Description
American Express – Campus Centurion Case
AMERICAN EXPRESS – CAMPUS CENTURION
American Express Company (AXP) is a financial services corporation headquartered in New York, United States. It is one of the 30 components of the Dow Jones Industrial Average and is best known for its credit card, charge card and traveler's cheque businesses. BusinessWeek and Interbrand ranked American Express as the 22nd most valuable brand in the world, estimating the brand to be worth $15 billion. Fortune listed American Express as one of the top 20 Most Admired Companies in the World. American Express –A Tradition of Transformation American Express has continually transformed in response to rapidly evolving business landscapes. Multiple times in its 160 year history, American Express has re-invented itself to stay relevant. Founded in 1850 as an express mail business, American Express transitioned to a payment solutions company through the introduction of the Traveller’s Cheque in 1890s and further augmented its presence in financial services by launching its first Charge Card in 1950s.
Today, with the ubiquitous presence of the internet and digitally oriented services, the relevance of traditional payment is being threatened as newer products with disruptive economics enter the mainstream payment business. Business Description American Express operates through four segments: US card services, International card services, Global Commercial Services, and Global Network and Merchant Services. American Express prides itself in its brand, its ability to deliver to customers an elite privilege and perks no other card company can offer. American Express cards account for approximately 24% of the total dollar volume of credit card transactions in the US, the highest of any card issuer. American Express
US card services
Issues cards and services to consumers and small businesses in US offering a range of charge and credit cards. Also offers traveler's cheques, prepaid cards, gift cards, etc
International card services
Has similar products and performs the same functions as US card services in the 20 international (non-US) markets
Global Commercial services
Provides expense management services to more than 100,000 firms worldwide through its corporate card, and business travel services
Global Network and Merchant services
Runs a global general purpose charge and credit card network. Also, includes signing of merchants and providing point-of-sale services to merchants
1
Figure 1: Key business divisions of AXP Unique Advantages ? Spend Centric Model: AXP’s flagship product is the charge card, and discount revenue from cardmembers is its key source of revenue, unlike other players, whose revenues mostly come from cardmembers who revolve on credit cards. Therefore, AXP focuses on acquiring, serving and retaining high spending customers who are a source of lasting value for the company.
Figure 2: Spend Centric Model of AXP ? Closed Loop Advantage: When a card-member presents his card at a merchant POS (Point of Sale) for a transaction, there are 4 other parties involved in the process. These are - The Card Issuer, who is the financial organization that underwrites the transaction, The Merchant Acquirer who owns the relationship with the merchant, and usually holds the merchant’s account as well, The Merchant Processor, who is charged with ensuring the smooth operation of the POS device, and The Network - the electronic data transmission backbone upon which the process is based.
American Express is one of the very few companies with scale in all key areas of payments - as a card issuer, network, transaction processor and merchant acquirer. And, unlike the vast majority of issuers and networks, American Express has direct relationships with card-members and its merchant partners.
2
Figure 3: Closed Loop Model (Source: JPM Morgan Equity Research) KEY PROFITABILITY DRIVERS FOR A TYPICAL PAYMENT COMPANY The table below describes key profitability drivers – major sources of revenue and expenses, for typical payment products. However, as the payment landscape is continuously evolving, the relevance of these heads is increasingly uncertain.
Sources of Revenue Card Fees (Annual charges) Discount Revenue (Commission earned from the merchant for facilitating a transaction) Interest Revenue (Interest on credit) Forex Revenue (Revenue earned when Card members use their Cards in foreign countries) Others (Insurance fees, Membership Rewards fees, etc) Low Low N/A ? Low Low Low ? Nil High Nil ? High Medium Medium ? Charge Cards Lending Cards Prepaid cards/Gift Cards Low Other Payment Solutions ?
