payment cards and interchange banking enquiry, south africa competition commission
TRANSCRIPT
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Payment Cards and InterchangeBanking Enquiry,South Africa Competition Commission
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Agenda
• Payment Systems and Role of Interchange – Carl Munson, Associate General Counsel, MasterCard
• Economic Function of Interchange– Christian Koboldt, DotEcon
• Competition in the MasterCard scheme– Webber Wentzel Bowens
• MasterCard in South Africa– Eddie Grobler, General Manager, Africa, MasterCard
• Setting Interchange in South Africa: Status Update– Caleb Raywood, SAMEA Region Counsel, MasterCard
• Concluding Remarks
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South Africa: The Card Payments
Landscape
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Agenda
• MasterCard’s Business
• The Economy: MasterIndex
• Payment Channel Trends
• Fraud / Risk
• Product Trends
• Summary
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Leading, globally integrated technology platform
1 billion cards in consumer pockets, useable at +25 million locations
40 years of virtuallyflawless execution One corporation
operating across 210 markets
“Priceless” global brand
Partner withover 25,000 financial
institutions worldwide
We have unsurpassed relationships, skills, and market position
Franchisor
ProcessorAdvisor
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MasterCard’s processing solutions are global, flexible, and trusted to deliver value
• Over 16 billion clearing transactions
• 36 billion messages
• $1.2 trillion settled
• Capacity to handle 140 million transactions/hour
• 127 millisecond response time
• 99.999% network availability
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The Economy: MasterIndex
• Research study conducted twice a year
• Banked individuals between the ages of 18-64
• The MasterIndex has a range of 0 to 100 with 50 as the mid-point
– A score of 50 denotes no change in consumer confidence or a neutral situation
– A score of above 50 indicates consumers are optimistic about quality of life over the next six months. The higher this score is, the higher the consumer confidence
– A score below 50 indicates consumers are pessimistic
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The Economy: MasterIndex
• Geared towards providing economic signals for the future 6-month period, thus making it possible to monitor economic turning points
• Five factors evaluated:
– Employment
– Economy
– Regular income
– Stock market
– Quality of life
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Overall South Asia Middle East Africa MasterCard MasterIndex 2005 vs 2006
98.5
78.173.1
86.5
78.2
67.671.2
90.7
59.262.3
94.597.3
65.1
80.0
0
10
20
30
40
50
60
70
80
90
100
Kuwait South Africa Saudi Arabia Egypt UAE India Lebanon
2nd Half 2005 2nd Half 2006
• Consumer in South Africa most optimistic for future 6 month period in non oil producing countries.
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All SA categories are positive
50
55
60
65
70
75
80
85
90
95
100
REGULARINCOME
ECONOMY MASTERINDEX STOCKMARKET
QUALITY OFLIFE
EMPLOYMENT
1H2004 2H2004 1H2005 2H2005 1H2006 2H2006
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Per Capita disposable income
Source: SARB
54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 068000
9000
10000
11000
12000
13000
14000
15000
16000
• Increase in disposable income of black majority.
• Increase in personal wealth and disposable income – trend to save less and spend more.
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Payment Channels
‘000 Units 2004 2005 2006
POS terminals 525 568 655
ATM’s 13.2 14.0 15.2
POS: 25% growth over 2 year period
ATM: 15% growth over 2 year period
Internet: Transactions increased with more than 500% over the past 5 years (Estimated value: R9.5 billion (7,5%), 14.5 million (4,8%) transactions)
Source: Euromonitor International: 4Q, 2006
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Fraud
R million 2001 2002 2003 2004 2005 2006
Counterfeit cards
4.9 5.8 6.5 7.5 9.4 12.2
Cards stolen 10.4 11.9 13.0 15.1 18.8 24.5
Other * 5.0 5.9 6.5 7.6 9.5 12.3
Value 20.3 23.6 25.9 30.1 37.7 49.0
* ID Fraud: New trend
Function of increased acquisition, and “fraud migration”
Source: Euromonitor International: 4Q, 2006
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Product Trend: Transaction 2001 - 2006
Source: Euromonitor International: 4Q, 2006
0
50
100
150
200
250
300
350
2001 2002 2003 2004 2005 2006
ATM transactions Debit transactions Credit card transactions
Charge card transactions Store card transactions
Million
tra
nsacti
on
s
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Product Trend: Value 2001 - 2006
Source: Euromonitor International: 4Q, 2006
0
50000
100000
150000
200000
250000
2001 2002 2003 2004 2005 2006
Transactions ATM transactions Debit transactions
Credit card transactions Charge card transactions Store card transactions
R m
illion
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Product Trend: Number of Cards
Source: Euromonitor International: 4Q, 2006
0
5
10
15
20
25
30
35
2001 2002 2003 2004 2005 2006
Financial cards in circulation ATM function Debit function
Credit function Charge card function Store card
mn
Card
s
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Cash, Charge Cards, Store Cards and Co-branded Cards
• Cash versus Card (Debit and Credit)
– Cash dominated: More than 85% of transactions
• Charge cards under performs:
– 6% decrease of number of cards in circulation
– Credit cards, debit cards and corporate cards a more attractive option
• Store Cards: Increasing unpaid debts
• Co-branded cards
– Increased focus
– Virgin Money (Absa): Low interest rates and no annual fees
– Kulula Card (FNB): Loyalty program
– Edgars (SBSA): No annual fees
– Voyager (Nedbank): Loyalty program
– Pick ‘n Pay Go Banking (Nedbank)
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Product Trend: EMV Smart Card
• Acceptance infrastructure
– POS
– ATM
• Issuance: 2H, 2007
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Summary
• POS channel growth (Merchant demand)
• Strong growth in debit card (transactions and value) Migration from ATM.
• Credit- and debit cards (4 party) growing faster than charge- and store cards (3 party).
• Co-brands: Attractive alternative for retailers, impact on current business model.
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Thank you.