Posted: March 12th, 2023

management case study

>Question #2

Qualify,

/3 Qualify

% Convert

Cost

000

Ones

2%
30000

000

(Call)

30000

000

10000
8000

30000
10000
8000

0000

Direct Sales

207692.307692308

6.9230769231

																										2/	3	1	8	0
Channel	Unit Cost ($)	Prospects Reached	Response Rate	# of Responses	Number of People That Qualify	Converted		Customers		Total	Cost Per Converted Customer
Direct Mail	1.											5	30	2%	6000		40	3			20	4	50	140.6	25
Take							–	0.25	2000000							10		800	500000	62
	Direct	Sales		6.9230769231	50%			15		207692.307692308	25.9615384615
Bind-Ins	0.15	3000000	1%				45	56.25
27200
10 calls a day
Table A is	Singapore	260 working days
Prospects per year per person	2600
Number of Sales People	11.5384615385
Total Cost of Sales People
Unit Cost Per Prospect

Question #4

and 1 million customers. Consider revenue, contribution for new and existing customers and overall profit / loss analysis. Approximately how many customers does Citibank need to break even on their investment?

Customers
250,000
500,000
750,000

0
0
0
0

Customers
250,000
500,000
750,000
1,000,000

Sales

,000,000

Direct Cost

,385

Owned

No. of Cards

–
–
–
–
–
–
–

Total

0,000

15
5

35
30
5
0

% of population
10
25
50
10
5

% of cards
15
25
50
10
0

% of population
1
2
2
5
90
800
% of cards
10
10
10
70
0

% of population
3
2
2
3
90

% of cards
40
10
10
40
0

% of population
5
10
20
45
20
17
% of cards
10
45
45
0
0

% of population
3
5

30
40
62

% of cards
50
45
5
0
0

Singapore
% of population
5
5
10
25

% of cards
30
70
0
0
0

% of population
12.5
30
35
10
5
20
% of cards
30
50
20
0
0

% of population
5
10
10
20
55
55
% of cards
12.5
12.5
50
25
0

4. Analyze the sales / expenses that Citibank incurs for the acquisition of		250,000		500,000		750,000
	Direct Cost	$25
	1,000,000
Revenue	$6,250,000	$12,500,000	$18,750,000	$25,000,000
Contributions for new customers
Contributions for existing customers
Total contributions
Total expense
Overall profits
Overall loss
Note
Expenses
Infrastructure support cost	$		35	$48,000,000	$61,000,000	$74,000,000	For every incremental 250,000 customer, an additional $10-15 million per year
20 per card	14 per card	11 per card	7 per card	<- Estimates, use methodology
Marketing ( Direct Sales)	$ 6,4		90	$ 12,980,769	$ 19,471,154	$ 25,961,538	<- Could all marketing be done through Direct Sales or is there a limit?
Table B
Annual Income	% of Card Owners	Average	No. of Cards	No. of Cards Owners	Annual Interest Payment per Customer	Other Annual Revenue per Customer	Total Annual Revenue Per Customer
Less than $6,200
$6,200 – $12,400	67.5%	1.49	67,507	100,633	$ 102.18	$ 34.		70	$ 136.88
$12,400 – $23,200	20.9%	1.96	20,938	41,118	$ 134.44	$ 62.87	$ 197.31
Greater than $23,000	11.6%	2.43	11,640	28,249	$ 166.97	$ 82.84	$ 249.81
100.0%	1.7	100,985		17	$ 116.46	$ 46.19	$ 162.65
Exhibit 8: Estimated Distribution of Population and Cards by Income
Annual Income (head of household).	Total (in millions)
Above $25,000	$12,500 to $25,000	$6,000 to $ 12,500	$2,000 to $6,000	Below $2,000
Australia
								% of population			12.5	37.5	16.5
								% of cards	30 b	10.5
Hong Kong
5.6
2.0
India
0.280
Indonesia
168
0.120
Malaysia
0.380
Philippines
22
0.240
		55	2.7
0.630
Taiwan
0.100
Thailand
0.210
Note: The minimum age for cardholders was 18 years in Australia and 21 in other countries. While the card issuers imposed their own income requirements, the government of Malaysia imposed a minimum income of $9,000/year, and Singapore imposed a minimum of $14,000/year
a – of Australia’s 16.5 million people, 12.5% were estimated to live in households where the head (of teh household) has an income above $25,000
b – of Australia’s 10.5 million creadit cards, 30% were owned by individuals withincomes above $25,000

Citibank Case Study

Complete a team case write-up and team powerpoint (12-18 slides total). Answers from questions 2,4,5 are somewhat linked in terms of financial analysis.

Citibank Case Study Questions

1. Decide whether you think Citibank should enter markets and IF you recommend market entry, the advantages of a premium versus mass market product. IF not, why not. In your analysis include discussion of any implementation issues that need to be overcome for successful launch. ()

2. Analyze the ways Citibank can acquire a customer and the effectiveness of marketing channels. In your analysis, include customer conversion rate by channel, the cost of each customer acquisition and the total cost per customer acquired. (
)

· Table A Comment by Uyehara, Rodney: I can turn this into excel

· Direct Mail: $1.5*100/2 = $75 per response

· Bind-Ins: $0.15*100/1 = $15 per response

· Take-Ones: $0.25*100/1.5 = $16.66 per response

· Direct Sales: Find out how many customers are reached by each sales person to calculate cost

·
Calculate how many responses convert to a customer

· Maybe acquire customers through dealerships with auto loans?

3. Indicate two different product strategies that you believe Rana should propose to Citibank. Support your strategies with rationale focusing on positioning. ()

· 2 diff credit cards

· High initiation fee and low annual fees

· Less acquisition but more retention

· Lower initiation fee and higher annual fees

· Higher acquisition but lower retention

· Use Hong Kong to estimate revenues

· Based on income levels

4. Analyze the sales / expenses that Citibank incurs for the acquisition of 250,000, 500,000, 750,000 and 1 million customers. Consider revenue, contribution for new and existing customers and overall profit / loss analysis. Approximately how many customers does Citibank need to break even on their investment?
()

· New customers but also existing customers

· Use excel

· Marketing channels are the same for both types of cards

5. Prioritize which countries you think Citibank should and discuss the criteria you use for market attractiveness. Indicate how many customers you can get per country.
()

· Not summary of each country

· Analyze each market

· Create methodology about why each country is chosen and create model on excel

· Australia

, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand

6. How can

Rana Talwar

reach his target of $100 million in revenue by 1990? How many countries will Rana need to launch in to reach his target? Discuss details of any banking products or partnership included in Rana’s strategy ()

Steps for a Successful Strategy

1. Determine if we should focus on premium or basic cards

· Which type of card generates more profit?

· Lower acquisition cost, higher customer LTV

·
Think long term and focus on customers that could use other Citi services

2. Based on 1, determine which markets have the best audience

3. Determine the expenses and investment required to achieve desired results

Factors to consider

· Marketing costs to acquire customer

· Customer income and average profit/ customer based on income

· Average number of cards held by each person

· Saturation of competition

· Growth

· Legal stability and credit stability (default risk)

· How many branches are allowed in each country

· Benefits of having a branch?

· Are branches costly to maintain, are they necessary

· Is it cheaper to deliver cards in countries with a branch vs without?

· Cultural differences between countries

· Do people typically avoid credit or they embrace it?

· Ex/ Japan culture leans against using credit and therefore may not be profitable

· Partnerships?

· Would partnering with local businesses reduce acquisition costs

· Batched delivery?

· Do we need enough merchants to accept the card in order for consumers to be willing to have it?

· Currency

· Local vs. U.S. and how does this affect costs

Strategic Strategy

· Target customers that are cheaper to acquire

· Premium vs. Basic card

· Depends on demographic (willingness to pay)

· Which type of card generates more profit and has less expenses

· Focused on long term retention or short term acquisition?

· Long term retention

· Higher initiation cost but lower annual fees

· Short term acquisition

· Lower initiation cost but higher annual fees

·
DELIVERY EXPENSE IS VERY HIGH RELATIVE TO REVENUE

· Exhibit 1

· What is included in delivery expense and which areas have less of this expense?

· Existing branches are sunk costs

· Could we leverage our existing branches to expand quicker and cheaper?

