ASSOFIN - CRIF DECISION SOLUTIONS GFK EURISKO CREDIT CARD SURVEY September 2006
CONTENTS PRESENTATION OF THE SURVEY... page 1 EXECUTIVE SUMMARY... 5 Chapter 1 STATE AND EVOLUTION OF THE MARKET... 11 1.1 Analysis of the Italian market... 11 1.2 International Comparisons... 19 1.3 Analysis of infrastructures... 25 Chapter 2 REVOLVING CARDS... 27 2.1 Scenario of reference... 27 2.2 Evolution of the market... 31 Chapter 3 SUPPLY... 41 4.1 Cards issued by banks... 42 4.2 Cards issued by Specialised Financial Institutions(SFI)... 45 4.3 Co-branded cards... 47 4.4 Pre-paid cards... 70 4.5 Business cards... 76 4.6 Premium cards... 79 4.7 Smart cards... 82 Chapter 4 DEGREE OF MARKET RISK... 85 4.1 Level of territorial spread of charge cards... 86 4.2 Level of unpaid credit for charge cards... 87 4.3 Degree of territorial spread of revolving cards... 90 4.4 Level of unpaid credit for revolving card clients... 91 Chapter 5 THE DEMAND FOR CREDIT CARDS: TRENDS AND EVOLUTION DYNAMICS... 95 5.1 An analysis of demand: sources... 95 5.2 The plastic card user base... 101 5.3 Evolution of credit and debit cards... 103 5.4 The current credit card market: card holders... 103 5.5 Card portfolio and credit card user behaviour... 105 5.6 Internal market dynamics: an analysis of the abandoning of cards... 108 5.7 The recent abandoning of cards (in the last 2 years)... 110 Chapter 6 DIFFERENT TYPES OF CREDIT CARD... 113 6.1 Different types of cards in financial decision makers portfolios... 113 6.2 Premium cards: market share, features and card-holder profiling... 113 6.3 T&E: cards: market share, features and card-holder profiling... 116 6.4 Revolving cards: market notoriety and ownership... 117 6.5 Fidelity cards... 120 6.6 Pre-paid cards: market notoriety and ownership... 122 6.7 Re-chargeable pre-paid cards: the potential market... 123 6.8 Smart cards: spread and perception... 125 2
Chapter 7 LOGIC OF APPROACH AND THE CREDIT CARD MARKET MAP... 129 7.1 A map of the credit card market... 129 7.2 Results of analysis... 130 Chapter 8 BRANDS AND RELATIONSHIP WITH THE MARKET... 137 8.1 The logic of brand positioning... 137 8.2 Trends in communication activity and brand notoriety... 139 8.3 Market brand image and customer satisfaction... 141 8.4 Credit card satisfaction: quotas and targets... 146 Chapter 9 THE CURRENT MARKET: OPPORTUNITIES FOR DEVELOPMENT... 149 9.1 Introduction... 149 9.2 Credit card affinity on the current market... 149 9.3 The current market: opportunities... 153 9.4 Current market risk factor... 155 9.5 Current market risk factor: an analysis by type of credit card and use... 157 Chapter 10 POTENTIAL MARKETS FOR THE CREDIT CARD... 159 10.1 Non-credit card holders: scale and characteristics... 159 10.2 Non-credit card holders: perception of the card and resistance... 160 10.3 Non-credit card holders: drivers for market access...161 10.4 Non-credit card holders: targets... 162 10.5 The potential credit card user base... 164 10.6 The potential credit card user base: characteristics... 165 10.7 The potential credit card user base: affinity and risk... 166 10.8 Resistance to the spread of the revolving card...167 10.9 The potential market for the revolving card... 168 Chapter 11 ONLINE PAYMENT SYSTEMS: MARKET TRENDS AND FEATURES OF DEMAND... 173 11.1 Features of online payment systems... 174 11.2 Features of the online payment systems industry... 179 11.3 Points of attention for the development of online payment systems... 180 11.4 Levels of E-Commerce development in leading industrialised countries... 182 11.5 E-commerce in Italy... 184 11.6 Current demand... 187 11.7 Potential demand for E-Commerce... 195 APPENDIX Appendix Synoptic Analysis and Overall Map of Italian Society... 201 Appendix Map of the Financing Market and Styles of Family Financing... 213 Appendix Main types of credit cards... 221 Glossary... 223 3
PRESENTATION OF THE SURVEY The 2006 edition of the Credit Card Survey confirms the partnership between Assofin, CRIF Decision Solutions and GfK Eurisko, who have once again combined their respective know how and contributions in order to supply a distinctive product for the Italian market, that will be of real interest for all players involved. The fourth edition of the Credit Card Survey is a reference text for all leading figures in this sector: banks, specialised financial institutions, issuers, consultancy companies and institutional organisations. The function of the Credit Card Survey can be summarised as follows: To analyse market trends, collecting and organising the numerous fragments of information on this market with continuity. To offer scenarios of reference and the developing trend of supply and demand for credit cards, using information and ad hoc analysis that is not available anywhere else on the Italian market. To monitor initiatives in the sector, and to aim to capture main trends and innovations as they happen. The 2006 edition, continues to see a supply context that is increasingly competitive and characterised by the continual proliferation of new cards. Once again this year, the Survey has a special section dedicated to the comprehensive supply of the current Italian market. In terms of demand, the Survey has seen a growing and systematic acceptance of credit cards by Italians. However, the Survey notes that there is still a significant part of the population (non card-holders) who