Medium
Low
Figure 4: Key Sources of Revenue (AXP Internal Sources)
3
Major Expense Heads Operating Expenses (General expenses associated with running the business) Advertising & Promotion Expenses (Money spent on advertising / promotion to acquire Card-members, retain existing ones and continuing to build brand awareness) Interest Expenses (Costs of funding the transaction from the time Amex pays the Merchant and the time the cardmember pays back Amex) Membership Rewards Cost (Costs involved in redeeming the reward points earned by the card members) Loss Provision (Approximate amount of money set aside for expected losses due to card-member delinquency)
Charge Cards
Lending Cards
Prepaid cards/Gift Cards
Other Payment Solutions
High
High
Medium
?
Medium
Medium
Medium
?
Medium
Medium
N/A
?
Medium
Medium
N/A
?
High
High
Nil
?
Figure 5: Key Expenses (AXP Internal Sources) Changing Landscape of the Payment Card industry Payment methods are changing – driven by rapid advances in technology and its accessibility. The way people work, play and communicate is undergoing a revolution. This has enormous implications for financial service sector as a whole and payment companies like American Express in particular. ? ? ? Competitors are changing. Traditionally only credit card companies were AXP’s competitors. Now organizations like PayPal, Apple, etc are giving AXP competition in payment space. Customer profiles are changing. The younger generation is becoming more and more important potential valuable customers. Focus markets are changing. Some years ago developed countries were the focus of most of the organizations. Now more and more organizations want to tap the opportunities presented by emerging economies.
4
Figure 6: Changing landscape of the payments industry The Credit Card Industry in India The first credit card introduced by Andhra Bank was VISA Classic in the year 1981, followed by Central Bank of India’s credit card in collaboration with Master Card Corporation in the year 1981. However it is only recently that there was a huge boom in the credit card industry. Apart from the Indian Banks, many foreign banks such as Citibank, Standard Chartered Bank, ANZ Grindlays Bank, Bank of America and American Express Bank have also introduced their proprietary and other franchised cards through their Indian branches. Key Players Issuers: ICICI Bank, HDFC Bank, SBI and Citibank top the list of largest credit card issuers with a combined market share of 72%. Following the list is SBI, Citibank and Standard Chartered with market share of 14%, 11%, and 6% respectively.
Network: American Express competes with its traditional rival networks Visa and MasterCard. However new entrant RuPay can have a disruptive effect on the profitability of these networks in India.
Merchant Acquirers: Axis Bank is the largest merchant acquirer in the country, with around 160,900 merchant terminals, followed by ICICI bank with 150,000 terminals and HDFC bank with 90,000 terminals. SBI is intending to install about 150,000 POS terminals by end of 2011.
The following figures provide some key statistics on the size and growth of the Indian payments market.
5
Figure 7: The Indian Payment Card Industry (Source: Ernst & Young) American Express in India American Express set up its first office in Calcutta in 1921, and since then the Company has established a robust presence as a premier payment and travel services provider. Today, American Express India offers a wide range of products and services, which include more than 10 consumer card products. Co-Brand Cards Non-Prop Cards
Corp Cards
Charge Cards
Premium Cards
Figure 8: Some American Express Products in India With growth in Indian economy expected to be strong especially in the services sector – the demand for banking services, especially retail banking and credit cards is expected to grow stronger. American Express would want to lead the growth of credit card Industry in India.
6
India – The Emerging Economic Powerhouse Since 1991, India has developed into a more open economy, with the removal of government controls and licensing, which has served to accelerate the country's growth. Unlike the path followed by other developed countries, India transitioned rapidly into a services-driven economy from a predominantly agriculture-based one. India is poised to become the third largest banking sector in the world by 2050 after China and US, according to PricewaterhouseCoopers. Indian banks and financial institutions have continued to be well-regulated by the country’s central bank (Reserve Bank of India, RBI), and have emerged stronger after the global downturn The total assets size of the banking industry has risen by more than five times in last 10 years - a Compound Annual Growth Rate (CAGR) of 18 per cent compared to the average GDP growth of 7.2 per cent during the same period. However as the financial services sector in India look to shift gears, there remain some points of concern for the payment card industry. There is a scarcity of credit history information for the populace, and there is a traditional preference for cash transactions in India, both from buyers and merchants, credit cards usage is low. Fewer than 18 million of India's 1.2 billion people use credit cards compared to China, where more than 200 million people use credit cards. Two macro-enablers, the Unique Identification Authority of India (UIDAI) and National Payments Corporation of India (NPCI) are expected to take the Indian payments ecosystem to the next level.
