3.

CASE STUDY

Standard Chartered Card-Credit

Card of Standard Chartered Bank
INTRODUCTION
The BankCard industry is a relatively new business in India, which has just evolved
in the last 25 years. The relation between the customer and the merchant is at the
heart of the BankCard industry. BankCard history began when individual retail
merchants extended credit to their customers, allowing them to charge purchases to
an account held by the merchant. The earliest form of the bankcard was charge-it, a
system of credit which allowed customers to charge local retail purchases. The
merchant deposited the charges at the bank; the bank then reimbursed the merchant
for the sale and collected payment from the customer.
The system paved the way for the first bank credit card circulated by Franklin
National Bank in Long Island, New York, in 1951. Cardholders liked the
convenience of the new cards and they liked having credit. Merchants discovered
that bankcard customers were most likely to make purchase and they bought more
with the cards than with cash. Over the next few years more and more financial
institutions began credit programmes.
In 1960, Bank of America introduced its own bankcard, The BankAmericard.
The BankAmericard plan grew and in the next few years more and more communities
across the US became serviced by a regional member representing BankAmericard.
As a result of the success of BankAmericard, other card issuers across the US began
to look for a way to compete with BankAmericard affiliates. In 1966, 14 US banks
formed Interbank, a new association with the capacity to exchange information on
credit card transactions. The following year (1967), four California banks changed
their name from the California Bankcard Association to the Western States Bankcard
Association (WSCA). WSCA opened its membership to other financial institutions in
the western part of USA. Its bankcard product was known as Mastercharge.

4.

The need for a large cardholder base led to the mass mailing of bankcards to new
cardholders without solicitation or approval process. Cardholders soon suffered
credit and fraud losses. Interbank and Bank of America developed rules and
standardized procedures. The two associations also created international processing
systems to handle the exchange of money and information and established an
arbitration procedure to settle disputes between members. As a result, Interbank and
Bank of America emerged as the leading bankcard systems. In 1977, BankAmericard
became Visa USA/Visa International. In 1979, Mastercharge changed its name to
MasterCard to reflect its expanded services. The card service in India was first
started with the Diners charge card followed by Bank of Baroda (BOBCARD),
Canara Bank (CANCARD), and Citibank (Citibank Visa, Diners, and MasterCard).
One of the recent entrants into the card market is Standard Chartered Bank. It entered
into the fray in 1992. Other Indian banks have been compelled to follow suit with
credit cards licensed from one or the other international brands.

THE PLAYERS
As we have seen from the history, bankcards grew from a direct relationship
between the consumer, merchant and financial institution to a system where
financial institutions joined the MasterCard and Visa associations. Membership
enables financial institutions to
(a) Issue bankcards with world-wide utility,
(b) Hold contractual relationships with the merchants, and
Participate in the interchange and settlement systems of MasterCard and Visa.
The participants in the card transactions are the following.

Cardholder
The cardholder is solicited, screened and approved by the issuer, which establishes
the line of credit for the customer and issues the bankcard. The cardholder uses the
bankcard either to purchase goods and services from a merchant or to obtain a cash
advance from a member, for which the cardholder receives a monthly bill from the
issuer.

Issuer
The cardholders financial institution (usually called the issuing member or issuer) is
a licensed member of the MasterCard and/or Visa. The issuer:

5.

(a) Issues the card to approve the cardholder, (b) receives and pays for transactions
from MasterCard and/or Visa, and (c) bills and collects from the cardholder.

Agent Bank
Managing a credit card programme is expensive and some small financial institutions
prefer to offer bankcards to their customers without taking on the complications and
responsibilities of becoming an issuing member. These small financial institutions
can contract to become an issuing agent of-an issuing member. The issuing agent
solicits cardholder applicants for the issuer, generally through take-ones made
available at its branches. The issuer, in turn, issues the card in its name, has the
cardholder relationship, makes all the credit decisions, and completely manages the
card programme.