·
USE EXHIBIT 8 AND TABLE B TO CROSS REFERENCE THE POTENTIAL PROFIT BY INCOME CATEGORY

Expansion Options

· Australia

· Hong Kong

· India

· Indonesia

· Malaysia

· Philippines

· Singapore

· Taiwan

· Thailand

Rana Talwar

Go from 70 to 100 million, 40% growth

15 countries

Add excel table in case study

Cost, customer conversion rate

Is the response rate the conversion rate?

Answer: They just responded, but did they actually convert?

Add lots of columns to determine conversion

Figure out how many sales people there are

Premium card

Mass market

Local currency

USD

9-595-02

R E V : O C T O B E R 2 , 2 0 0

________________________________________________________________________________________________________________

Professor V. Kasturi Rangan prepared this case with the research assistance from Marie Bell and Melanie Alper as the basis for class discussion
rather than to illustrate either effective of ineffective handling of an administrative situation.

Copyright © 2002 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.

V . K A S T U R I R A N G A N

Citibank: Launching the Credit Card
in Asia Pacific (A)

On a rainy afternoon in 1989, Rana Talwar, head of Citibank’s Asia Pacific Consumer Bank,
reflected upon the 11 years that had gone by since the Consumer Bank had established its consumer
business in Asia. The branch banking business operations in 15 countries throughout Asia Pacific
and the Middle East projected Citibank as a prestigious, consumer-oriented international bank and as
the undisputed leader in most marketplaces. With earnings of $69.7 million in 1988, and a goal of
$100 million in 1990, Talwar considered the launch of a new product (credit cards) as a way of
growing future revenues. (See Exhibit 1 for 1988 performance.) Cards could prove to be an excellent
way to overcome distribution limitations imposed on foreign banks in the Asia-Pacific region: first,
by acquiring card members, by targeting customers outside its branch business and, then, by actively
cross-selling other Citibank products and services to these customers.

In the past, the credit card idea had met with skepticism from Citibank’s New York headquarters
as well as its country managers. Many in New York considered it a risky investment. Senior credit
managers questioned the wisdom of issuing cards in markets with annual per capita income of $350
and also in markets with little credit experience and hardly any infrastructure. The Citibank
management recognized that the economies of most Asia-Pacific countries were relatively
underdeveloped compared with the United States and Europe; consumers’ attitudes and credit card
usage patterns differed country by country. In this context, several country managers were unsure
whether the success of Citibank’s U.S. card business could be projected onto Asia-Pacific. Further,
they wondered whether Citibank could adopt a mass-market positioning to acquire enough credit
card customers and still maintain its up-market positioning with the current upscale branch banking
customers. A premium-priced card product would not sell in the marketplace in a large way, it was
argued. Moreover, country managers were not comfortable with an unsecured credit product such as
credit cards and did not want to take the large losses of a card business, in the initial years, that their
projections seemed to indicate. Weak local infrastructure, limited distribution capabilities, and the
experience with loss-making proprietary credit card businesses that some of the countries had, served
to underline arguments against a credit card launch.

Pei Chia, who had been appointed in late 1987 to head Citibank’s International Consumer
businesses, had experience managing Citibank’s huge U.S. card businesses and was favorably
disposed towards international expansion. Confident of support from his boss if a viable proposition
could be structured, Talwar pondered the pros and cons of a credit card product. If he decided to
push for the product, he would need to articulate a viable business strategy.

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This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

595-026 Citibank: Launching the Credit Card in Asia Pacific (A)

Citibank’s Asia-Pacific Operations

Unlike many of its competitors, Citibank operated on a view of the world as one marketplace and
had consistently pursued a global strategy for growth. (See Exhibits 2 and 3 for a summary of
Citibank’s global operations.)

Citibank’s mission in the Asia-Pacific region was to be the most profitable and preeminent
provider of a wide array of financial services to an increasingly affluent upper- and middle-income
market, and to reach the rapidly growing middle-income households in this region. The bank
operated in 15 countries throughout Asia-Pacific and the Middle East: Hong Kong, Taiwan,
Australia, the Philippines, Guam, Singapore, India, the Gulf (United Arab Emirates, Bahrain, Oman),
Malaysia, Indonesia, Thailand, Pakistan, and Korea.

Rapid economic development (see Exhibit 4) had made these countries attractive business
propositions for many international banks. However, most Asian governments had a number of
regulations designed to protect local banks and limit the expansion of foreign banks. For instance,
foreign banks in Indonesia could operate only two branches; in Malaysia and Singapore, they were
limited to three; and in Thailand, each foreign bank was allowed only one branch.

Citibank’s senior managers knew that they could not rely only on breakthroughs in the regulatory
environment to gain increased access in the local market. Therefore, offering the most innovative and
high-quality products, services, and technology was critical to acquiring and retaining customers. For
example, Citibank pioneered telephone banking in much of Asia. It developed alternate distribution
channels for products such as automobile loans. With the dealers acting as the bank’s agents,
customers did not ever have to visit the branch. (More details about Citibank’s core products and
services are provided in Exhibit 5.)

Against such a backdrop, it was felt that the introduction of a credit card in Asia would support
Citibank’s strategy of expanding its customer base from the upper-income segment to include the
rapidly growing middle-income households. Supporters of the card product suggested:

We do not need bricks-and-mortar branches to access the middle market in most of our
countries. We can acquire card customers through innovative new channels. When we get
card customers, we have the opportunity to cross-sell our entire product line: Auto Loans,
Ready Credit, Deposits, and Mortgage Power. This could be a wonderful opportunity for us to
add customers.

Country managers, on the other hand, sought to highlight realities of the local marketplace. Bob
Thornton, country manager of Citibank Indonesia, argued:

There is a history of poor consumer payment on installment debt in Indonesia, as has been
our experience with the mortgage portfolio, and high level of fraud in the financial sector. I
wonder if credit card customers will perform any differently. The legal infrastructure is
inadequate so that we cannot collect legally, if necessary. Also, while there is a small market
for a card product, I am not sure that we can get the right kind of staffing and infrastructure to
run such a business successfully and profitably. Yet, with a population of 180 million, it is
among the few potentially large markets in Asia Pacific.

According to Dave Smith, country manager for Singapore:

We have a small two-million population and an already saturated card market. Moreover,
American Express has the market in its pocket. Entering this market this late will most likely
result in us losing money. We can do without this distraction from our main banking business.

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This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

Citibank: Launching the Credit Card in Asia Pacific (A) 595-026

Jaitirth Rao, country manager for India, who had, in a matter of two years, made the consumer
bank an innovator of products and a catalyst for service orientation in the Indian financial services
sector, expressed his concern: “Launching a credit card in a large country like ours with little
infrastructure has great potential to be a major headache down the road. It’s a dog. Let us delay it.”

Card Business Basics

Banks issued Visa or MasterCards, both of which were organized as international franchises. Any
bank or financial institution could become a member of these franchises by fulfilling certain eligibility
criteria. On becoming a member, they all had to follow a certain common set of practices. An
example was Gold Cards; they had to be a gold color, and the issuing bank was obliged to provide
travel accident insurance and a 24-hour help line for its cardholders. In general, Visa/MasterCard set
common standards for card-logo design and operating rules that its member franchises all had to
abide by. It was up to the individual banks, however, to decide on pricing, branding, positioning,
and customer acquisition strategies. The franchisers, Visa or MasterCard, provided the banks an
extensive information network both within the country and internationally to clear transactions.
Member banks and financial institutions paid Visa and MasterCard a fee in proportion to their
volume of network usage, and a franchise royalty (a small percentage of sales volume) as well. Banks
and financial institutions in addition to issuing cards could also participate in the Visa and
MasterCard Merchant Acquisition franchise. The objective here was to enlist retail merchants to clear
their credit card transactions through the “acquiring” bank. That is, regardless of which bank issued
the card to the customer, the retail merchant would forward transactions to its “acquiring” bank for
clearance. Visa and MasterCard provided a worldwide communication flow, via satellite hookups
and computer networks, to enable a convenient consummation of the credit card transaction—often
involving a merchant, a customer, an acquiring bank, and an issuing bank, all within a matter of
seconds.