Figure 9: The Advantages of UID While UIDAI will provide a fool-proof method of establishing identity on the basis of biometric details – fingerprint, iris scan and photograph, the NPCI, through its Interbank Mobile Payments System (IMPS) is geared towards using UID authentication to handle KYC issues and process transactions.
7
Indian Youth – The Untapped Potential Having a middle class that just about matches the entire population of United States is good enough, but having a young population that nearly rivals the total citizenry of the EU is an extremely exciting business opportunity for companies in India. It is expected that in 2020, the average age of the Indian population will be 29 years, compared to 37 in China and 48 in Japan, making India one of the youngest countries in the world, and adding significantly to India's already established capabilities in the fields of software services, business processes, accounting, legal, research, engineering and pharmaceuticals.
12% 10% 8% 6% 4% 2% 0%
Population Distribution by Age
India
US
Figure 10: Changing Demographics around the World (Source: US Census Bureau) Today in India, both the major earners and the major spenders are the youth. By targeting the youth population in India, businesses will be investing in the future as they will be able to influence and create loyalty from the start. The power of youth today is evident in its large numbers, tendency to consume and in its ability to influence larger household decisions. The high growth in the retail, telecommunications and allied sectors in India is primarily driven by the impact of rising incomes, increasing urbanization, greater brand competition and most importantly, a youth-driven culture. Favourable demographic and psychographic changes in India's youth, its rising affluence levels and international exposure have fuelled the demand for luxury & lifestyle products. The Indian youth is more aware today than ever before, they are brand conscious and demand good product experiences.
8
Targeting Indian Youth – a Marketer’s perspective Indian youth can be classified into three segments Dabblers (13-21 years), Aspirers (22-28 years) and Thrivers (29 -35 years) and India with the world's largest youth population is indeed a resplendent market and a priority market for international businesses across industries. There are three aspects that influence today’s purchase decisions –– uniqueness, contemporariness and of course, value equation. More and more consumers want products that are unique so that they make a statement of being different, while also changing products frequently in order to appear modern or contemporary.
According to a recent study conducted worldwide by MTV Networks International (MTVNI), Television and the Internet today are key steps in the pathway to a purchase, with brand image mattering more on TV, while information and validation matter more online. The research shows that the online world is playing a bigger part in the brand decision process, with 71% agreeing that the internet makes choosing a brand easier, while blogs, review sites and social networking sites are increasingly becoming important in affecting brand decisions. The study found that across all world markets analyzed, the vast majority of youth (69%) now research all purchases before they purchase. India topped the list, with more that 87% of youths researching products online before buying.
Figure 11: Percentage Responders who said they research on the net before purchase (Source: Viacom)
9
Business Plan for a Youth Product With the growing potential of the youth market in India, AXP has identified it as one of the key segments to grow its share of people’s wallets, but the product or service still remains to be conceptualized and designed. The offering should be such that it leads to a steady and consistent growth in revenues and create long lasting brand loyalty with customers. The new offering could be one of many options – from a card product, to a new service or anything else. However, it must be financially viable and lead to a sustainable competitive advantage. Suggestions are invited for the same. While framing the proposals, we should keep in mind the need for such a product or is there a gap in the current offerings. We should also focus on how the need/gap can be addressed in a way that is profitable to the company by creating a model that is scalable and sustainable.
Points below are some of the most important questions to consider. Please take a moment to go through them as it will help in structuring your thoughts and defining outline/boundaries while answering the question. ? ? ? ? ? ? ? What segment(s) of the youth should AXP target? How would you define the target population? What shall be the key product features? What gap in the current market offering is addressed? What shall be the value proposition for key stakeholders – customers as well as merchants? How shall the product be positioned, marketed and distributed? What will be the sources of revenue and possible expense heads? What is the expected Return on Investment, and in how many years does the product expect to break even? What are the potential risks in the product offering? How can these be mitigated? What macro-economic and/or technological changes do you think could affect your product adversely? What contingency plans can you develop to counter the same?
