theft or damage for up to 100 days and up to £100,000 free travel accident cover when travel tickets are paid for in full using the card.

Aimed at those customers who borrow a lot, Lloyds TSB also has a flat rate card called Advance. The card offers a balance transfer rate of 0% for six months and the standard rate for purchases is currently 11.9%. However, interest is charged from the date of the transaction; there is no interest free period.

Conclusions

The Barclaycard price match offer, which guarantees to beat the standard purchase APR of a credit card that any customer may hold, down to 9.9%, is the first of its kind in the UK market. It allows Barclaycard to have a safety net against valuable customers switching to alternative cards.

Switching cards

Alterations to the UK Banking Code have pulled down much of the administrative barriers previously hindering a customer’s easy and rapid movement between banks. Under the Code, banks are now required to transfer full banking details to another bank within five working days, heightening the competitive nature of the marketplace. Although UK banking customers are traditionally inert with respect to banks, the plethora of competitive credit card offerings will place pressure on the larger banks to prevent inertia.

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Consumer apathy and reluctance to switch issuer has favored the larger players. Even though MBNA has achieved significant growth, Barclaycard’s market share could be said to have been preserved through customer inertia. Egg has also effectively retained its customers, reporting that 87% of customers elected to remain with the company in 2001 after introductory rates expired.

This is supported by recent research from the British Bankers Association (BBA), which indicates that only 2% of credit card balances were switched to zero rate introductory offers, compared with 79% of balances that attract interest.

Pricing

Halifax is taking on the online banks with the h2x card, launched in November 2002. The low rate online card offers an APR of 9.9% (variable) on purchases and balance transfers, with 0% on the transferred balance for the first five months. Considering its recent success, it is set to be a strong contender over the next few years.

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Chapter 7

Appendix

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Chapter 7 Appendix

Definitions and abbreviations

Definitions for plastic cards

ATM only card: An ATM only card allows customers to withdraw money from automated teller machines. It cannot be used to make payments.

Average value of transaction: The average value of transaction is calculated by dividing the total value of transactions on the cards in a certain segment or category by the total number of transactions on the same cards. Again, this is calculated for year-end to year- end figures.

Cards per person: The number of cards per person is calculated by dividing the total number of cards in a certain segment or category by the total population of the country concerned. It is therefore considerably higher than the actual number of cards held by the respective target groups. It does, however, give a relatively reliable indication of the country’s card market penetration.

Charge card (pay later): A charge card allows customers to defer the costs of purchases made on the card until the end of the payment cycle. At this point the cardholder has a fixed period during which to settle the bill in full. A charge card account is not directly linked to a customer’s current account, although as with most cards it is possible to link the two by means of a direct debit payment.

Credit and charge card (pay later): For European purposes a credit card can be best described as any card which allows the card holder to defer payment. This definition of credit cards thus includes revolving credit cards, installment credit cards, deferred debit cards and charge cards.

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Debit card (pay now): A debit card allows customers to pay for purchases using a plastic card. The money is then drawn directly from the customer’s current account to pay the merchant. Customers verify payments either by signing a receipt or by entering a person identification number (PIN). A debit card does not offer access to a line of revolving credit and is always linked to a customer’s current account.

Deferred debit card (pay later): This card allows customers to defer payment for goods until the end of the billing cycle, at which point the entire balance spent on the card is debited from the cardholder’s current account. The customer does not have access to a line of credit and must pay the bill in full. This type of card is always directly linked to a customer’s current account. ePurse: An ePurse or electronic purse is a smart card onto which money is pre-loaded. The card is then used to make small value payments for which the customer does not have to sign an authorization form. Each time the card is used, the value of the transaction is deducted from the total stored on the chip. When the pre-loaded amount is exhausted the card can be re-loaded with more money.

Frequency of transactions: The frequency of use on cards is calculated by dividing the total number of transactions in the segment or the category by the total number of cards for a 12-month period. In this report, the 12-month periods always run from entering a person identification number (PIN). A debit card does not offer access to a line of revolving credit and is always linked to a customer’s current account.

Giro system: A current account providing a standard overdraft facility at a competitive interest rate. The limit of the overdraft is usually calculated on the basis of the fixed monthly income deposited in the account. Giro systems also provide transfer facilities for payment. They are common in many countries in continental Europe.

Point-of-sale terminal. An electronic terminal which allows merchants to accept card payments

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Revolving credit card (pay later): A card which provides consumers with access to a line of credit. Consumers make payments using their card and receive a bill at the end of the billing cycle. A minimum payment against the outstanding balance is usually demanded by the card issuer, but beyond this the customer can choose how much of the bill they wish to repay. Any balances which are not repaid within the interest free period offered by the card incur interest at the rate advertised by the card issuer. A revolving credit card may or may not be linked to a customer’s bank.

The OFT (Office of Fair Trading) is an independent organization that plays a leading role in promoting and protecting consumer interests throughout the UK, while ensuring that businesses are fair and competitive. tx/yr/card: Transactions per card per year.