When a Citibank cardholder approached a Citibank merchant to purchase goods, the following
round of transactions would result: say the customer bought $100 worth of goods on her Citibank
card. The merchant would present the $100 chargeslip to the acquiring bank and receive $97.00 for
the same transaction. Hence in this transaction, the acquiring bank would generate a merchant
discount revenue of $3.00 (or 3.0%) from which it would have to make franchise payment to Visa or
MasterCard, pay the card issuer (Citibank) an interchange fee, and also cover all its expenses related
to the acquiring business. Citibank, the card issuer, would bill the cardholder the $100 in full, in the
monthly statement. The cardholder would then have the choice of making a part payment or full
payment, depending upon the payment terms. (Exhibit 6 provides a graphical representation of a
typical transaction cycle.)

The gross discount percentages shown in the above illustrations, though representative, differed
from country to country, and even by merchant to merchant, depending on the competitive context.

Local banks held back merchant discounts in the 1.5% to 2.0% range—far lower than Citibank’s
3.0%. As a result, merchant acquisition was getting to be very tough in developed markets. Citibank
had enrolled about 3,000 merchants in Hong Kong. In order to compete effectively with the local
banks, it guaranteed merchants a faster transaction settlement time. In most Asia Pacific markets,
American Express had the higher-caliber merchants. Even though, like Citibank, it charged a 3%
discount rate, most quality hotels, restaurants, and retailers accepted its affiliation in order to attract
and retain travel-related international clients.

As part of a strategy to counter American Express’s growing international presence, Citibank
decided to look for an international proprietary card payment system. In 1981, Citibank acquired

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595-026 Citibank: Launching the Credit Card in Asia Pacific (A)

Diners Club International (DCI) which managed an international franchise for the Diners Club card.
DCI allowed only one franchisee to be signed up in each country. The franchisee would be the sole
issuer of Diners Club cards and the sole acquirer of Diners Club merchant business in that country.
While Citibank owned the Diners Club franchise in some countries, private companies managed the
franchise in most other countries.

Positioned as a travel and entertainment card for senior executives and successful businessmen,
the Diners Club card is a charge card, i.e., all outstandings on the card have to be settled in full at the
end of every billing month. With no interest revenue, unlike bankcards, the primary revenue sources
are fees and merchant discounts.

Launching a Credit Card in Asia Pacific

While opinion was divided on whether a card launch made sense, Talwar wondered whether a
staged, sequential plan could be the basis for any possible consensus and a regional thrust if he chose
in favor of the credit card. This way, each subsequent country launch would benefit from the
experience of all the countries preceding it. Management debated which country to lead off with,
how to enter the market, and how to develop the rest of the region.

Profiles of the target countries in Citibank’s Asia Pacific markets are provided in Exhibit 7.
Exhibit 8 provides a quick overview of the distribution of cards by income group for each country,
and Exhibit 9 provides comparative information on card pricing.

Market Entry Costs

Citibank could enter the market either by acquiring an already existing card portfolio from
another company, or do greenfield market development to build a customer base, or adopt a
combination of the two.

Acquiring an existing card portfolio would facilitate a quick entry into the market. Further, the
bank could consider leveraging off an already developed operations infrastructure and trained
human resources in the acquired company to further consolidate the market share. On the other
hand, there were several arguments that questioned market entry through acquisition. Looking back
at the Hong Kong entry, one manager reflected:

We never really started a credit card business in Hong Kong. We simply acquired the
existing Bank of America business with all the baggage that usually accompanies such an
acquisition. Further, the bulk of our branch banking business was aimed at a limited target
market, whereas the credit card business was targeted at the mass market. There was a
mismatch right there.

If Citibank chose greenfield market development, it would need to invest in a direct marketing
program, typically consisting of (1) direct mail, (2) take-ones, (3) direct sales force, and (4) bind-ins.
Each had its advantages and drawbacks. Direct mail could target applications to the intended
audience. However, it was much more expensive than some of the other methods available. “Take-
Ones,” applications distributed at in-store countertop displays, offered a much broader reach; yet
being available to the general public regardless of qualification, more than half of the applicants
usually would not qualify. Using direct sales representatives was very expensive, although a
competitor had achieved enormous success at a very low per-customer acquisition cost in South

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Citibank: Launching the Credit Card in Asia Pacific (A) 595-026

Korea. Finally, newspaper and magazine inserts (known as bind-ins) were by far the least expensive
to circulate but they had a very low response rate.

The Hong Kong launch following the acquisition had used a combination of widespread Take-
One displays in more than 4,000 merchant locations and direct mailings as well as cross-selling to
existing branch customers. Bursts of thematic television and print advertising were also used to
enforce brand positioning to achieve maximum effectiveness in customer acquisition efforts and to
promote customers’ spending on the card.

A regional market research agency estimated that in order to acquire about 25,000 customers in
Singapore (see Table A), Citibank would typically need to invest in a multifaceted direct marketing
program consisting of direct mail, take-ones, direct sales force (making about 10 calls a day), and
bind-ins. The agency further estimated that of the prospects who had responded through direct mail
or direct sales, nearly two-thirds would qualify for a card, and of those who responded to take-ones
or bind-ins, nearly one-third would qualify for a card. Over 80% of those who qualified would
usually become a card customer. An additional $1.6 million would also have to be invested in TV
advertising to complement the direct marketing program. Such a budget would typically support
300 30-second spots during Christmas, New Year, Chinese New Year, and Eid ul Fitri (Islamic
Festival of Breaking the Fast.) Such image advertising not only helped to bring in prospects, but also
converted qualified prospects into firm customers. While a $1.6 million to $2.5 million advertising
budget was adequate to reach a broad customer base within a country, a similar expenditure would
be needed in each country if Citibank chose to enter several markets.

Table A Customer Acquisition Cost

Channel Unit Cost ($) Prospects Reached Response Rate

Direct Mail 1.5 300,000 2%
Take-Ones 0.25 2,000,000 1.5%
Direct Sales 18,000/sales person 30,000 50%
Bind-Ins 0.15 3,000,000 1%

In addition to the launch costs of the card program, the infrastructural support (that is, computer
systems, software development, customer support, merchant liaison, and other such fixed overhead
costs) were estimated at about $35 million per year for supporting about 250,000 customers. For
every incremental 250,000 customers an additional $10 million per year to $15 million per year of
overhead would result. The direct cost, including that of the card itself, mailing, correspondence, and
so on, currently cost about $25 per card in 1989, but was expected to drop to $6 to $8 per card when
volume reached about one million cards.

Card Business Operation Economics

Revenues from cards could come on an ongoing basis from several sources: joining/annual fee,
interest payment, merchant discounts, and other transaction-related fees. (Exhibit 9 provides some
basic information on how the card transaction settlement cycle works.) Setting the proper
joining/annual fee was of some concern. Pricing the card too low would conflict with Citibank’s
stated positioning and would have a major impact on break-even projections. However, pricing it too
high might mean low customer acceptance. One proposal was to waive the joining fee to induce
more customers to buy the product, and charge a higher annual fee to provide a steady recurring
revenue. Conventional wisdom, however, dictated a joining fee to cover the cost of acquisition, and a
low annual fee to retain customers. Results from the Hong Kong card operations could be used to

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This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

595-026 Citibank: Launching the Credit Card in Asia Pacific (A)

estimate revenues based on the income levels of the customer base. As Table B shows, the Hong
Kong business projected revenues of $16,279,144, or $162.65 per customer, in 1989.

Table B Net Revenue Impact of Citibank Hong Kong Credit Card Business, 198

Annual
Income

% of Card
Owners

Average
No.

of Cards
Owned

No. of
Card

Owners
No. of
Cards

Annual
Interest

Paymenta

per
Customer

Other
Annual

Revenueb

per
Customer

Total
Annual

Revenuec

per
Customer

Less than
$6,200

— — — — — — —

$6,200 –
$12,400

67.5% 1.49 67,507 100,633 $102.18 $34.70 $136.8

$12,400 –
$23,200

20.9% 1.96 20,938 41,118 $134.44 $62.87 $197.31

Greater
than
$23,000

11.6% 2.43 11,640 28,249 $166.97 $82.84 $249.81

Total 100.0% 1.70 100,985 170,000 $116.46 $46.19 $162.65

aThe interest payment reported is net after subtracting the cost of working capital to the bank.
bThis revenue consisted of merchant discounts and annual fee.
cThough a large proportion of customers usually paid the interest and other charges on time, about 3% to 7%
usually defaulted on payments, of whom only about 50% were able to eventually pay.