10
Glossary ? Acquisition is the process of acquiring card members. Some of the most common channels to attract new card members include – Direct mail (Non-pre-approved, Pre-approved & Trigger), Take One, Telemarketing (Inbound/Outbound), Customer Focus Sales, Inserts(Bangtails), Tabling, Internet, Co-marketing, etc. There is usually a substantial cost associated with Acquisition. ? Average Receivables is the outstanding amounts card members owe to the Card Company. There is a period of time between a card company’s payment to the merchant and when a Card member pays to the card company, which is referred to as Average Receivable Days. ? Billed Business is all of the spending conducted by Card members. It consists of: Spending by CMs in the local market (i.e., Local in Local) and Spending by CMs in a foreign market (i.e., Outbound) .The Billed Business is impacted by two factors – Number of transactions and Average CM spend. ? ? ? Billing is the process of collating and generating a monthly invoice for payment by a card member. Payment is the response of the card member to this billing process. Cards in Force is the actual number of cards which are currently active in the current financial reporting period. Charge Card is a revolving line of credit with no interest rate that requires the holder to repay the entire balance each month. The charge card company makes a profit through merchant discount rates, annual fees and late fees on card holders who do not repay their balances. ? Collections is the process of collecting dues from card-members who have turned delinquent (90 days past due). This is perhaps one of the most critical and tricky step in the card life cycle, which can significantly affect the balance sheet of a card company and also help in creating or deteriorating its reputation. ? Lending Card or a Credit Card is a card entitling the owner to use funds from the issuing company up to a certain limit. Unlike in Charge Cards, there is no obligation to pay back the full balance at the end of a billing cycle – the card-member may choose to revolve on a part of his balance, on which he is charged an interest rate by the Issuer. ? ? Purchase Transaction is the process where the card member actually spends using his card. It could be either a direct purchase like at a shopping mall or an online purchase. Write-off Rate is the ratio of the amount of outstanding balance that is 180 days past due divided by the total amount of billing for the same time period.
11
doc_186485872.pdf
American Express – Campus Centurion Case
AMERICAN EXPRESS – CAMPUS CENTURION
American Express Company (AXP) is a financial services corporation headquartered in New York, United States. It is one of the 30 components of the Dow Jones Industrial Average and is best known for its credit card, charge card and traveler's cheque businesses. BusinessWeek and Interbrand ranked American Express as the 22nd most valuable brand in the world, estimating the brand to be worth $15 billion. Fortune listed American Express as one of the top 20 Most Admired Companies in the World. American Express –A Tradition of Transformation American Express has continually transformed in response to rapidly evolving business landscapes. Multiple times in its 160 year history, American Express has re-invented itself to stay relevant. Founded in 1850 as an express mail business, American Express transitioned to a payment solutions company through the introduction of the Traveller’s Cheque in 1890s and further augmented its presence in financial services by launching its first Charge Card in 1950s.
Today, with the ubiquitous presence of the internet and digitally oriented services, the relevance of traditional payment is being threatened as newer products with disruptive economics enter the mainstream payment business. Business Description American Express operates through four segments: US card services, International card services, Global Commercial Services, and Global Network and Merchant Services. American Express prides itself in its brand, its ability to deliver to customers an elite privilege and perks no other card company can offer. American Express cards account for approximately 24% of the total dollar volume of credit card transactions in the US, the highest of any card issuer. American Express
US card services
Issues cards and services to consumers and small businesses in US offering a range of charge and credit cards. Also offers traveler's cheques, prepaid cards, gift cards, etc
International card services
Has similar products and performs the same functions as US card services in the 20 international (non-US) markets
Global Commercial services
Provides expense management services to more than 100,000 firms worldwide through its corporate card, and business travel services
Global Network and Merchant services
Runs a global general purpose charge and credit card network. Also, includes signing of merchants and providing point-of-sale services to merchants
1
Figure 1: Key business divisions of AXP Unique Advantages ? Spend Centric Model: AXP’s flagship product is the charge card, and discount revenue from cardmembers is its key source of revenue, unlike other players, whose revenues mostly come from cardmembers who revolve on credit cards. Therefore, AXP focuses on acquiring, serving and retaining high spending customers who are a source of lasting value for the company.