Acquirer
The acquiring member, or acquirer, solicits screens and accepts merchants into its
bankcard programme. The acquirer is a member of MasterCard and/or Visa, and
holds a written agreement with the merchant to:
1. accept merchant sales drafts
1. provide the merchant with the credit card authorization terminals,
instructions and contracted support services, and
2. handle and process the credit and transactions.
The acquirer usually charges the merchant a merchant discount for handling the
transactions. The acquirer is licensed by MasterCard and/or Visa and agrees to
follow the operating rules and regulations of the two associations.

Merchant
The merchant can be virtually any company which meets the qualification standards
of MasterCard and/or Visa and an acquirer. Typical merchant businesses include
retail stores, restaurants, airlines, mail order companies, and health plans, to name a
few.
The call direction of the card when it is swiped at the merchants end is shown in
Fig. C3.I.

6.

Customer
Holder)
Citibank/CICII/
American Express
(Acquirer)

(Standard

Chartered

Merchant

Card
Check for:
Approved,
Decline, Pickup,
Refer

Master
Card/Visa Card
(Franchise)
Host (Standard
Chartered Bank)
(ISSUER)

Fig. C3.1 Call-direction When the Card is Swiped at the Merchants End.

MasterCard and Visa International

MasterCard and Visa are managers of their brand. This means they

create advertising and promotion programmes to support their brand,

develop new products,
conduct clearing and settlement processing of transactions,
supervise the bankcard processing within the member bank, and
Set and enforce rules and regulations governing their bankcards, such as
operational procedures, interchange procedures, and graphic design
approval of their cards.

STANDARD CHARTERED BANK

So far we had an overview of credit cards; we shall now embark on a case study-the
challenge faced by a new entrant into the market. One of the recent entrants in the
Indian market is Standard Chartered Bank (SCB). SCB has chosen India, Malaysia
and Indonesia as three potential markets in Southeast Asia. The ever-growing Indian
middle class and the higher spending power among the population has been
highlighted as the key factors in the growth of the market. It has been estimated that
by 2005 the card market in India will be as high as 15 million. The general feeling is
that there is enough cake for each one to take home a fair piece. SCB, which started
its operations at a low key, soon found that its competitors had raced miles ahead.
The new look SCB started aggressive marketing and sales promotion while adopting
a cautious approach. The number of cardholders was around 40,000 in 1994, it was
about

7.

2, 50,000 in 1997. The increase in the number of cardholders resulted from a careful
estimation of the market and positioning of the product accordingly.

Challenges Faced by Standard Chartered on Entering the

Market
Credit card business is essentially a volume driven business with marginal
returns. Thus SCB had to register high volume to earn profit.
The returns on investment take a long period. The gestation period is very
high and involves huge overheads.
A critical number is required to make the business profitable for issuers.
Acquisition of new customers is extremely difficult. And attrition control
(retaining the present customer base) is a challenge in itself.
The market was already being dominated by an early entrant (Citibank)
Communication systems are far less sophisticated than in the West.

Market Research
As a prerequisite for a new entrant to find about the market, Standard Chartered also
did extensive market research before and after entering the card market in India. The
focus of the market research was to find the following key factors:

Size of the card market

Market growth rate and expected market size in the future
Strengths and weaknesses of the competitors
Features that affect the buying pattern of credit cards

After doing extensive market research, Standard Chartered found that the card
market is bound to grow at much higher rate than the growth at that time. It was a
fairly good chance for Standard Chartered to enter the market because of the already
established infrastructure and a very good market image to start with. But the major
concern was a host of well-established competitors like Citibank, CANCARD, SBI
Card, etc. (Today, there are other competitors like BOB Card, ICICI Bank Card and
OBC Card.) The credit card business requires huge investments in terms of
establishing various facilities and service networks. From the forecasting it was
found that Standard Chartered could break even at the volume of 4, 00,000 cards.
After a thorough analysis of the market, the marketers of Standard Chartered
found that there were two major factors that affect the purchase of credit cards:

8.

