CASE STUDY CARDS: DRIVING PROFITABLE GROWTH

CASE STUDY CARDS: DRIVING PROFITABLE GROWTH

Executive Summary Business Situation Mid-size Retail Bank in the Middle East Retail Portfolio consisting of Credit Cards and Personal Loans Relatively small Credit Card portfolio as a percentage of total assets Need to understand current card portfolio profitability along various dimensions and recommend strategies for profitable growth Complete assessment of Cards portfolio. Designed, built and implemented Strategic MIS to monitor portfolio profitability on ongoing basis Identified key gaps vs. best practices from a marketing and risk management perspective Recommended a series of tactical strategies that the bank can implement for profitable portfolio growth Implemented key strategies. Put in place a mechanism to measure effectiveness of strategies, as well as a robust Test & Learn Strategy 2

Opportunities Across Payment Vehicles Current Portfolio 118,000 Visa Debit Cards Upgrade Strategy Increase Engagement Current Portfolio 16,101 Cards as of Sep08 Premier and Value Strategy New Value Propositions New Channel Strategy Debit Cards Secured- Charge & Credit Cards Strategy Business & Corporate Small Business Cards Corporate Cards Charge Cards might fit the bill De-scoped for now Current Portfolio 3504 Visa Prepaid Cards Opportunity to reach out to the Unbanked & underbanked Prepaid/ Gift Cards Unsecured Cards Significant Opportunity Legal Regulations Charge Cards might fit the bill 3

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Increase Card Acquisitions Objective : Increase Cards-in-Force Open Cards as of Sep08 : 16,363 Acquiring New Customers Database marketing. Obtaining Prospect Lists from Partners, affiliates, etc for proactive marketing Cross-selling to existing Bank and affiliate Customers who do not have a Bank Credit/Charge card Platinum Card for all Premier Banking Customers Reducing Customer Attrition 25,000 20,000 15,000 10,000 5,000 0 Total number of Open Cards Approximately 2% of all open Cards are cancelled by Customer every month. We need to understand the reason behind cancellations; as well as the opportunity cost to the Cards business 4

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Increase Activation Rate Objective : Increase Card Activation rate Activation Rate as of Sep08 : 52.8% 52.8% of all Cards are Active as of Sep08. This is significantly lower than Industry Standards. For New Customers: SMS for card pick-up and activation Welcome Call For Existing Customers: Need to understand Inactive Customers from a multi-dimensional perspective: Product; length of inactivity; reasons for inactivity, etc 55% 54% 53% 52% 51% 50% % Active Customers Explore use of Incentives (within Legal guidelines) to increase activation. Needs a disciplined Test & Learn approach. 5

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Stimulate Card Usage Objective : Increase Card Usage Total Spend on Active Card as of Sep08: 213 How can we increase Card Usage within Legal guidelines (regarding the use of incentives to increase engagement). Purchase transactions are highly seasonal Cash Usage is a significant part (26%) of total Customer Spend. Do all Customers have easy access to their PIN for ATM Cash withdrawal. 350 300 250 200 150 100 50 Monthly Spend per Active Customer TOTAL Purchase Cash International spend is a significant portion of Card Usage (pls see next slide) 0 Bank Classic Card Customers spend/card is approx. 40% of typical Country Bank. 6

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Stimulating International Spend Objective : Increase International Card Usage % of Total spend that is International : 50.8% % of total spend that is International International spend is a significant portion of total Card Usage (50.8%). Of this, Purchase transactions are ever higher at 65.2% of total purchase transactions being abroad. % International Purchase spend increases substantially during summer months 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Purchase TOTAL Cash 7

<= 0% 0-10% 10-20% 20-30% 30-50% 50-75% 75-100% > 100% Building Profitable Balances Objective : Review Credit Line Increase Policy Average Credit Utilization for Revolving cards: 49.5% Average Credit limit for Open Revolving Cards is 606$; and average utilization is at 49.5%. Approximately 39.4% of all open Revolving Customers are between 50 75% utilization Is there scope to proactively increase credit lines for these customers (within appropriate risk guidelines) so as to increase Card usage and build profitable balances 50% 40% 30% 20% 10% 0% % of Cards by %Utilization Customers that were given a Credit Line increase in Sep08 (from an average of 1272 $ to 4229$), increased their Balances by approximately 95% (from an average of 646$ to 1224$). 8

# open cards % Utilization Building Good Balances Objective : Review Initial Credit Line Policy Average Credit Utilization for Revolving cards: 49.5% Approximately 72% of all Open revolving Cards have a Credit Limit less than 500$. Most of these are the Classic cards. These Customers are also heavily utilized at approximately 55% Is there scope to review Initial Credit Line assignment policy (within appropriate risk guidelines) to ensure that we are assigning optimal lines. Sub-optimal initial lines can lead to Customer dis-satisfaction and non-usage of Card 6000 5000 4000 3000 2000 1000 0 <=100 # Open Cards by Credit Line segment 100-300 300-500 500-1000 1000-1500 1500-3000 3000-5000 Credit Line Segment 5000-10000 >10000 70% 60% 50% 40% 30% 20% 10% 0% 9