Figure 2: Spend Centric Model of AXP ? Closed Loop Advantage: When a card-member presents his card at a merchant POS (Point of Sale) for a transaction, there are 4 other parties involved in the process. These are - The Card Issuer, who is the financial organization that underwrites the transaction, The Merchant Acquirer who owns the relationship with the merchant, and usually holds the merchant’s account as well, The Merchant Processor, who is charged with ensuring the smooth operation of the POS device, and The Network - the electronic data transmission backbone upon which the process is based.
American Express is one of the very few companies with scale in all key areas of payments - as a card issuer, network, transaction processor and merchant acquirer. And, unlike the vast majority of issuers and networks, American Express has direct relationships with card-members and its merchant partners.
2
Figure 3: Closed Loop Model (Source: JPM Morgan Equity Research) KEY PROFITABILITY DRIVERS FOR A TYPICAL PAYMENT COMPANY The table below describes key profitability drivers – major sources of revenue and expenses, for typical payment products. However, as the payment landscape is continuously evolving, the relevance of these heads is increasingly uncertain.
Sources of Revenue Card Fees (Annual charges) Discount Revenue (Commission earned from the merchant for facilitating a transaction) Interest Revenue (Interest on credit) Forex Revenue (Revenue earned when Card members use their Cards in foreign countries) Others (Insurance fees, Membership Rewards fees, etc) Low Low N/A ? Low Low Low ? Nil High Nil ? High Medium Medium ? Charge Cards Lending Cards Prepaid cards/Gift Cards Low Other Payment Solutions ?
Medium
Low
Figure 4: Key Sources of Revenue (AXP Internal Sources)
3
Major Expense Heads Operating Expenses (General expenses associated with running the business) Advertising & Promotion Expenses (Money spent on advertising / promotion to acquire Card-members, retain existing ones and continuing to build brand awareness) Interest Expenses (Costs of funding the transaction from the time Amex pays the Merchant and the time the cardmember pays back Amex) Membership Rewards Cost (Costs involved in redeeming the reward points earned by the card members) Loss Provision (Approximate amount of money set aside for expected losses due to card-member delinquency)
Charge Cards
Lending Cards
Prepaid cards/Gift Cards
Other Payment Solutions
High
High
Medium
?
Medium
Medium
Medium
?
Medium
Medium
N/A
?
Medium
Medium
N/A
?
High
High
Nil
?
Figure 5: Key Expenses (AXP Internal Sources) Changing Landscape of the Payment Card industry Payment methods are changing – driven by rapid advances in technology and its accessibility. The way people work, play and communicate is undergoing a revolution. This has enormous implications for financial service sector as a whole and payment companies like American Express in particular. ? ? ? Competitors are changing. Traditionally only credit card companies were AXP’s competitors. Now organizations like PayPal, Apple, etc are giving AXP competition in payment space. Customer profiles are changing. The younger generation is becoming more and more important potential valuable customers. Focus markets are changing. Some years ago developed countries were the focus of most of the organizations. Now more and more organizations want to tap the opportunities presented by emerging economies.
4
Figure 6: Changing landscape of the payments industry The Credit Card Industry in India The first credit card introduced by Andhra Bank was VISA Classic in the year 1981, followed by Central Bank of India’s credit card in collaboration with Master Card Corporation in the year 1981. However it is only recently that there was a huge boom in the credit card industry. Apart from the Indian Banks, many foreign banks such as Citibank, Standard Chartered Bank, ANZ Grindlays Bank, Bank of America and American Express Bank have also introduced their proprietary and other franchised cards through their Indian branches. Key Players Issuers: ICICI Bank, HDFC Bank, SBI and Citibank top the list of largest credit card issuers with a combined market share of 72%. Following the list is SBI, Citibank and Standard Chartered with market share of 14%, 11%, and 6% respectively.
Network: American Express competes with its traditional rival networks Visa and MasterCard. However new entrant RuPay can have a disruptive effect on the profitability of these networks in India.