Hygiene level factors

The Differentiator
Hygiene level factors are the benefits the credit card gives to the cardholder, viz. the
3-Cs-Credit, Convenience and Confidence.
Differentiators are the categories to which the card is positioned. Standard
Chartered found that there exists a polarization in the differentiators. The competitors
have positioned their cards mainly either for the upper-end market or for the
lower-end market known as premium or vanilla cards respectively. So they found a
segment which comes not from the very upper class or affluent society but the upper
middle class which has a fairly good income and want to have a status symbol to
create a good image with a bankcard. Of course, it is also a convenient instrument for
purchases in the absence of cash.

Target Market and Market Segmentation

The main factors in selecting the target market are looking at the purchasing power
and spending habits of certain geographic and demographic segments of the
population. As India is a diverse country with most of its population residing in rural
or semi-urban parts of the country, it is quite obvious for a credit card company to
look for this huge market which is largely untapped, but Standard Chartered found
some limitations to tap this market.
The first limitation is that, as it is a service-based industry, it is not feasible for
Standard Chartered to expand their branches or take the services of other banks.
Second, the laws regarding the credit cards are not that strict to expand business so
diversely to the remote comers of the country.
One of the considerations in selecting the card market is assessing the spending
pattern vis--vis purchasing power of the target segment. Though in semi-urban
areas the purchasing power of the people is comparable to that of urban areas, their
spending pattern is totally different. Urban populace is more inclined to spending
mostly in the luxury items or for recreation and travel, which is a potential fee earner
for credit card operators.
So Standard Chartered defined their target market as middle class urban
population, which regularly spends some amount of money on travels, recreation,
etc., and are secured enough to pay back their dues. That doesnt mean that Standard
Chartered did not look at other segments of the market, but the focus was more on
this segment.
Standard Chartered segmented the population in different categories based on
their annual income and further on the basis of their profession whether in service
(private or public sector) or self-employed businessmen, professionals like doctors,
lawyers, and chartered accountants. The benefit of segmenting the target customers
is that it is easier for the bank to do credit and behaviour rating in the event of issuing
them credit cards. It is also useful in developing different products for different
categories of the market segment.

9.

Marketing Strategy
As a new entrant to the card market, which was already full of players, it was difficult
and challenging for Standard Chartered to define their marketing strategy. But the
determination to become market .leader was fully embedded in the employees of
Standard Chartered. The head of the credit card operations of Standard Chartered in
India was a great motivator of the employees.
The four Ps of their marketing strategy are:

Product
Place
Price
Promotion

The First P of Marketing Mix-PRODUCT

Developing the ring product was very crucial for Standard Chartered as the market
was already flooded with a number of cards. The product here includes not just the
card but a host of benefits that come with the card chat induces the customer to buy and
use the card. After carefully studying the market, Standard Chartered finally came out
with three different cards aimed at three different segments. These cards are:
1. Gold
2. Executive
3. Classic
The following eligibility criteria for these cards can give a fairly good idea of the
segment at which they are targeted.
Card
Gold

Executive

Classic

Eligibility Criteria
Gross income (per year)
Salaried Rs. 120,000 and above
Self-employed Rs. 100,000 and above
Age should be over 21 and below 60
Gross income (per year)
Salaried Rs. 90,000 and above
Self-employed Rs. 50,000 and above Age
should be over 21 and below 60 Gross
income (per year)
Salaried Rs. 60,000 and above
Self-employed Rs. 50,000 and above Age
should be over 21 and below 60

10.