Options and Controversies

Citibank’s management were concerned that consumers’ attitudes and credit card usage patterns
differed by country. This formed the basis for debate on introducing one card with a single set of
features versus developing customized offerings for each market. (Exhibit 10 provides a qualitative
description of the various customer markets and their competitive environments.)

One of the most controversial ideas was that of premium pricing a card product. One of the
proponents explained, “In Asia-Pacific, we started business as a commercial bank. Our relationships
were with large business houses. As a result, we have had a steady flow of high-status clients.
Reaching out to the mass market here would certainly kill our unique positioning in the consumer’s
mind.” Opponents argued that a premium price might mean staying out of the market, since almost
all local card issuers were giving away free or low-fee credit cards.

Opinion was divided on whether each country should issue a local-currency credit card or
whether the U.S. dollar should be the standard currency for all cards. American Express, which had
a dominant market position in terms of market share and image, issued only a U.S.-dollar card in the

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Citibank: Launching the Credit Card in Asia Pacific (A) 595-026

region, while local players in each market issued local-currency cards. A decision in this matter
would have to take into account two aspects. First, local-card spend patterns versus overseas-card
spend patterns in each market would help decide which currency type would appeal to customers.
Second, asset growth of a local-currency card would hinge upon steady, matching growth of funding
through local-currency deposits based on the limited branch network of Citibank.

There was considerable skepticism surrounding the idea of a centralized data processing setup,
the Regional Card Center. Country managers feared that centralized processing would slow the
speed of response, and system developers would be cut off from local markets. “I don’t know how
we can call ourselves a service company, if our systems are all centralized in Singapore,” queried a
country manager. “Also, it does not make cost sense to spend so much money on creating a huge
centralized unit, and on leasing unreliable local and overseas communication lines when we can
instead piggyback on our local systems, which can be upgraded with less expense.” Moreover, if the
centralized system broke down, the service platforms in all countries would suffer.

The advocates of a Regional Card Center, however (except Hong Kong, which had its own system
capabilities), cited two important benefits:

! 1) Lower costs because of scale economies, especially with respect to software development.
For example, if Citibank introduced a new reporting feature for its card customers, the
programming could be done centrally, and simply downloaded to the countries. There
would be no need to customize by country.

! 2) Capability to do quick card product launches in Asia Pacific, because of the ease of
transferring best practices.

Talwar attributed the root cause of his country managers’ resistance to Citibank’s Asia-Pacific
organization structure. Responsibility for launching the card would rest with the country managers
who were already handling the branch banking side of the business. In the United States and
Europe, the card business was handled by a dedicated team outside the branch banking organization.
Few country managers in Asia Pacific wished to take the initial huge losses of a credit card product
their projections indicated was a distinct possibility. They argued that Citibank, instead of
attempting to dilute its efforts in acquiring mass-market customers, should in fact focus on its upscale
customers and reinforce its depth of relationship with Citi-One and Citigold types of products and
services. Some of the country managers felt they were already stretched on resources, while
aggressively developing the branch banking business. It would be difficult, they said, to fund the
people needs in a demanding card business since the market had no trained talent available.
Countries could, then, lose focus in branch banking and would not be able to do justice to the new
card business either.

The credit card idea was not without its supporters. Rajive Johri, a business manager in
Indonesia, expressed his exuberance:

In a country of 180 million, it should not be difficult to find the right staff and a million
customers. We have the expertise in the United States and other markets, and if we can source
enthusiastic people, we can train them in the business too. We will not only be building new
business in a virgin territory but be a catalyst for changing the cash societies in emerging and
rapidly growing economies of Asia Pacific.

If a decision to “go-ahead” was approved, then questions of positioning, pricing, and launch
economics would have to be carefully addressed. Jeannine Farhi, who had moved to Asia from
Citibank in the United States, cautioned:

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595-026 Citibank: Launching the Credit Card in Asia Pacific (A)

It is useful to remember that poor implementation can often kill great strategy. I am not
really sure if the U.S. experience can be directly translated here. For example, I am not sure if
the postal service here can handle the kind of direct mail program we often mount in the
United States. Post offices here are not accustomed to handling such large masses of mail.
Moreover, we have to be creative about how we put together the direct mailing lists to target
customers. Ready-made lists, of course, are simply unavailable. The telecom infrastructure of
many countries in this region is inadequate. Some countries take several months, or even
years, to provide new telephone connections at high costs, and their reliability is poor. I have
not heard of any credit bureaus which could help us evaluate potential customers. All these
difficult issues should be addressed in any launch plan.

At Singapore’s Changi International Airport, as Rana Talwar boarded his flight to Australia, he
contemplated the diversity of his markets as well as his management’s views on the card product.

On the one hand, the expedient move would be to stick to our proven up-market branch
banking strategy. This seems to have the support of a large majority of country managers. On
the other hand, we cannot be unmindful of the growth opportunities that the card product
offers us. It is not clear we have a strategy for the credit card positioning, pricing, or country
selection.

We are never going to get a consensus; that’s why it is important for me to make a decision soon,
one way or the other.

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Citibank: Launching the Credit Card in Asia Pacific (A) 595-026

Exhibit 1 xxx Citibank’s Asia-Pacific Consumer Bank Performance: 1988

($ million)

Net revenue from fund (NRFF) $209.0

Fees/commissions/insurance 31.3

Customer net revenue $240.3

Net credit losses/fraud 4.8

Credit/collection 11.7

Total credit cycle $ 16.5

Delivery expense $138.3

Other revenues/(expense) $(15.9)

Net earnings before tax 69.7

Tax $ 23.5

Profit center earnings (PCE) $ 46.2

Customer liabilities ($ billion) 4.9

Customer assets ($ billion) 2.3

Average total assets ($ billion) 3.0

Full-time equivalent employees 3,536

Number of accounts (000) 846

Number of branches 56

Source: Company documents
Note: NRFF for the card business was about $10 million, with a PCE of (-$3) million.

Concentrated in Hong Kong, this business was growing rapidly and by the middle of
1989 Citibank had nearly 100,000 customers.

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595-026 Citibank: Launching the Credit Card in Asia Pacific (A)

Exhibit 2 xxx Citibank Background

With about $228 billion in assets in 1989, Citicorp was the largest banking company in the United
States and ranked eleventh in the world. Its operations were broadly diversified across the banking
industry in order to serve a variety of individual, institutional, and commercial customers.

Global finance xxx Citicorp’s commercial banking operation served the needs of the world’s
business community. Recognized as the leader in the foreign exchange market, its wide range of
services included commercial lending, real estate, and services to financial organizations, such as
insurance companies, securities companies, institutional investors, and other banks.

Global consumer xxx The Global Consumer business aimed to serve the fullest possible range of
financial needs for individual consumers. Its $106 billion in assets constituted 50% of the bank’s
asset base. The majority of Citibank consumers were in the United States, where one out of six
American households had a relationship with the bank. However, its international presence had
been growing rapidly, and while other large banks had been scaling back their efforts overseas,
Citibank had expanded its services into 9 million households in 15 countries outside the United
States.

By 1989 Citibank, which had started as a commercial bank, offered a variety of products for
consumers as well, especially in the United States. In the United States alone, Citibank had grown its
card membership from a mere 6 million in 1980 to more than 27 million in 1987.

Citibank: Summary of Aggregate Performance

1986 1987 1988

Net Income
(Loss)

$ Millions

Average
Assets

$ Billions

Net Income
(Loss)

$ Millions

Average
Assets

$ Billions

Net Income\
(Loss)

$ Millions

Average
Assets

$ Billions

Global consumer 362 71 556 85 626 106

Global finance

Developed economies 538 81 513 84 810 88

Developing economies 143 18 195 17 285 17

Corporate initiatives/information business (34) – (89) 1 (105) 1

Cross-border refinancing portfolio 124 14 (3,288) 13 278 12

Other (75) – 931 (2) (36) (3)

Total 1,058 184 (1,182) 198 1,858 221

Offices and Branches (1988)

United States Overseas (in 89 countries)

Citibank, N.A. Citibank branches and representative offices 291
Branches 293 Banking subsidiaries 653
Subsidiaries 71 Banking affiliates 115
Citibank (New York State) Other financial affiliates and subsidiaries 1,1

Branches 39

Subsidiaries 8 Total overseas 2,180
Citicorp savings 252
Other Citicorp subsidiaries 5

Total Domestic 1,185 Total 3,365

Source: Annual Reports.