Merchant Acquirers: Axis Bank is the largest merchant acquirer in the country, with around 160,900 merchant terminals, followed by ICICI bank with 150,000 terminals and HDFC bank with 90,000 terminals. SBI is intending to install about 150,000 POS terminals by end of 2011.
The following figures provide some key statistics on the size and growth of the Indian payments market.
5
Figure 7: The Indian Payment Card Industry (Source: Ernst & Young) American Express in India American Express set up its first office in Calcutta in 1921, and since then the Company has established a robust presence as a premier payment and travel services provider. Today, American Express India offers a wide range of products and services, which include more than 10 consumer card products. Co-Brand Cards Non-Prop Cards
Corp Cards
Charge Cards
Premium Cards
Figure 8: Some American Express Products in India With growth in Indian economy expected to be strong especially in the services sector – the demand for banking services, especially retail banking and credit cards is expected to grow stronger. American Express would want to lead the growth of credit card Industry in India.
6
India – The Emerging Economic Powerhouse Since 1991, India has developed into a more open economy, with the removal of government controls and licensing, which has served to accelerate the country's growth. Unlike the path followed by other developed countries, India transitioned rapidly into a services-driven economy from a predominantly agriculture-based one. India is poised to become the third largest banking sector in the world by 2050 after China and US, according to PricewaterhouseCoopers. Indian banks and financial institutions have continued to be well-regulated by the country’s central bank (Reserve Bank of India, RBI), and have emerged stronger after the global downturn The total assets size of the banking industry has risen by more than five times in last 10 years - a Compound Annual Growth Rate (CAGR) of 18 per cent compared to the average GDP growth of 7.2 per cent during the same period. However as the financial services sector in India look to shift gears, there remain some points of concern for the payment card industry. There is a scarcity of credit history information for the populace, and there is a traditional preference for cash transactions in India, both from buyers and merchants, credit cards usage is low. Fewer than 18 million of India's 1.2 billion people use credit cards compared to China, where more than 200 million people use credit cards. Two macro-enablers, the Unique Identification Authority of India (UIDAI) and National Payments Corporation of India (NPCI) are expected to take the Indian payments ecosystem to the next level.
Figure 9: The Advantages of UID While UIDAI will provide a fool-proof method of establishing identity on the basis of biometric details – fingerprint, iris scan and photograph, the NPCI, through its Interbank Mobile Payments System (IMPS) is geared towards using UID authentication to handle KYC issues and process transactions.
7
Indian Youth – The Untapped Potential Having a middle class that just about matches the entire population of United States is good enough, but having a young population that nearly rivals the total citizenry of the EU is an extremely exciting business opportunity for companies in India. It is expected that in 2020, the average age of the Indian population will be 29 years, compared to 37 in China and 48 in Japan, making India one of the youngest countries in the world, and adding significantly to India's already established capabilities in the fields of software services, business processes, accounting, legal, research, engineering and pharmaceuticals.
12% 10% 8% 6% 4% 2% 0%
Population Distribution by Age
India
US
Figure 10: Changing Demographics around the World (Source: US Census Bureau) Today in India, both the major earners and the major spenders are the youth. By targeting the youth population in India, businesses will be investing in the future as they will be able to influence and create loyalty from the start. The power of youth today is evident in its large numbers, tendency to consume and in its ability to influence larger household decisions. The high growth in the retail, telecommunications and allied sectors in India is primarily driven by the impact of rising incomes, increasing urbanization, greater brand competition and most importantly, a youth-driven culture. Favourable demographic and psychographic changes in India's youth, its rising affluence levels and international exposure have fuelled the demand for luxury & lifestyle products. The Indian youth is more aware today than ever before, they are brand conscious and demand good product experiences.
8
Targeting Indian Youth – a Marketer’s perspective Indian youth can be classified into three segments Dabblers (13-21 years), Aspirers (22-28 years) and Thrivers (29 -35 years) and India with the world's largest youth population is indeed a resplendent market and a priority market for international businesses across industries. There are three aspects that influence today’s purchase decisions –– uniqueness, contemporariness and of course, value equation. More and more consumers want products that are unique so that they make a statement of being different, while also changing products frequently in order to appear modern or contemporary.