Besides this, Standard Chartered gained mileage over its competitors by coming
out with a totally innovative concept in the credit card history of India, that is, Photo
Card. Now every Standard Chartered card has the photo of cardholder, thereby
reducing the chances of possible misuse in case of card loss. Though the customers
liability is very limited in case of card theft and misuse, but still the cardholder is
very much worried of the possible misuse of cards. Thus, introducing the photo card
has helped Standard Chartered improve the membership of their card.
The product development at Standard Chartered is a continuing process and they
always look for better ways to satisfy the customers. Continuing with this process,
Standard Chartered came out with another product called Cricket Card. They
launched this when cricket fever was in full swing during the Cricket World Cup in
1996.

Eligibility Criteria

Gross Income (per year)

Salaried Rs. 60,000 and above
Self-employed, Rs. 50,000 and above
Age should be over 21 and below 60

With all the fanfare of cards and sophisticated concepts of marketing, what the
customer ultimately is bothered about is the benefits he is getting by owning a credit
card. According to Standard Chartered, credit card provides three core benefits or
3-Cs:
Credit
Convenience
Confidence
But with increasing competition, the cardholder banks are now tying up with more
and more retailers, supermarkets, restaurants, hotels and travel agencies to provide
more and more benefits for using credit cards. They also induce extra use of credit
cards, which ultimately helps increase revenue for the bank.

The Second P of Marketing Mix-PLACE

Standard Chartered chose to remain only in the urban market. It has offices in the 10
major cities of India, namely, Ahmedabad, Bangalore, Baroda, Calcutta, Chennai,
Coimbatore, Mumbai, New Delhi, Pune and Secunderabad. But a cardholder need
not be a resident of any of these cities. The active sales force of the company get the
customer from every part of the country, but the only condition is that the collection
banks branch should be located in that city.
The reason why Standard Chartered is concentrating only on urban areas is
because of the limitation of the service branches (as this is a service dominated
business) and the high disposable income of people in the urban areas.

11.

The Third P of Marketing Mix-PRICE

Standard Chartered survives on various fees that it charges from the customers and
retailers. There are mainly three kinds of fee:
1. Inter-charge fee: This is the fee that it charges with the retailers when they
receive payments of purchase made by the customers from their
establishments. It is mainly the processing fee and is a nominal charge. It
varies from 1.5 to 2.5%. .
2. Annual fee: This is a fixed charge, which a cardholder pays annually to it.
The annual fee structure for various cards of Standard Chartered are as
follows:

Entrance
Annual
Fee
Additional Card Fee

Gold

Executive

Classic

1500
1500
1000

350
950
575

200
600
400

Cricket
200
750
300

3. Credit card fee: This is the fee charged by the cardholder bank for the
revolving facility availed by the customer. Revolving is nothing but paying
less than the. outstanding bill. Standard Chartered allows as much as 95%
revolving that one needs to pay just 5% of the total outstanding at a time.
The fee is charged on the amount not paid. The rate of credit is 2.5%.

The Fourth P of Marketing Mix-PROMOTION

.

Standard Chartered is doing whatever it can to promote its cards. The

promotional activities of Standard Chartered are mainly aimed at providing
maximum benefits to the customers. The promotional measures are also aimed at
increasing the card membership and development of card market as a whole. Some
of the promotional activities that have helped Standard Chartered increase its card
membership are:
.

1. Launch of photo card in June 1995, which was a new concept in India
.
2. Launch of cricket cards, the first 1000 cricket card holders were eligible for
a free Timex watch and every subsequent one, a free
Onida FM Headphone radio set valid till 15 March 1996.
3. Reduction of cash advance fee valid till March 1996.

The sales promotion of Standard Chartered is aimed at providing additional card

benefits to the cardholders. Some of the privileges enjoyed by the Standard
Chartered card holders are:

12.