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Citibank: Launching the Credit Card in Asia Pacific (A) 595-026

Exhibit 3 xxx Citibank: Global Consumer Bank ($ millions)

1986 1987 1988

Net revenue from fund $5,638 $6,476 $6,899

Credit cycle expense 1,701 1,580 1,746

Delivery expense 3,392 3,952 4,295

Total expense 5,093 5,532 6,041

Other income (expense) 92 65 92

Income before taxes 637 1,009 950

Net Income 362 556 626

Average assets ($ billions) $ 71 $ 85 $ 97

Return on assets (%) .51 .65 .64

Return on equity (%) 12.7 16.3 16.1

Assets ($ billions)

Revolving loans NA $ 17.2 $ 21.8

Shelter loans 39.7 41.6

Student loans 1.8 2.1

Other loans 21.8 25.5

Other assets 12.0 13.3

$ 92.5 $104.3

Liabilities

Transaction account deposits NA $ 11.6 $ 13.5

Savings deposits 60.0 65.0

Other 20.9 25.8

$ 92.5 $104.3

No. of accounts (millions) NA 42.0 45.0

Source: Annual Reports.

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595-026 -12-

Exhibit 4 Country Profile

Australia Hong Kong India Indonesia Malaysia Philippines Singapore Taiwan

Thailand

Population (millions) 16.5 5.6 797.0 167.7 16.9 61.9 2.7 19.8 55.0
Urban population 85% 90% 23% 25% 38% 50% 100% 72% 20%

Economy
1988 real GNP
(US$ billion) $196.8 $45.7 $222.5 $63.4 $34.1 $32.6 $23.8 $95.8 $51.1
Per capita (US$) $11,929 $8,158 $279 $338 $2,018 $527 $8,817 $4,837 $930
1988 growth rate 4.0% 7.3% 9.7% 4.8% 8.1% 6.8% 11.0% 7.3% 10.8%
Five-year average growth
rate 4.6% 8.4% 6.1% 4.2% 4.2% 0.5% 5.6% 9.3% 7.2%
Savings rate 6.7% 30.0% 19.6% 27.9% 23.8% NA NA 31.2% 10.3%

Inflation
1988 7.6% 7.4% 9.8% 8.0% 2.0% 8.7% 1.5% 1.2% 3.8%
Five-year average 7.1% 5.5% 8.2% 7.6% 1.6% 16.6% 0.7% 0.5% 2.3%
Literacy rate 99% 88% 48% 72% 80% 88% 87% 90% 89%
Ethnic composition 95% Caucasian;

4% Asian;
1% other

98% Chinese;
2% other

80% Hindu;
10% Muslim;
10% Christian,
Sikh, Parsi, and
others

74% various
Malay groups;
26% other
(mainly
Chinese)

60% Malay;
31% Chinese;
9% Indian

91% Christian
Malay;
4% Muslim
Malay;
2% Chinese;
3% other

76% Chinese;
15% Malay;
7% Indian;
2% other

84% Taiwanese;
14% Mainland
Chinese;
2% other

75% Thai;
14% Chinese;
11% other

No. of passenger cars in
use

7,244,000 250,000 1,351,200 1,170,100 1,578,900 352,900 251,400 650,000 770,400

No. of telephones in use 8,727,000 2,461,000 4,409,000 907,000 1,646,000 658,400 1,122,000 7,800,000 1,000,000
No. of televisions in use 7,900,000 1,400,000 6,000,000 7,112,000 2,350,000 2,200,000 570,000 6,386,000 5,600,000
(Some of these data are for 1985, others for 1987)

Political/Economic Risk
Factor

A B C C B D B A B

A—Most Stable
D—Most Risky

Highly Western-
ized economy
with opportuni-
ties for develop-
ment

1997 return to
Mainland
China causes
political
uncertainty

Unstable
federal govern-
ment, political
corruption

Large national
debt, political
corruption,
speculation on
new political
leadership

Low inflation
and fast high-
tech growth,
but political
infighting

Political
corruption,
threats of
Communist
insurgency

Transition to
new leadership
after 30-year
reign of Lee
Kuan Yew

Strong economic
and political
stability

Strong growth,
but heavy
reliance on
tourism. Political
corruption

Sources: United Nations Statistical Yearbook for Asia and the Pacific, 1991, and U.S. Central Intelligence Agency, Handbook of the Nations, 1991.

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Citibank: Launching the Credit Card in Asia Pacific (A) 595-026

Exhibit 5 xxx Citibank Asia-Pacific Consumer Bank: Core Products and Services

Core Products

In offering the Citi-One account, Citibank used its advances in technology to provide customers
something none of its competitors could reproduce: a consolidated deposit and investment account
based on the sum total of all of a customer’s accounts with Citibank. By enrolling in Citi-One,
customers benefited from

• a consolidated statement showing the status of all their Citibank accounts,

• banking by phone,

• an automatic checking overdraft facility,

• linked savings and checking accounts where funds were swept from checking
into savings overnight in order to earn interest, and

• a designated customer service officer to manage their accounts.

In order to fully offer its resources to branch banking customers, Citibank imposed relatively high
deposit requirements of its checking/savings customers–usually about $10,000.

Mortgage Power, targeted at housing loan customers, allowed those whose homes were worth
more than the existing mortgage to obtain a revolving line of credit on top of their existing loan.

Citibank was also one of the largest providers of auto loans in Asia. The bank worked to establish
and maintain relationships with car dealers as one way to gain access to new customers; auto loans
were then sourced and marketed through car dealerships.

Unlike other credit line accounts, Citibank’s Ready Credit, a revolving credit facility which worked
like a checking account, enabled customers to apply for an overdraft line of credit without having to
formally apply for a loan. This product was targeted at mid-level professionals and provided them a
ready source of funds for unexpected expenditures or emergencies. It offered a number of benefits,
including low mandatory repayment of the loan, no collateral or guarantors required, and ready cash
withdrawals through ATMs (automated teller machines).

To attract the high net worth segment of the market, Citibank offered its exclusive, personalized
Citigold service. Its creators likened the Citigold concept to traveling in the first class cabin of an
airplane. With Citigold service, customers who met the minimum average deposit requirements (this
varied from country to country but was usually around $100,000) did their banking in exclusive,
lavishly furnished service areas where they did not have to wait in lines for teller service. Soft music,
warm lighting, tastefully selected artwork, and service from immaculately groomed, more
experienced representatives all served to differentiate this class of customer. Access to more
sophisticated products, investment advisory services, complimentary magazine subscriptions, and
updates on currency trends were just some of the additional benefits bestowed upon Citigold
customers. The Asia-Pacific division innovated the Citigold idea, and a much larger proportion of its
customers in Asia (compared with its U.S. operations) were Citigold customers.

CitiPhone banking enabled customers to complete routine banking transactions, such as fund
transfers and account balance inquiries, via phone, from the privacy of their own homes or offices, or

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595-026 Citibank: Launching the Credit Card in Asia Pacific (A)

even from mobile phones. Moreover, with CitiPhone Banking, customers could access their accounts
24 hours a day, 7 days a week, and 365 days a year.

Citibank had also revolutionized the banking industry in Asia via automated teller machines.
Customers could use ATM cards to access their funds from stylishly decorated, highly secured
Citicard Banking Centers in the language of their choice, and all ATMs contained phones which
automatically connected customers with a Citibank officer in case of a problem. With the
International Citibank Citicard, customers could carry out transactions on their accounts virtually
anywhere in the world.

Business Segments

In addition to its regular branches, Citibank operated separate offices to serve certain strategic
customer segments. Each of these offered a portfolio of products designed to meet the unique needs
of customers in those segments.