still do not habitually use credit cards and who continue to prefer to pay for their shopping with cash. The 2006 Survey will supply a detailed and specific analysis, while trying to consider possible incentives and methods of intervention. As a demonstration of the Survey s constant attention to new initiatives and to the expanding market, the 2006 edition, like previous Studies, will contain a chapter specially dedicated to a subject of importance for the market. This edition has an in-depth analysis of online payment systems and themes linked to this sector and its capacity for innovation. Therefore, once again this year, Assofin, CRIF Decision Solutions and GfK Eurisko offer the Credit Card Survey as a precious tool for specialised and non-specialised financial players to carry out an accurate analysis of the market, its targets, the business potential still to be developed and the most interesting, currently developing scenarios. ASSOFIN is an association that brings together and represents leading expert financial operators in the credit card and mortgage sector. One of the activities that characterises the association and qualifies it as a sector organisation is its wealth of statistical information on trends in its areas of interest. CRIF DECISION SOLUTIONS is a CRIF group company specialised in designing, developing and managing solutions for risk control and for the financial market. CRIF DECISION SOLUTIONS has been the partner of leading financial players for many years and has developed specific know-how in the credit card field, to acknowledge, gather and transform the main signals, developments, and market trends into business. 4
GfK EURISKO, is a leading Italian institute in the field of social and market research. Its approach to research is that it is a service to be performed with increasing specialisation and an economic and cultural function aimed at supporting development within Italy. Company policy favours the added value of research data and their sociocultural organisation. In 2005, the institute became part of the GfK Group, the 5th most important world research network, present in over 60 countries. Since 1987 GfK EURISKO FINANCE has been its department specialised in financial research, in order to meet the growing needs of financial marketing with exemplary professionalism. This integration of specific skills guarantees a complete analysis, which combines a quantitative vision of the market with a more qualitative vision of demand. The Survey is organised as follows: Chapters 1, 2 and 3 give a largely quantitative overview of the Italian credit card market. Chapter 1 analyses market development in terms of growth trends and compares it with leading European markets. Chapter 2 specifically focuses on revolving cards and analyses the characteristics of their supply. Chapter 3 presents a censual analysis of the types of cards on the Italian market, enhanced by a precise description of each product s main features. Chapter 4 has an analysis of market risk, clearly distinguished for charge cards and revolving cards, which is the only one of its kind on the Italian card market. Chapters 5, 6, 7, 8, 9 and 10 focus on qualitative and evolutionary aspects of Italian credit card users (who they are, how much they spend and why they decide to use credit, etc.) together with indications on market potential. The analysis will allow us to follow evolutionary tendencies in demand and compare 2006 results with those of 2004 and 2005. The theme of Chapter 11 is the capacity for innovation and possible evolution of online payment systems. As in previous editions, this analysis is enhanced by areas dealing with risk and affinity linked to the demand for credit cards: a product of CRIF Decision Solutions experience in the field of decision support systems. 5
EXECUTIVE SUMMARY Plastic cards are increasingly present in Italian wallets. This is a summary of the results of an analysis of the national and international scenario. Last year s Italian market was characterised by the following: A growth in the number of transactions made with bank and post office payment means other than cash. This growth is generated by an increase in credit or debit card transactions. Payments by cheque have decreased, while bank transfers and standing orders have remained more or less stable. A large development in debit cards, both in number of transactions and volume. An increase in the number of debit cards in circulation, although with a lower percentage than that of transactions. A decidedly steadier increase in the number of credit cards in circulation. A strong recovery for active credit cards, which, after last year s drop, end 2005 in growth. The level of activity has also grown as a consequence. The growth in active credit cards is equal to that of volumes reached by credit cards, while the number of credit card transactions has also grown. There is still a fairly lively growth in the revolving card sector, mainly issued by Specialised Financial Institutions, even if these levels are more contained than in recent years. These are the most important trends: The growth rate in the number of revolving card transactions in the first half of 2006 is lower than that of the same period in 2005: a sign that the market is reaching greater maturity. Card-holders are showing a growing preference for option cards. There has been a constant increase in the number of revolving cards in circulation. The ratio between active cards and cards in circulation is lower than in 2005 (the so-called activity rate ) but this should not be interpreted as card holders looking on the use of credit cards less favourably. Active cards have, in fact, increased and the growth in credit cards in circulation, for the rate denominator, is much higher as a result of the large amount of new cards issued. 