Widest acceptance. Standard Chartered credit card is accepted in over

60,000 establishments in India and Nepal.
Cash advance limit-up to 40% of the credit limit. The cash advance fee is
2.5% of the value of cash transaction.
Credit period-52 days for Gold Standard and 50 days for Executive and
Classic.
Revolver facility-Just have to pay 5% of monthly outstanding at the end of
the month for a fee of 2.5%.
Free insurance. It is among the highest personal accident insurance
protection available.
Emergency cash withdrawal schemes-24 hours customer service centers at
selected places.
Teledraft. Draft is delivered at the doorstep. All that is needed is a phone
call.
Flexilimit. For additional card, the entire credit limit is available across the
card.
Mutual funds can apply for selected mutual funds and charge them to credit
card.
Petrol against card. Card is accepted at select HPCL and IOC petrol bunks.
Exclusive great life offers. Round-the-year promotional offers for the
family:
- Convenient consumer durable financing schemes
- Specially designed holiday packages
- Promotional offer on products and services.
Special privileges at select hotels. 10-20% discount on room tariff.
Free stay for spouse. Express check-in and check-out at no extra charge.
Airport lounges. Access to business lounges and to fax, telephone,
Telex and secretarial services at select cities.
Car rentals. Discount up to 10%.
Railway credit card counters. Short queues at these counters.
Special travel service. Air tickets delivered at your doorsteps; hotel room
reservations.
Special facilities at hospitals. 10-20% discount in select hospitals.
Lost card liabilities. Nil for all Photo Card and Gold Card members; Rs.
1000 for others.

Service
As the performance of the credit card industry is highly dependent on the service
provided by them, Standard Chartered has made it a top priority. It is

13.

.1

Investing over Rs. 5 crores in technology that will speed up service as well as help
increase customer base. New divisions of ATM network have begun functioning
from Bangalore and other cities. The ATMs also provide access to Circus and Plus
ATM network of MasterCard and Visa, both of which account for 150,000 ATMs
worldwide.
Standard Chartered has invested Rs. 2 crores in AT&T telecommunications .systems; this has given a fillip to their marketing services. From September
1996. The technology helped customers get a machine response in 24 hours.
The division at Bangalore has upgraded its technology for credit and behaviour
scoring to reduce the benchmark from the present 21 days to 10 days. The software to
run this operation-Application Processing System-is obtained from Standard
Chartered Bankcard Division in Hong Kong. This enables them to take quick
decisions on the numerous applications (on an average 520-530 applications per day)
they receive daily for membership. A proprietary work linked to mainframe in Hong
Kong Division via the 64 kbps dedicated line will contribute to streamlining the
efficiency of their customer service. To give high priority for quality, Standard
Chartered has also installed quality system in their operations.

Advertising
The need for advertising in this business is no that pronounced as in a purely
product-based business. The advertising in the case of Standard Chartered is very
focused. According to the head of Bangalore Centre, Advertising is the artillery
that creates awareness. Direct sales is the infantry that marches out and gets
account.
The focus of advertising is to communicate the benefits of credit cards to the
possible customers and remove their fears and misconception about the credit cards.
Though they have as many as four cards, the advertising aims at developing brand
equity for Standard Chartered.

Sales
The main business of Standard Chartered is developed by direct sales. The reason for
this is: however strong your advertising is, customers never bother to come and buy
credit cards as another product. Another reason that a large number of prospective
customers are yet to realise the importance of credit cards is that it is necessary to
stimulate them to buy by bringing out the hidden need. For this, a highly trained and
motivated sales force is required. There are around 1000 sales persons working for
Standard Chartered on commission basis. One very innovative scheme is Member
get Member scheme in which existing members are given incentives for getting
more members.

14.

Priorities of Standard Chartered in the Future

To increase the base of customers, Standard Chartered has made customer service its
top priority in the future. Waiting time for customers will be reduced in every area,
including that for membership. All the operations, which have direct dealing with the
customers, are to be computerised with state-of-the-art technology.