Citibank’s Non-Resident Indian Business (NRI) was set up to capture the business of Indian
customers who did not reside in India. Citibank offered special foreign currency time deposit
accounts and rupee (local currency) savings accounts in India which enabled NRI customers to invest
their overseas earnings in Indian rupees or in foreign currencies. The former earned a significantly
higher interest rate. This helped Citibank develop relations with the Indian government by helping
the Central Bank to procure foreign currencies. NRI had branches in major financial centers all over
the world.

With 21 banking centers in 15 countries around the world, the International Personal Banking (IPB)
business was designed to service the growing group of affluent Asian offshore clients with global
financial needs. IPB provided such innovative products as the International University Plan, which
would allow customers to create the funds necessary to send their children to prestigious universities
in the United States, Canada, and Europe, while insuring the funding for college against death or
disability. It helped them cushion political and economic instability, offering them foreign currency
advisory services and access to global investment products, while providing unique local tax benefits.
IPB’s focus on personalized service (a personal finance manager specially trained in international
transactions), confidentiality, and accessibility made Citibank the choice of more than 120,000
customers worldwide.

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595-026 -15-

Exhibit 6 Typical Credit Card Purchase Transaction Cycle

Cardholder Merchant
Merchant Bank

or Acquiring
Company

Credit Card
Issuer

Interchange
Network

Cardholder
makes purchase
at merchant

Merchant submits
transaction to
merchant bank or
acquiring company

Merchant bank or acquiring
company reimburses merchant
less merchant service charge

Interchange
Network
reimburses
merchant
bank for
amount of
transaction
less inter-
change fee

Merchant
bank or
acquiring
company
submits
transaction
to interchange
network

($100)

($97)

($98.50) ($100)

($100)

($98.50)

Credit card
issuer bills
cardholder
for total of
transactions
made in month

($100)

Cardholder
makes full
or partial
payment to
the card
issuer
(minimum
to $100)

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595-026 -16-

Exhibit 7 xxx Citibank Country Profile (1988)

Australia Hong Kong India Indonesia Malaysia Philippines Singapore Taiwan Thailand

No. of branches 9 27 6 2 3 3 3 2 1
No. of bank customers (‘000) 85 130 61 21 29 46 18 16 12
No. of bank accounts (‘000) 150 250 165 25 58 85 67 30 16
No. of Citigold customers — 7,600 1,000 550 487 2,300 1300 680 —
No. of IPB customers — 9,900 — — — — 12,800 — —
No. of autoloan customers (‘000) 36 200 15 13 — 4 10 11 4
No. of mortgage customers (‘000) 27 22 — 2 9 — 3 2 5
No. of card customers — 102 — — — — — — —
% of bank customers owning Citibank card — 6 — — — — — — —
Net revenue from fund ($ millions) 59 67 6 12 11 19 16 11 8
Average annual customer income (US$) $60,000 $36,000 $10,000 $24,000 $14,000 $10,000 $20,000 $25,000 $15,000
Average customer bank balance (US$) $24,000 $20,000 $3,500 $9,000 $23,000 $4,000 $13,000 $9,000 $5,000

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Citibank: Launching the Credit Card in Asia Pacific (A) 595-026

Exhibit 8 Estimated Distribution of Population and Cards by Income

Annual Income (head of household)
Above
$25,000

$12,500 to
$25,000

$6,000 to
$12,500

$2,000 to
$6,000

Below
$2,000

Total (in
(millions)

Australia

% of population 12.5a 30 37.5 15 5 16.5

% of cards 30b 35 30 5 0 10.5

Hong Kong

% of population 10 25 50 10 5 5.6
% of cards 15 25 50 10 0 2.0

India

% of population 1 2 2 5 90 800
% of cards 10 10 10 70 0 .280

Indonesia

% of population 3 2 2 3 90 168
% of cards 40 10 10 40 0 .1

Malaysia

% of population 5 10 20 45 20 17
% of cards 10 45 45 0 0 .380

Philippines

% of population 3 5 22 30 40 62
% of cards 50 45 5 0 0 .240

Singapore

% of population 5 5 10 25 55 2.7
% of cards 30 70 0 0 0 .630

Taiwan

% of population 12.5 30 35 10 5 20
% of cards 30 50 20 0 0 .100

Thailand
% of population 5 10 10 20 55 55
% of cards 12.5 12.5 50 25 0 .210

Note: The minimum age for cardholders was 18 years in Australia and 21 in the other countries. While the card issuers
imposed their own income requirements, the government of Malaysia imposed a minimum income of $9,000/year,
and Singapore imposed a minimum of $14,000/year.

aOf Australia’s 16.5 million people, 12.5% were estimated to live in households where the head (of the household) had an
income above $25,000.

b
Of Australia’s 10.5 million credit cards, 30% were owned by individuals with incomes above $25,000.

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595-026 -18-

Exhibit 9 Competing Product Profiles: Pricing

American Express Diners Club Local Banks
Green Gold Regular Classic Gold

1. Australia
Joining Fee $30 $45 $45 Nil Nil
Annual Membership Fee $45 $60 $60 Nil Nil
Payment Terms Balance due monthly Balance due monthly Balance due monthly Balance due monthly (overdue

int. 2% p.m.)
Balance due monthly (overdue
int. 2% p.m.)

2. Hong Kong
Joining Fee $32 $50 $32 Nil Nil
Annual Membership Fee $50 $83 $54 $28 $61
Payment Terms Monthly Monthly Monthly Monthly (overdue int. 2%) Monthly (overdue int. 2%)

3. India
Joining Fee NA NA $25 Nil NA
Annual Membership Fee NA NA $40 $10 to $19 NA
Payment Terms NA NA Monthly Monthly (overdue int. 2.5%) NA

4. Indonesia
Joining Fee $60 $60 $40 $15 to $40 $30 to $60
Annual Membership Fee $50 $60 $35 $20 to $30 $30 to $45
Payment Terms Monthly Monthly Monthly Monthly (overdue int. 2.5%) Monthly (overdue int. 2.5%)

5. Malaysia
Joining Fee $31 $38 $40 0 to $30 0 to $50
Annual Membership Fee $54 $75 $60 $20 to $50 $50 to $75
Payment Terms Monthly Monthly Monthly Monthly (overdue int. 2.5%) Monthly (overdue int. 2.5%)

6. Philippines
Joining Fee $35 $50 $40 Nil $5 to $20
Annual Membership Fee $50 $60 $50 $20 $50
Payment Terms Monthly Monthly Monthly Monthly (overdue int. 3%) Monthly (overdue int. 3%)

7. Singapore
Joining Fee $50 $50 $45 Nil Nil
Annual Membership Fee $60 $95 $60 0 to $50 0 to $65
Payment Terms Monthly Monthly Monthly Monthly (overdue int. 2%) Monthly (overdue int. 2%)

8. Taiwan
Joining Fee $40 $60 $45 Nil Nil
Annual Membership Fee $72 $120 $80 $48 $96
Payment Terms Monthly Monthly Monthly Monthly (overdue int. 1.5%) Monthly (overdue int. 1.5%)

9. Thailand
Joining Fee $40 $60 $40 Nil Nil
Annual Membership Fee $65 $120 $80 $20 $40
Payment Terms Monthly Monthly Monthly Monthly (overdue int. 1.5%) Monthly (overdue int. 1.5%)

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595-026 -19-

Exhibit 9 (continued) Competing Product Profiles: Services

American Express Diners Club Banks

Card replacement

Loss/misuse liability

Spending limits

Emergency check cashing

Cash advance

Year-end summary

Interest-free period

Minimum payment

Replacement card

24 hours or next
business day at 1,500
locations worldwide

$100 maximum

None

$1,000 (Green)
$5,000 (Gold) at AMEX
locations

$250 at hotels
$100 at airlines

None (except through
Express Card ATM)

Gold Card only

45 days

Full

Free

24 to 48 hours at Diners
offices

$100 maximum

None

$1,000 at Diners offices
and Citibank branches
$250 at hotels
$100 at airlines

$1,000 at Diners office and
Citibank branches

30 days

Full

Free

1 to 2 weeks
Written loss report required

Some provide no coverage
until loss reported, others
provide $100 maximum

Yes

$250 at hotels
$100 at airlines

$1,000 to $10,000 or up to
credit limit

25 days

10% of balance

$20 to $50

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595-026 Citibank: Launching the Credit Card in Asia Pacific (A)

Exhibit 10xxxAsia-Pacific Markets: Country Profiles

From the bustling financial metropolis of Singapore to the rice fields of Indonesia, the eight
additional Asian markets Citibank considered for expanding its credit card business represented a
broad spectrum of cultural, industrial, and economic diversity. Moreover, the level of credit card
penetration and market development differed from one country to the next, as did consumers’
attitudes toward card ownership and usage. Detailed descriptions of the market in each country
follow.