According to a recent study conducted worldwide by MTV Networks International (MTVNI), Television and the Internet today are key steps in the pathway to a purchase, with brand image mattering more on TV, while information and validation matter more online. The research shows that the online world is playing a bigger part in the brand decision process, with 71% agreeing that the internet makes choosing a brand easier, while blogs, review sites and social networking sites are increasingly becoming important in affecting brand decisions. The study found that across all world markets analyzed, the vast majority of youth (69%) now research all purchases before they purchase. India topped the list, with more that 87% of youths researching products online before buying.
Figure 11: Percentage Responders who said they research on the net before purchase (Source: Viacom)
9
Business Plan for a Youth Product With the growing potential of the youth market in India, AXP has identified it as one of the key segments to grow its share of people’s wallets, but the product or service still remains to be conceptualized and designed. The offering should be such that it leads to a steady and consistent growth in revenues and create long lasting brand loyalty with customers. The new offering could be one of many options – from a card product, to a new service or anything else. However, it must be financially viable and lead to a sustainable competitive advantage. Suggestions are invited for the same. While framing the proposals, we should keep in mind the need for such a product or is there a gap in the current offerings. We should also focus on how the need/gap can be addressed in a way that is profitable to the company by creating a model that is scalable and sustainable.
Points below are some of the most important questions to consider. Please take a moment to go through them as it will help in structuring your thoughts and defining outline/boundaries while answering the question. ? ? ? ? ? ? ? What segment(s) of the youth should AXP target? How would you define the target population? What shall be the key product features? What gap in the current market offering is addressed? What shall be the value proposition for key stakeholders – customers as well as merchants? How shall the product be positioned, marketed and distributed? What will be the sources of revenue and possible expense heads? What is the expected Return on Investment, and in how many years does the product expect to break even? What are the potential risks in the product offering? How can these be mitigated? What macro-economic and/or technological changes do you think could affect your product adversely? What contingency plans can you develop to counter the same?
10
Glossary ? Acquisition is the process of acquiring card members. Some of the most common channels to attract new card members include – Direct mail (Non-pre-approved, Pre-approved & Trigger), Take One, Telemarketing (Inbound/Outbound), Customer Focus Sales, Inserts(Bangtails), Tabling, Internet, Co-marketing, etc. There is usually a substantial cost associated with Acquisition. ? Average Receivables is the outstanding amounts card members owe to the Card Company. There is a period of time between a card company’s payment to the merchant and when a Card member pays to the card company, which is referred to as Average Receivable Days. ? Billed Business is all of the spending conducted by Card members. It consists of: Spending by CMs in the local market (i.e., Local in Local) and Spending by CMs in a foreign market (i.e., Outbound) .The Billed Business is impacted by two factors – Number of transactions and Average CM spend. ? ? ? Billing is the process of collating and generating a monthly invoice for payment by a card member. Payment is the response of the card member to this billing process. Cards in Force is the actual number of cards which are currently active in the current financial reporting period. Charge Card is a revolving line of credit with no interest rate that requires the holder to repay the entire balance each month. The charge card company makes a profit through merchant discount rates, annual fees and late fees on card holders who do not repay their balances. ? Collections is the process of collecting dues from card-members who have turned delinquent (90 days past due). This is perhaps one of the most critical and tricky step in the card life cycle, which can significantly affect the balance sheet of a card company and also help in creating or deteriorating its reputation. ? Lending Card or a Credit Card is a card entitling the owner to use funds from the issuing company up to a certain limit. Unlike in Charge Cards, there is no obligation to pay back the full balance at the end of a billing cycle – the card-member may choose to revolve on a part of his balance, on which he is charged an interest rate by the Issuer. ? ? Purchase Transaction is the process where the card member actually spends using his card. It could be either a direct purchase like at a shopping mall or an online purchase. Write-off Rate is the ratio of the amount of outstanding balance that is 180 days past due divided by the total amount of billing for the same time period.
11
doc_186485872.pdf