RECENT SCENARIO
The credit card business in India has come a long way since the entry of Standard
Chartered in 1992. The attitude of the people towards credit cards has changed. The
Indian credit card market is in its growth phase, it recorded; a growth of about 33% in
March 20031 since this business is 11 volumes business, it is a favourable turn of
events.
. . Standard Chartered has moved swiftly to cash in on this. Commenting, on the
strategy of the bank for Asia. The former CEO Rana Talwar said, It is a huge region
of opportunity and not many multinational banks take Asia seriously. We saw the
Asian crisis as a huge opportunity. We wanted to buy cheaper Asian assets to
dramatically expand our base in the region and we have accomplished most of the
goals,?
Stanchart has been the biggest acquirer of Asian banking assets since 1998. It
bought Thailands Nakorthon Bank and the global trade financing business of Swiss
financial group UBS. In April 2000, it paid $1.3 billion to acquire Grindlays Bank
from Australias ANZ Bank. Grindlays is the largest foreign bank in South Asia-with
a huge retail presence in India, Pakistan, Sri Lanka, Bangladesh as well as several
Middle East countries like Bahrain and UAE. In August 2000, it acquired the retail
banking operations of Chase Manhattan in Hong Kong. This makes Stanchart the
biggest single credit card issuer in the territory, ahead of HSBC and Citibank.
The banks Indian operations have seen high growth from. 1999-2000. Its net
profit has grown to Rs. 315 crores, which is more than double of the previous year.
Our growth strategy is on the right track and the performance of each business
clearly suggests that Stanchart is gaining momentum, said Stanchart (India)
Regional General Manager and Chief Executive (India), John Fimeridis.
The half-year comparative statements for the period end 30:06-2oo2} and
30-06-2003 are shown in the Table E1.1.

CONSOLIDATED CASH FLOW STATEMENT

Reconciliation between operating profit before taxation and net cash inflow from
operating activities:

15.

TABLE El.l
Standard Chartered Bank Half-yearly Expenditure Statement (30
June 2000 and 30 June 2003)
(US$, million)
30.06.03
Operating profit
Items not involving cash flow:
Amortization of goodwill
Depreciation and amortization of premises and equipment
Loss on disposal of tangible fixed assets
Gain on disposal of investment securities
Amortization of investments
Charge for bad and doubtful debts and contingent liabilities
Amounts written off fixed asset investments
Debts written off, net of recoveries

741

31.12.02

634

628

68
89
1
(19)
(16)
407

308
6
(494)

(365)

88
100
2
1
(32)
305
8
(576)

42
(452)

(149)
109

(107)
(125)

239

208

(47)
(2,099)

122
10
424
(17)
(46)
2,559

5,320

3,043

(152)

(972)
(104)
(158)

(615)
128
(415)

313
286
451

1,672

960

3,818

Balance at beginning of period

Exchange translation differences

3,496
7

3,549
81

3,050
(20)

Net cash inflow/(outflow)

160

(580)

466

Balance at end of period

3,663

3,050

3,496

Increase/(decrease) in accruals and deferred income

(Increase)/decrease in prepayments and accrued income
Adjustments for items shown separately:
Interest paid on subordinated loan capital
Premium and costs on repayment of subordinated liabilities
Net cash inflow from trading activities
Net increase in cheques in the course of collection
Net increase in treasury bills and other eligible bills
Net (increase)/decrease in loans and advances to
banks and customers
Net increase/(decrease) in deposits from banks,
customer accounts and debt securities in issue
Net (increase)/decrease in dealing securities
Net (increase)/decrease in market-to-market adjustment
Net (decrease)/increase in other accounts
Net cash inflow from operating activities

67

30.06.02

108
(48)
12

529
(73)
(14)
(2,856)

967

(:)

Analysis of changes in cash

The customer base of the credit card business for Stanchart as on end-March 2003
stood at 1.2 million. It grew at a rate much higher than the market rate of 33%. With
the entry of private and public sector banks to the market, customer acquisition and
retention may hold the key to growth. Since Stanchart operates in the service industry
top priority should be accorded to customer service to secure future growth. The
future looks promising.