1

CITIBANK
LAUNCHING THE CREDIT CARD IN ASIA PACIFIC

GROUP-3
AAYUSHI SAXENA PGPEX 01/12
ABHIK CHOUDHURY PGPEX 02/12
ABHISHEK CHOUDHURY PGPEX 04/12
ANKIT SHARMA PGPEX 11/12
PRASHANT SHARMA PGPEX 37/12
VISHESH AGARWAL PGPEX 63/12
Case Discussion Questions 2

To launch or not to launch card product in Asia Pacific?

If yes, how should Citibank position its card?

Which countries should Citibank enter/avoid ?

How to achieve $100M earnings target by 1990 without launching

credit cards ?
 To launch or to not launch – CAGE Framework 3

•English is •India and •Most of the •Highest

Geographic
Cultural

Administrative

Economic
understood in Australia have countries under GDP/Capita is
most Asian similar consideration 12K USD
countries under democratic are equatorial (Australia)
consideration structures like the except Australia •Lowest
which gives US (Citibank which is the GDP/Capita 279
Citibank a Home country) USD (India)
southern
closeness •Thailand and •This presents a
advantage to its hemisphere
Indonesia are variety in
home country US. more biased economic
•Ethnicity is towards royal conditions
however more family structures compared to
varied in Asian uniform markets
Markets than US in USA
To launch or to not launch – Other Factors 4

 Administrative Infrastructure
 US Postal Mail Service vs. Asian Alternatives
 Telecom Infrastructure: high connection costs, poor reliability

 Government Regulations
 Minimum Age for cardholders: 21yrs (except 18 in Australia)
 Imposed Minimum Income requirements in Malaysia and Singapore

 Risk Element
 Lack of Credit Bureaus: No evaluation of potential customers
To launch or to not launch – McKinsey 5
Predictors for Market Entry

• 250,000 new customers in 1st year and 1.25 M customers in 5th

Size of entry year

• Network + Knowledge of Asian Markets from commercial bank

Relativeness of the market operations

Complementary assets • Branch Banking, Mortgage Power and Automobile Loans

• Philippines -> Thailand -> Malaysia -> Indonesia -> Singapore ->
Order of entry Australia -> India

Industry life cycle stage • Nascent with local bank players and AMEX presence

• Regional Card Centre enables quick card launches and lowers

Technological Innovation cost
 Which countries to enter/avoid - PESTEL 6

India Malaysia Australia Indonesia

•Growing market and •Cards with revolving •Similar to westernised •Growing wealthy class
untapped credit cannot be societies (US Markets) •Credit card is
•Regulations allow only issued •Strong credit card considered to be high
INR cards •Unpleasant habits standing
•Credit Card is seen as experience with Diners •Saturated Market •History of fraud and
a high status symbol Club and labour lack of legal infra is a
•Need PoD
•Low Household problems in the past bane
•High Household
Income, High Inflation •High Household •Low Household
Income, High Inflation
•High Risk, political Income, Low Inflation Income, High Inflation
•Most Stable,
corruption •Low Risk, political •High Risk, political
development
infighting corruption, large
opportunity
national debt
Qualitative Analysis
 Which countries to enter/avoid - PESTEL 7

Singapore Thailand Taiwan Philippines

•High living standards •Rapidly developing •Wealthy and highly •Fast economic growth
•Credit card is seen as a nation educated population •Low credit card
reputation symbol •Increased consumer •Not more than one penetration
•However, market is spending card can be held by •AMEX + Diners Club
saturated and hence •AMEX + Diners Club an individual control 50% of the
penetration is hard control 50% market •Nation not ready yet market
•High Household •Low Household •High Household •Low Household
Income, Low Inflation Income, Low Inflation Income, Low Inflation Income, High Inflation
•Low Risk, Transitioning •Low Risk, Political •Most Stable, Strong •Most Risky, Political
political leadership corruption, Strong Economic & Political corruption, Threats of
growth rallying on cues Communist insurgency
tourism
Qualitative Analysis
How to achieve $100M without launching ? 8

• Increase Revenue

• Decrease Expenses

• Both
How to achieve $100M without launching ? 9
• Insurance
• IPB-Offer in
more markets • New types of
Financial Loans
• CitiGold-
Improve or start
new locations

More Diversify
New Market Diversification
Locations

•Mortgage-Acquire • Mobile,
Customers/Partners Telephone
•AutoLoan-Acquire banking
Partners Market
New Product • Internet Banking
•CitiGold-Acquire Penetration
Customers

Acquire Innovation
How to achieve $100M without launching ? 10

$91
~$300
• Increase Revenue

through extrapolation
So, to achieve this $100M
target, we need $91M more
revenue

Approaches
- New market development
- Diversification
- Market Penetration
- New Product development
$100
How to achieve $100M without launching ? 11

• Decrease Expenses

So, keeping same revenue, to

$209 achieve this $100M target, we
need to cover $30.3M in

through extrapolation
13.57 expenses or credit losses
$170.7 $140.4 113.75
Major chunk – Delivery
13 expense  ~$25M (66% to 54%)

$100
$30.3
How to achieve $100M without launching ?
12

• Both :
• Increase Revenue
• Decrease Expense

First addressing optimum

reduction in delivery expense
~$260 ~$260 66% to 62% (similar to US)
-20.5263 8 to 7 % -19.1901
Increasing revenue to ~$260 M
$170.7 -172.048 66 to 62% -160.848 get EBT $100M i.e. $51 M

