1. Page 1 Credit Card Marketing Shariq Mukhtar Cards Business, Citibank May 2004

2. Page 2 Presentation Path Part 1. Credit card basics Part 2. Taiwan market Part 3. Credit card marketing Part 4. Cards financial dynamics

3. Page 3 Presentation Path Part 1. Credit card basics Part 2. Taiwan market Part 3. Credit card marketing Part 4. Cards financial dynamics

4. Page 4 Credit card volumes worldwide As of Sep 2003 Credit card is a product with mass appeal. Total cards: 1,500MM Visa MasterCard American Express Total sales: US$4,000BN Visa MasterCard American Express

5. Page 5 Why credit cards are so popular? Convenience of not carrying cash Peace-of-mind in case of emergency Time Place Power to make impulse purchases Cash Flow Management with revolving feature Help meet Day-to-Day Needs of today’s fast paced life

6. Page 6 Credit card can actually be better than cash Lost Card Liability, in case of loss of wallet Many Discounts available, due to cards company tie-ups with merchant outlets Rewards Points and/or Cash Rebate Purchase Protection Travel Insurance And more….

7. Page 7 Target Market Everybody who has income, does not have negative credit history and is above certain age.

8. Page 8 Issuing Bank Example of Credit Card Process Flow Assuming 2.5 % merchant discount and 1.5 % interchange fee Acquiring Bank $ $ $ VisaMasterCard Settlement House MerchantCardholder $100 Charge $100 Worth of Merchandise $100 Bill $97.5 $ 98.5 $100 Charge $100 Charge $ 98.5 $100 Charge

9. Page 9 Sharing of Merchant Discount Cardholder Pays100.0  Merchant gets97.5  Acquiring bank gets1.0  Issuing bank gets1.5

10. Page 10 Function of Issuing Bank  Issue card to qualified customers  Receive transaction information from Settlement House  Provide transactions and outstanding balance information to card members  Take credit and fraud risk on card members

11. Page 11  Provide authorization  Accept transactions for credit to merchant account  Submit transaction information to settlement system  Provide statements and reconciliation to merchants  Take credit and fraud risk on merchants Function of Acquiring Bank

12. Page 12 Presentation Path Part 1. Credit card basics Part 2. Taiwan market Part 3. Credit card marketing Part 4. Cards financial dynamics

13. Page 13 Cards - CIF/Sales – Taiwan Market - Population: 23 million - 50% < 30 years - Households: 6.4 million CAGR: 36.6% CAGR: 17.8%

14. Page 14 Phenomenal Market Growth Due to Economic Growth as well as due to Cash-to-Card Shift Transaction Volume US$ Billion CAGR 35% Cards in Circulation (Million Cards) CAGR 38% Source: MOF, McKinsey analysis, Press articles

15. Page 15 Shift in Consumer Spending Habits….. Percent Spending via Credit Card Average Spending per transaction US$ Total Revolving Balance US$ Billion Total Cash Advance US$ Billion Changing orientation from cash payments Dilution due to significant card issuance & smaller transaction More receptive to revolving, younger segment Significant growth in this demand, accessibility Increased Thirteen fold Increased Four fold Source: MOF, McKinsey analysis, Press articles, AC Nelson

16. Page 16 Dramatic growth leads to declining profits & margins for overall industry... Many issuers Annual fee lost More plastic per customer More loyalty points Credit losses Source: MOF, McKinsey analysis, Press articles

17. Page 17 Today’s Credit Card Industry in Taiwan Singular focus on number of cards and CIF market share -Banks bid down each other’s prices - No fee, APR -Banks bid up each other’s costs - Gifts, rewards, co-brand partner costs -Taking each other’s customers instead of growing the industry - Balance consolidation Many issuers do not know they are losing money -A “relationship gift” to existing banking customers -Inadequate infrastructure, poor service -No separate P&L, accountability Consumer behavior -Expect no annual fee, low APR, and premiums -Split usage among multiple cards, based on usage promotion

18. Page 18 Presentation Path Part 1. Credit card basics Part 2. Taiwan market Part 3. Credit card marketing Part 4. Cards financial dynamics

19. Page 19 Consumer Card Marketing Strategic Planning New Business Development + Goal Setting Costs Mgmt + Performance Tracking Distribution Sales Strategy Program Design + Implementation Market + Portfolio Research Product Development + Risk Acceptance

20. Page 20 Consumer Card Marketing Dependencies (Internal) Technology + Operation Infrastructure Service + Quality Datamining Capabilities + Portfolio Analytics Funding Management + Financial Control Risk Management Authorization + Fraud

21. Page 21 Consumer Card Marketing Dependencies (External)  Industry Framework  Consumer & Competition characteristics  Card Acceptance infrastructure  Associations Governance  Visa  MasterCard  Diners, Amex  Local Regulatory Controls & Laws  MOF  Central Bank  Bankers Association  Legal - Penal codes for Fraud crimes  Operating Infrastructure of market

22. Page 22 Target Segment Strategy 18-24 25-34 35-44 >45 Age H M L Income

23. Page 23 Product Segment Strategy 18-24 25-34 35-44 >45 Age H M L Income Youth Silver Gold/New Platinum Diamond Preferred/Diners

24. Page 24 Channel Strategy 18-24 25-34 35-44 >45 Silver Direct Sales, TM, DM, Take ones Gold/New Platinum Direct Sales, TM, DM, Internet, Diamond Preferred/Diners Upgrades, Cross-Sell, DM, TM, Branches H M L Income Age DM - Direct mail TM - Tele Marketing Youth Direct Sales, Student Sales, TO, Internet

25. Page 25 Presentation Path Part 1. Credit card basics Part 2. Taiwan market Part 3. Credit card marketing Part 4. Cards financial dynamics

26. Page 26 Customer Lifetime Cycle Management is Important Acquisition / Activation Portfolio Actions Retention / Anti-attrition Reinstate 3 txn gift Double rewards pts Balcon Merchant offers Usage promotion Installment payment Balance transfer Upgrade Cross sell Anti-attrition model Attrition offers Anti-attrition team “Come home to mama” program

27. Page 27 Credit Card Revenue Dynamics RevolversTransactors Avg Net Receivables (ANR)Interchange Fee SalesAnnual FeeOther Fees Accounts Interest Income Cost of Funds Credit Losses Cost of Funds Lost/Stolen Fee Insurance Revenue Late Fee

28. Page 28 Summary Cards is a universal product with mass appeal. Industry continuous to grow- both due to economic growth and cash-to-card shift. Effective marketing requires understanding different segment dynamics and support with right product/channel strategy. Cards is a complex business requiring significant local/international infrastructure, and good understanding of risk management, analytics, and profitability dynamics. It’s a fun business to work in

29. Page 29 Thank You!