Table 7.23: Currency and data abbreviations

Currency denomination Abbreviation Eurozone: €o €

Currency unit Unit Thousand 000s 1,000 Milion M 1,000,000 Bilion Bn 1,000,000,000

Data type Compound annual growth rate CAGR Year-on-year growth Y-o-y growth

Source: Datamonitor Savings and Investments Database 2002 Business Insights

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Index

Affinity, 11, 12, 59, 60 credit cards, 12, 13, 22, 46, 59, 61, 63, 65, 68, 72, 74, 75, 81, 82, 85, 91 American Express, 20, 22, 42, 44, 47, 48, 51, 54, 57, 62, 83 debit cards, 22, 36, 41, 43, 45, 91

APR, 83, 87, 88, 89 Deutsche Bank, 42, 48, 51

Aurore, 64 Diners Club, 20, 22, 62 balance transfer, 82, 83, 88 Egg, 83, 87, 89

Bankamericard, 42, 51, 62 EMV, 9, 19, 23, 24 banks, 12, 30, 31, 45, 46, 48, 49, 51, 59, 60, Europay, 9, 19, 23 63, 64, 65, 66, 68, 85, 88, 89 European Commission, ii, 9, 19, 23, 24 Barclaycard, 12, 42, 57, 64, 68, 71, 72, 77, 78, 79, 85, 86, 88, 89 flexible, 13, 81, 82, 88 black cards, 82, 83, 84 France, 9, 12, 16, 19, 23, 26, 27, 28, 29, 30, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, BNP Paribas, 42, 45, 66 52, 59, 63, 64, 66

Cajamadrid, 42, 54, 64 fraud, 23, 24, 32

Capital One, 64, 68, 83, 84 General Motors, 59 cardholder, 15, 19, 20, 21, 22, 44, 60, 91, 92 Germany, ii, 10, 16, 26, 27, 28, 29, 35, 36, 37, 38, 39, 40, 41, 42, 46, 47, 48, 63, 64, 65, 76 Carta Si, 42, 51 Halifax, 83, 84, 87, 88, 89 Centrica, 67, 68 HBoS, 85, 87 Centurion, 84 Household, 27, 28, 29, 36, 38, 39, 40, 41, 42 Cetelem, 12, 64, 66, 71, 72 HSBC, 77, 85, 87 Citibank, 54 interbank, 30, 62, 63, 64, 66 co-branded card, 11, 59, 60, 63, 65 Italy, 11, 16, 27, 28, 29, 30, 35, 36, 37, 38, 39, competitors, 11, 35, 42, 46, 51, 54, 63 40, 41, 42, 48, 50, 51, 62, 64, 76

Credit Agricole, 42, 45, 66 la Caixa, 64 credit card, 12, 24, 57, 62, 63, 64, 65, 68, 71, lifestyle, 48, 49, 50 72, 73, 74, 76, 82, 84, 85, 87, 88, 89, 91, 93 Lloyds TSB, 13, 42, 57, 67, 81, 83, 84, 87, 88

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loyalty, 12, 13, 15, 16, 60, 62, 63, 64, 65, 68, product development, 16, 81 71, 72, 73, 74, 75, 76, 77, 78, 79, 81, 82, 83, 85, 86, 87, 88 PSPs, 21, 30, 31, 32 loyalty cards, 86 Rabattgesetz, 12, 59, 63, 64, 65

Lufthansa, 65 RBS, 42, 57, 68, 83, 85

Maestro, 44, 46, 49, 50, 52, 53, 56 retail banking, 42

MasterCard, 9, 11, 19, 20, 23, 24, 44, 46, 48, retailers, 21, 47, 48, 63, 65, 68, 73, 74 49, 50, 52, 53, 54, 59, 61, 64, 65, 66, 68, 83, 84 revolving cards, 36

MBNA, 64, 68, 87, 89 reward, 60, 72, 73, 74, 75, 78 merchant acquisition process, 15, 19, 21 Spain, 9, 11, 16, 19, 26, 27, 28, 29, 35, 36, 37, 38, 39, 40, 41, 42, 52, 64, 69, 76 NatWest, 57, 84 transactions, 9, 20, 21, 22, 28, 30, 35, 39, 43, Nectar, 12, 71, 72, 77, 78, 79, 85, 86 46, 48, 50, 52, 53, 55, 91, 92 offers, 12, 16, 61, 76, 77, 81, 82, 83, 84, 88, 89 UK, ii, 11, 12, 13, 16, 25, 26, 27, 28, 29, 30, 35, 36, 37, 38, 39, 40, 41, 42, 52, 55, 56, pay later, 11, 15, 16, 25, 28, 29, 35, 36, 40, 41, 57, 59, 62, 66, 67, 68, 71, 72, 74, 75, 76, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 77, 78, 81, 83, 84, 85, 86, 87, 88, 93 53, 54, 55, 56, 57, 91, 92, 93 United States, 12, 59, 62 pay now, 10, 15, 16, 25, 35, 36, 39, 40, 41, 42, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, Virgin, 87 55, 56, 57, 92 Visa, 9, 19, 20, 23, 24, 25, 44, 48, 50, 51, 52, Payback, 65, 76 53, 55, 56, 57, 64, 65, 66, 68, 83 private label, 43, 45, 64, 65, 68

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