-19.7799 8 to 7 % -18.4923

$100 $100

$30.3
To launch or to not launch – Profitability 13
 Average revenue per customer (from Table B) = $162.65
 Direct cost applies to both new and existing customers; Linear interpolation used
 $25 for 250,000 customers
 $7 for 1,000,000 customers
 Acquisition strategy same as Singapore (Table A); Acquisition cost only applies to new customers
 Assuming each sales person works for 300days/year:
 Blended Acquisition Cost (from Table A) = $58.3
Respon Qualifyi Conversi Custo Cost per
Channel Unit Cost Prospects Cost
se Rate ng Rate on mer Customer
Direct Mail $ 1.50 3,00,000 2% 67% 80% 3,216 $ 4,50,000 $ 139.93
Take-Ones $ 0.25 20,00,000 1.50% 33% 80% 7,920 $ 5,00,000 $ 63.13
Direct Sales $ 18,000 30,000 50% 67% 80% 8,040 $ 1,80,000 $ 22.39
Bind-Ins $ 0.15 30,00,000 1% 33% 80% 7,920 $ 4,50,000 $ 56.82
Blended 53,30,000 27,096 $ 15,80,000 $ 58.31

 Blended Conversion Rate = 0.5% of prospects

 Cost of infrastructural support estimated for single Regional Card Centre
 Advertising Budget of $1.6-2.5Mn reserved for each country
 Assuming acquisition of 0.52Mn customers in 1st year and another 0.99Mn in 2nd year
 To launch or to not launch – Profitability 14
Line Item Count-1 Count-2 Count-3 Count-4 Count-5 Count-6
Number of Customers 2,50,000 5,00,000 7,50,000 10,00,000 12,50,000 15,00,000
Avg Revenue per Customer $ 162.65 $ 162.65 $ 162.65 $ 162.65 $ 162.65 $ 162.65
Less
Avg Direct Cost/Customer $ 25 $ 19 $ 13 $ 7 $ 7 $ 7
Avg Acquisition Cost/Customer $ 58.3 $ 58.3 $ 58.3 $ 58.3 $ 58.3 $ 58.3
Total Direct Costs/Customer $ 83.3 $ 77.3 $ 71.3 $ 65.3 $ 65.3 $ 65.3
Contribution – New $ 79.3 $ 85.3 $ 91.3 $ 97.3 $ 97.3 $ 97.3
Contribution – Existing $ - $ 143.7 $ 149.7 $ 155.7 $ 155.7 $ 155.7
# of New Customers 2,50,000 2,50,000 2,50,000 2,50,000 2,50,000 2,50,000
# of existing customers 0 2,50,000 5,00,000 7,50,000 10,00,000 12,50,000
New Contribution (Tot Mn) $ 19.84 $ 21.34 $ 22.84 $ 24.34 $ 24.34 $ 24.34
Existing Contribution (Tot Mn) $ - $ 35.91 $ 74.83 $ 116.74 $ 155.65 $194.56
Total Contribution (Mn) $ 19.84 $ 57.25 $ 97.66 $ 141.07 $ 179.99 $218.90
Fixed Cost: Infrastructure (Mn) $ 35.0 $ 50.0 $ 60.0 $ 75.0 $ 85.0 $ 100.0
Advertising Expense (Mn) $ 10.0 $ 10.0 $ 10.0 $ 10.0 $ 10.0 $ 10.0
Cumulative Profit/Loss (Mn) -$25.17 -$2.75 $27.66 $56.07 $84.99 $108.90
Assuming launch of lead markets only during Year-1 and Year-2, BEP is 0.52Mn customers

Quantitative Analysis
 To launch or to not launch – Scalability 15

Using (from Table A) conversion rate = 0.5% of population

%
Eligible % Card Addl Probable
Pop Cards Above
Country Universe Penetrati Mkt Customer
(Mn) (Mn) $6K
(Mn) on Capture (Mn)
Income
Philippines 62 0.24 30.0% 18.6 0.4% 0.5% 0.32
Thailand 55 0.21 25.0% 13.75 0.4% 0.5% 0.28
Malaysia 17 0.38 25.0% 4.25 2.2% 0.5% 0.09
Indonesia 168 0.12 7.0% 11.76 0.1% 0.5% 0.85
Yr-2 Subtotal 302 0.95 48.36 0.3% 0.5% 1.51
Singapore 2.7 0.63 10.0% 0.27 23% 0.5% 0.01
Australia 16.5 10.50 80.0% 13.2 64% 0.5% 0.08
India 800 0.28 5.0% 40 0.0% 0.5% 4.07
APAC 1,121.2 12.36 101.83 5.67

Quantitative Analysis
Strategy and Timeline
16
• Few players, greenfield • Greenfield market
market development Local
development-emphasizing
• Competitive pricing card prestige regulations
• Premium positioning • Competitive pricing w.r.t. Very difficult to not allow
through innovative AMEX differentiate bank to
products permit cards
Thailand Indonesia Australia Singapore Korea

Philippines Taiwan
Malaysia India
• Different cards for Not legally ready
• Innovative ways to different customers Experience
differentiate yet
• Free 1st year required
• Alliance for Normal
• Extra-credit customers
• Free 1st year • Higher fee for Striking Now
VIP customers
In next 2 years

Not Considered
Recommendations/Final Decision 17

Launch in below countries

Customer Base to
1.5M in 2 years

So, launch credit card service in Malaysia, Thailand, Indonesia & Philippines, and ramp up the
number of customers to ~1.5M in next 2 years (by 1990).

While executing above decisions, try to keep making revenue generating & cost effective
measures in current business
 18

THANK YOU !!