2005 saw levels of credit and debit card penetration in Italy progressively approach those of similar European markets in terms of size and financial structure. However, this international analysis shows that Italy s position is still catching up with that of Germany, Spain and Great Britain. In Italy, however, the use of payment cards has a very similar frequency to that of Spain and Germany and is often for larger sums. In terms of infrastructure, the number of POS in Italy is very similar to that in other main European countries. The same cannot be said, however, for ATMs, where Italy still has substantial growth margins. The Survey offers a combined regional analysis of the level of spread and risk linked to credit cards, differentiated for charge cards and revolving cards. A study carried out on a large sample group (around 6.5 million cards) has shown that: Charge cards are still most widespread in Lombardy, Lazio, Emilia Romagna and the Veneto Region. 6
The distribution of revolving cards has increased in Piedmont. They also have a strong presence in Lombardy, Lazio, Sicily and Campania. In the three regions with a large spread of credit cards, Lombardy continues to have the highest quality clientele. In terms of supply, new products continue to be developed by banks and financial institutions. Focusing on new trends compared to last year, we have highlighted three areas of development: technology, product and graphics. From the technological point of view, the migration of the magnetic card to smart cards (containing a microchip that memorises user data) continues, although at a slightly slower rate. This substitution process is planned at a European level within a well-defined timescale. By 2010 all cards and infrastructures must conform with new technology. The main advantages of this migration are linked to a reduction in fraud, an increase in card use, inter-operability and multi-application on international markets. In terms of product innovation, there has been a strong development in pre-paid cards. This market still has ample scope for growth, as it combines advantages linked to credit card use at an international level with an increase in accessibility for new client targets. Poste Italiane (the Italian Postal Service) is the current sector leader. From the point of view of graphics, an increasing number of cards are being advertised that evoke events and initiatives, as well as cards with customised layout (including the card-holder s photo). As usual, the Survey has a large section dedicated to an analysis of both current and potential demand, in terms of characteristics, socio-economic profile, expectations and satisfaction, etc. (based on Multi-Financing Retail Market research by GfK Eurisko). This year the analysis features further detail on demand, with a single-themed chapter on the world of E-commerce and instruments of online payment. Data in this new edition confirms the gradual, growing trend in the spread of credit cards amongst decision-makers, even though growth rates remain relatively contained. Market new entries (around 200,000 new card-holders), continue to be partly balanced by an out-going flow of ex-card-holders who have abandoned their cards during the last year (the rate of abandonment is constant and equal to around 100,000 card-holders per year). This year, the Survey highlights how the spread of cards within the user base of decision-makers has experienced slower growth rates compared to their spread amongst other members of the family. However, the highest number of card-holders is still found amongst the financial heads of families. This target is favoured by supply for card positioning, due to its high economic value and greater trustworthiness in terms of risk. Among the different types of credit cards, revolving cards confirm their positive growth trend in terms of visibility, while the user base of aware card holders, after the growth seen in the last edition, remains constant in terms of size. For the first time this year there have been signs of a halt in the trend towards a noticeable reduction in the user base of holders of high-value (premium) cards (a product of strategic importance for market development, especially in terms of profitability) which was described in recent editions of the Survey. As a result, the analysis of brand positioning in different targets that the Survey has monitored over the last four editions with the credit card market map, highlights a new dynamic in terms of value cards that tends towards more enterprising and elite market segments that make greater use of the card. This is a reversal of last year s trend. 7