Upgrades to Gold & Platinum Objective : Increase Gold & Platinum Cards Total Gold & Platinum Cards as of Sep08: 24% of total Gold & Platinum Cards account for 24% of base but 60% of overall Spend Sep08 spend/card: Classic: 60 Gold: 282 Platinum: 280 100% 80% 60% Sep08 Open accounts and total Sales Classic Gold Platinum 1,495 2,363 419,589 667,580 Gold & Platinum Cards have similar spend. Opportunity to differentiate value proposition 40% 20% 0% 12,243 722,647 Country Banks typically have 42% of portfolio consisting of Gold & Platinum Customers. Open Accounts Total Sales 10

Increasing Fee Revenue Objective : Increasing Fee Revenues Non-Interest Revenue for Sep 08: 82% of Total revenue Non-interest Revenues, Sep08 Interest Revenues accounted for only 18% of total revenue for Sep08. Amongst Non-interest revenues, Cash withdrawal fee and FX Mark-up accounted for 43% of total. Can we design programs to stimulate International spend; and increase cash withdrawals (within appropriate risk guidelines) Risk-based fees has been withdrawn as per Legal guidelines. 40000 35000 30000 25000 20000 15000 10000 5000 0 Cash Withdrawal Fee Interchange FX Mark Up Other Revenue Annual Fees 11

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Reducing Customer Attrition Objective : Decrease Good Customer Attrition Open Cards as of Sep08 : 16,101 Monthly Customer Attrition % 4% Reducing Customer Attrition Approximately 2% of all open Cards are cancelled by Customer every month. We need to understand the reason behind cancellations; as well as the opportunity cost to the Cards business 3% 2% 1% 0% 12

Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Lowering Net Credit Losses Objective : Lowering Net Credit Losses % Total balances that is 90+ past due as of Sep 08: 16.3% For cards, 90+ delinquent accounts and balances are significantly high (compared to a typical Card portfolio). 20% 15% 90+ Delinquency (% total cards) Put in place appropriate Risk controls to control for delinquencies and related losses: 10% 5% 0% Approval Scorecards: Customer-level score to decision on which Customer to approve and which to decline for New Cards based on information provided application data, bureau data, etc 20% 15% 90+ Delinquency (% ANR) Risk Scorecards: Customer-level score to decision on which Customer is high-risk (going to default on their loans) so as to enable the business to take proactive actions (like Credit line decrease; remove cash withdrawal facility; etc) to minimize losses. 10% 5% 0% 13

Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Increasing Collections Efficiencies Objective : Increasing Collections Efficiency $ Collected / $ in delinquency for 30+ (Sep08) : 18.4% Collections Efficiency (CE) is a key metric to measure the performance of Collections activities. It is defined as Total $ Collected CE = Total $ in Collections for the 30+ past-due bucket. Put in place appropriate segmentation and scorecards to increase CE: Segmentation: Segment delinquent accounts by balance: high/medium/low balance 25% 20% 15% 10% 5% 0% Colections Efficiency Collections Scorecards: Build and implement scorecards to prioritize accounts for Collections activities. Accounts that have a high likelihood of paying back should be prioritized. 14

Cross-Sell to Retail Customers Objective: Increase Credit penetration amongst Retail Customers Total penetration of Credit to Debit: 22% * Cost-effective; leverage telemarketing toolkit 15

EXPENSES REVENUES Marketelligent: A strong P&L discipline to all analytics Reduce Customer Attrition - Voluntary / Involuntary - Retention Strategies - Winback Improve profitability of Assets - Balance Transfer - Credit Line Strategies - Pricing Bank P&L New Accounts Acquired Accounts Closed Account Activation rate Payment Rate Total Ending Receivables Interest Cost of Funds Net Interest Margin Acquire New Customers - Segments X Products X Channel - Mailbase Expansion - Pricing Increasing activation rates - Deepening Engagement - Inactive Customer Treatment Reduce Net Credit Losses - Credit Line strategies - Pricing strategies - Collections Maximizing Fee Revenue - Over Credit limit - Delinquency - Bad Check Risk- based Fees Interchange Affinity Rebates Cross- Sell Annual Fees Net Credit Losses Net Credit Margin Operating Expenses Loan Loss reserve Net Income Maximizing Interest Revenue - Product Pricing - Customer Behavior Revolvers, transactors, etc Increasing Cross-sell Revenues - Revenue Enhancing Products - Breadth of relationships Top-down approach Analytics that impact all line items of the P&L 16

Thank You For more information, please contact us at: info@marketelligent.com Bangalore, India Anunay Gupta, PhD Head of Analytics anunay.gupta@marketelligent.com +1 408 834 8822 New Delhi, India Roy K Cherian CEO roy.cherian@marketelligent.com + 91 98104 05464 New York, USA Gregory Fasana greg.fasana@marketelligent.com +1 630 624 1770