Australia

With its highly developed service sector, high per capita GDP, and predominantly Caucasian
population, Australia closely resembled the commercialized, industrialized nations of the West in
many ways, including its financial services and banking infrastructure. Compared with other
developed economies, Australia ranked second only to France in the number of outlets, such as
branch offices and ATMs, offering banking services per capita.

In contrast to other Asia-Pacific markets, Australia’s credit card market was already saturated by
1989. With about 10.5 million cards in force, the average Australian carried two cards. Of these, about
half were Bankcards, cards issued by 10 local banks for local use only. Bankcards were an
introduction to credit cards for many consumers, and most still reported owning at least one. Because
they had been in use for so long, and because of their usage limitations outside the country,
consumers perceived Bankcards as becoming less popular, if not almost obsolete.

Visa and MasterCard had also developed large franchises in Australia, with 17.6% and 16.8% of
the market, respectively. Though both were known for their wide domestic and international retail
acceptance and were highly regarded in overall reputation, consumers viewed the Visa card as
slightly more prestigious and higher in merchant acceptability. Twenty-three local banks and six
foreign banks offered a total of 4.1 million Visas and MasterCards, though the majority were issued
by Australia’s four largest banks—Westpac, Commonwealth, ANZ, and National Australia Bank.

American Express and Diners Club also operated in Australia; with 600,000 and 180,000 cards in
force, respectively, their franchises were much smaller than the other brands. Both cards had been
known as symbols of status and had been very strong businesses at one time. However, by 1989 both
were experiencing problems, due primarily to decreases in retailer acceptance and consumers’
negative attitudes toward AMEX and Diners Club membership fees. Unlike the local banks, both
AMEX and Diners Club charged consumers a joining fee as well as an annual membership fee.

In Australia, as in other parts of Asia, consumers recognized credit cards as an important
shopping tool that freed them from carrying cash and allowed them to shop whenever and wherever
they wanted. Credit card purchases varied, but most of them were related to travel, entertainment,
or shopping. However, card usage had become so commonplace in Australia that prestige and image
associated with the card or the issuing bank was no longer an important consideration when
choosing a credit card. Australian consumers, more concerned with how credit cards could be used
in conjunction with other banking services to better manage their finances, viewed credit cards as an
extension of an existing relationship with their banks. Therefore, MasterCards and Visas that
allowed for easy cash withdrawal through ATMs, provided for payment of monthly bills, linked all
of a customer’s bank accounts, provided lost wallet protection service, and had no annual fee were
the most popular. The MasterCards and Visas offered by the four major national banks offered one
or more of these features.

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Citibank: Launching the Credit Card in Asia Pacific (A) 595-026

Debit cards were also available; however, penetration was less than 5% and these were primarily
seen as a nonbank financial institution product linked to savings accounts.

Hong Kong

Citibank had been in the credit card business in Hong Kong since 1983, when it acquired the
Diners Club card business from Hong Kong’s Standard Chartered Bank. The business was expanded
in 1987 through the acquisition of Bank of America’s Visa card portfolio, that had grown to 75,000
customers over the previous 12 years.

With the country’s impressive economic growth and rapid industrialization, the relatively affluent
population of 5.6 million with an average annual income of $8,158, and a high concentration of
people living in urban centers, the people of Hong Kong were no strangers to the use of credit cards.
By the late 1980s, consumers were sophisticated in their knowledge and usage of credit cards—using
them for a variety of occasions from daily trips to the grocery store to business travel to family
vacations. They had a number of credit card options to choose from. Visas and MasterCards issued
by the local Hong Kong Bank and Standard Chartered Bank were considered popular. By 1989, Hong
Kong had nearly two million cards in force, with cardholders owning an average of 1.7 cards each.

Citibank viewed its Hong Kong card business as a way to grow its customer base by targeting
customers outside its branch business; the bank would then deepen its relationships with these
customers by actively cross-selling other Citibank products and services. By 1989, Citibank’s 140,000
Classic and Gold Visas held an 8.7% share of the credit card market. In addition, it owned 100,000
Diners Club card customers. This charge card competed directly with American Express, which had
issued 175,000 cards in Hong Kong.

India

With 80% of the country’s population living in rural areas, agriculture formed the foundation of
India’s economy. Growth in the country’s key industries—textiles, food processing, and
pharmaceuticals—and in the service sector contributed to India’s strong economic development in
the late 1980s.

Because the majority of the country’s wealth was concentrated among a small group of urban
households, credit card penetration in India was extremely low. Credit cards served as status
symbols for India’s upper-middle-class consumers and provided the convenience of not having to
carry lots of cash. Consumers preferred to pay on time and not use the card as a means of revolving
credit. Though merchant acceptance was generally not as high in India as in other Asian countries,
consumers were able to use their cards for a variety of purchases, more than half of which were
related to travel and entertainment.

To this select group of card owners, wide acceptance, brand/bank image, and ease of the
application process were a card’s most important features. With regard to these preferences, only
Diners Club, with about 70,000 members, was strong and presented a distinct positioning. American
Express did not issue a local credit card. The other major competitors were bank cards. Two of them
with about 100,000 cards had already overtaken Diners Club. The local banks did not charge a joining
fee and kept the annual fee at about $15. All foreign-exchange transactions in India were heavily
regulated by the central bank. As a result credit cards issued in India could be used only for local
transactions in local currency.

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This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

595-026 Citibank: Launching the Credit Card in Asia Pacific (A)

Indonesia

Despite its 9 billion barrels of proven oil reserves and its wealth of other minerals, Indonesia
remained a relatively poor country, with about 80% of the population living in rural areas and
earning less than $500 per year. A significant portion of Indonesia’s small but rapidly growing
wealthy class was the local Chinese business community—part of a larger network of some 27
million mainland Chinese whose growing international business interests had prompted them to
settle in foreign places around the world.1 But many wealthy Indonesian business people shared a
similar international outlook as their business travels took them frequently to Malaysia, Singapore,
and Australia.

The government did not impose restrictions on card ownership, but because of low income levels
many did not qualify for membership, and this severely limited the size of the customer base. Thus,
Indonesians perceived card ownership as a measure of high social standing. Among the major
competitors were Visa and MasterCard issued by local banks. American Express and Diners Club
also operated there, offering products and services for the small pool of professionals and well-to-do
citizens. Three local banks, American Express, and Diners Club shared the market equally. Whereas
all charged a joining fee as well as an annual membership fee, the local banks priced their offerings
significantly lower.

To those few who were able to use credit cards, a number of features were important in choosing
which card to use, especially outstanding service, prestige, billing in rupiahs (local currency), and
extra “perks” of membership, such as prizes for joining and purchase protection. Even among those
eligible for membership, low credit limits kept consumers from using their cards intensely.
Consumers were able to use their cards for a wide variety of purchases, including travel expenses,
groceries, and hospital bills.

Malaysia

An important world producer of rubber and timber, Malaysia was largely a rural country, with
61% of the population living in rural areas. However, as a growing industrial nation, it was also the
world’s third-largest producer and largest exporter of semiconductors. As with neighboring
Indonesia, Malaysia had a prosperous business population of nearly one million (half of whom were
of Chinese origin) whose business interests took them to many countries in the Asia-Pacific region as
well as to the United Kingdom.

Convenience and extra credit were important reasons for owning credit cards. Malaysians
considered it acceptable to revolve credit, so that though some customers paid their monthly bills in
full, many others relied on their cards to finance short-term expenses. Cards were used mostly to pay
for personal and family retail purchases, with the exception of a small group of corporate customers
who used the cards for business travel and entertainment.