In terms of customer satisfaction with credit cards, the new edition returns the stable overall indicator of 2005, with a constant quota of around one satisfied card-holder for every two. However, the analysis confirms the difficulty on the part of supply to fully exploit its product on the market, by employing its resources in the best way possible, especially in the selling phase, to focus on additional credit card features i.e. benefits and added services (insurance policies, customer loyalty schemes and discounts linked to cards). These seem increasing less-well perceived on the part of demand. Given the fairly contained rate of spread, the potential for expanding the current credit card holder base remains extremely encouraging. The potential credit card market may, however, vary in terms of size and characteristics of its components, in relation to the logic of approach that players offering cards subscribe to: Broad logic considers its potential user base to be all current non-card-holders. This leads to a vary large user base, even if a profile analysis shows that there is a high number of individuals with characteristics that may not be fully compatible with the product. A more focused logic, takes into account not only the objective condition of current non-card-holders, but also the presence of some basic pre-requisites for obtaining a credit card (that have emerged in the credit card market map). The potential user base is smaller, but offers very interesting characteristics for sector players. For those who chose to work on the basis of more focussed logic in conquering their target user base, the Survey continues to highlight the importance of a strategic reflection on the different positioning of various cards that are already part of a portfolio (mainly debit and credit cards) also bearing in mind the present strong overlaps in use, which indicate the market s lack of awareness on how to differentiate these instruments. The same approach (an awareness of need and the supply of a corresponding instrument) should be used to face the challenge of the revolving card market that the Survey once again indicates as growing in notoriety but not in awareness of use. To this end, analysis confirms the need on the part of supply to offer support for this instrument, which already has all the potential to be able to respond to market needs, with a suitable positioning strategy that also takes into account other forms of consumer credit. The theme of this year s monograph is the capacity for innovation and the possible evolutions of online payment systems. The development of the Internet in the 90s created high expectations for its use as a sales channel. Growth forecasts for this sector were very optimistic and the incidence forecast for this channel was, perhaps, overestimated. Systems of payment are certainly among the main obstacles for development in this sector: provider technology, business relations, the rules and laws of individual countries, authentication systems, cultural and psychological resistance on the part of consumers to using these systems of payment and a perceived lack of security partly explain this weakness in development. The most widespread form of online payment, both in Europe and the United States is currently the credit card. Debit cards and Paypal are more widely used in the United States than on the European market. From the point of view of current market demand, analysts have tried to construct a framework of reference from trends for the spread of the Internet, to assess the size and 8
profile of the current online purchaser base, which has then been analysed in terms of its use of different instruments of payment. We have tried to use sources that assess both phenomena in the population at large (by using Sinottica GfK Eurisko, and in financial decision-making targets (using the Multifinancing Retail Market Study by GfK Eurisko), in the awareness that the spread of the Internet and of E-Commerce has shown higher levels of penetration in younger targets and therefore lower levels amongst financial decision-makers. Independent of its slant, analysis in terms of profiling of both target Internet users and target online buyers has confirmed that innovative instruments, in any environment under observation, find more fertile terrain for spreading where there is a high socio-cultural profile. Particularly as regards uses of forms of payment, the analysis carried out by the Multifinancing Retail Market Study has pointed out that, although a user today has a wide variety of innovative instruments available, these have not yet become part of regular use. Apart from the credit card (an instrument used by 60% of decision making online buyers) there is still a fairly large degree of more simple and traditional forms of payment that are strongly centred around off-line use (such as bank transfer and payment on delivery). In the area of potential demand, research has identified the willingness of almost one decision-making Internet user in every two to purchase products and/or services on the Internet in the future. In reality, around half of this user base already uses E-commerce and therefore expresses its intention to continue to use online channels for purchases (an indicator of a substantially positive experience). The credit card has been confirmed as the favoured method of payment for future online users, with more willingness, however, to use pre-paid cards rather than traditional credit cards (a phenomenon that can also be seen in those entering the E-commerce market for the first time). 9