Malaysians had plenty of card options to choose from in 1989. American Express, for instance,
with a 15% share of the market, offered a charge card that was recognized internationally for its
premium image and superior customer service and that had no preset spending limit. The rest of the
market was divided between international banks, which used credit cards as a way of reaching new
customers (foreign banks were limited to three branches in Malaysia), and local banks, which tapped
into their base of branch customers to develop their card businesses. Established international
banking groups, such as Hong Kong Bank and Standard Chartered Bank, offered their cards globally

1Source: “The Worldwide Web of Chinese Business,” Harvard Business Review, March-April 1993: 24-37.

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Citibank: Launching the Credit Card in Asia Pacific (A) 595-026

and were particularly attractive to customers with international interests. With its extensive branch
and ATM network, Malayan Banking Berhad, with a 10% share, was viewed as an established local
bank whose cards were a vehicle of convenience. Finally, offering high credit limits but lacking in
customer service and prestige, Malayan Borneo Finance offered numerous card types with varied
pricing levels in order to be all things to all people and gain the widest possible market share. In
general, MasterCard and Visa were known for their flexibility and wide retail acceptance, and the
reputations of the banks issuing these cards helped consumers decide which one to choose. Local
banks usually did not charge a joining fee for the classic card, but they all charged an annual fee, and
they all offered an exclusive Gold card. According to Malaysian law, only consumers with an annual
income of $9,000 or more could own a credit card.

Philippines

After a deep recession from 1984 through 1986, the Philippines during the late 1980s was in the
midst of a booming recovery. Jumps in consumer demand helped fuel the economy as more and
more jobs became available through new sources of capital and government programs. Food and
beverage consumption was rising tremendously, as were sales of “big-ticket” items.

Even in the context of this rapid economic growth, credit card penetration in the Philippines was
extremely low.

The credit card market was relatively underdeveloped, with only two major banks issuing
MasterCards and Visas. Consumers valued these cards for their wide acceptance and revolving credit
facility. American Express, perceived as the card for the international consumer, and Diners Club,
known as the prestigious card, were also available. Between the two, they had nearly 50% of the
market.

To their owners, credit cards provided value by allowing them to make purchases and pay for
services at any time without having to worry about carrying large amounts of cash. Groceries were
the most common kinds of card purchases, followed by restaurant meals, clothing, and gasoline.
Wide acceptance was therefore by far the most important factor considered in selecting a card,
followed by its terms, such as interest rate, repayment terms, and credit limit. The reputation of a
card and its issuing bank was also important to consumers, but far less critical than other factors.
Credit cards issued in the Philippines could be used only for local transactions in local currency.

Singapore

Thirty years of political stability under the strong-handed rule of Prime Minister Lee Kuan Yew
helped Singapore develop into one of the world’s largest centers for international trade and services,
as well as the site of one of the world’s biggest oil refineries. A host of multinational corporations
had clamored to set up operations in this “high-tech Mecca.” With an average per capita income of
$8,800, the standard of living in Singapore was closer to that of industrialized Westernized nations
than to that of its neighbors.

By 1989, Singaporeans were quite familiar with credit cards. In fact, with cardholders owning an
average of two credit cards each and with nearly 500,000 cards in force, many felt the market was
already saturated. In consumers’ minds, cards fell into three categories. First, American Express,
with about a 15% share, the high-price charge card with no spending limit, was known for its
prestige, worldwide acceptance, and outstanding global service. Second, large international banks
such as Hong Kong Bank, Chase, and Standard Chartered Bank offered MasterCards and Visas with
worldwide acceptance and an international image. Consumers perceived their service and prestige

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595-026 Citibank: Launching the Credit Card in Asia Pacific (A)

to be lower than that of American Express but greater than that of the local banks. Finally, a number
of local banks such as UOB, DBS, OUB, and OCBC offered low-priced MasterCards and Visas with
worldwide acceptance but no international image. These cards were considered to have minimum
levels of service and prestige, but were seen as patriotic and conservative choices. Consumers
attached a lot of importance to the reputation of the issuing bank when choosing a card. American
Express was the only card to charge a joining fee. By also waiving annual membership fees, local
banks UOB and DBS had each captured a 20% share of the market.

As members of a society that prided itself on introducing the latest technology and service to
make things run most efficiently, Singaporean consumers viewed credit cards as vehicles of
convenience. At the same time, because government regulations required all cardholders to be at
least 21 years old and to earn at least $14,400 per year, credit cards were also considered a status
symbol. Because the market was so well developed, cards were used to purchase high-priced and
low-priced items alike, from clothing, appliances, and electronics to restaurants, entertainment, and
travel.

Taiwan

As the world’s twelfth-largest trading power, Taiwan was a major investor in the Philippines,
Thailand, Malaysia, Indonesia, and Mainland China. Once a rural nation, Taiwan had rapidly
developed its capital- and technology-intensive industries, making its population one of the
wealthiest and best educated in the region.

Though heavy government protection and support helped foster this industrial growth, it was a
barrier to growth in the credit card business. Prior to 1989, laws prohibited consumers from owning
more than one credit card, from revolving credit, and from using their cards to obtain cash advances.
Also, international cards could not be issued in Taiwan. Anyone wanting a charge card from
Citibank, American Express, or Chase Manhattan had to obtain it in Hong Kong. (The Taiwanese
branches of these companies supported the Hong Kong branches in promoting these cards.)

Reforms in banking regulations, passed in July of 1989, lifted the restrictions on international
cards, on multiple-card ownership, and on revolving credit. However, the government retained
much control over the entire industry through its National Credit Card Center (NCCC), which
engaged in developing merchant acceptance, maintained an extensive database on all member
cardholders, and settled overseas transactions. Though the government exempted American Express
and Diners Club from NCCC control, any bank wanting to issue a MasterCard or Visa had to obtain
authority from the NCCC.

Such heavy regulation had kept all but a few players out of the credit card business, making it an
industry in relatively early stages of development. Based on their global networks and premium-
quality service, American Express and Diners Club developed a prestigious reputation, which they
used to attract their target customers: executives, world travelers, and upper-class Taiwanese.
Conversely, China Trust and Cathay Trust provided a lower-cost MasterCard and Visa suited for a
wider audience. Consumers perceived American Express as the card to use for travel, Diners Club as
the highest symbol of prestige, Visa as the most popular, widely accepted card in the world, and
MasterCard as the second card to have in the wallet. American Express had about 50% of the market
share. Unlike American Express and Diners Club, the local banks did not charge a joining fee.

To the Taiwanese consumer, the charge card was a badge of status. Taiwan was a cash-oriented
society in which it was considered unacceptable to owe other people money. Even when it became
legal to revolve credit, the majority of Taiwanese refrained from doing so. With an average purchase

For the exclusive use of L. Zhang, 2023.

This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

Citibank: Launching the Credit Card in Asia Pacific (A) 595-026

valued at $80 to $110, most credit cards were used in department stores, supermarkets, nightclubs,
restaurants, and, of course, for travel—50% of credit card purchases were made overseas.

Thailand

With its economy growing at an average of 11.6% from 1986 to 1989, Thailand was one of Asia’s
most rapidly developing nations; foreign investment was growing faster there than anywhere else in
Southeast Asia. Most of the increases came from the country’s small but strong industrialized sector
and from tourism, Thailand’s largest source of foreign exchange. This continued strong economic
performance resulted in a growth in consumer affluence and spending.

Compared with the more industrialized nations such as Singapore and Hong Kong, the card
market in Thailand had relatively few major players. Card products could be divided into two
groupings. First, there was American Express and Diners Club, whose core business was charge
cards and which issued about 50% of the cards in the market. Prestige was the key to their
positioning, as they focused on acquiring an upscale customer base. Second, the local banks issued
Visa or MasterCard credit cards. These were often aimed at the bank’s customers and did not have
the same upscale image among consumers.

Korea

Local regulations did not permit banks to issue cards with revolving credit. Further, due to strict
foreign exchange control measures, only local currency cards could be issued. As a result, several
local banks were issuing Visa/MasterCards as charge and debit cards. For many years, Citibank had
been managing the Diners Club business in Korea. Management experience with the Korean card
business was far from satisfactory with financial losses as well as labor problems.

For the exclusive use of L. Zhang, 2023.

This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

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