The BDO JCB 4Gives Credit Card*

Magaan sa budget, pay in 4Gives

Background In January 2008, Rhoda Tatco was appointed product manager for BDO JCB credit cards. Before she assumed the post, the only JCB brand carried by the bank was JCB 4Gives. Because of the poor performance of JCB 4Gives in the preceding periods, funding for marketing efforts were focused on the JCB International Gold card and the previous year's low budget for the JCB 4Gives has been reduced further for the year beginning April 2008. In 2007, its limited budget afforded the product minimal exposure and a two-pose contract with its endorser which may be used in marketing collaterals only within the year. The new budget is now even lower at 20% less than the endorser's fee alone. Ms. Tatco feels that JCB 4Gives could do well in the market if only she could come up with a suitable marketing strategy. The Company BDO Unibank is the product of a rare event in the banking industry - the acquisition of a significantly larger bank by a smaller player - Equitable PCI Bank being acquired by Banco de Oro Universal Bank in early 2007. A feat precedented only by Equitable Bank's acquisition of PCI Bank. Prior to the acquisition, Banco de Oro has already built a remarkable reputation as a universal bank, providing a wide range of corporate, commercial, retail, and investment banking services in the country. On the other hand, EPCI laid claim to a proven track record in commercial banking, middle market and SME lending, trust, leasing, and remittances. Both have reaped numerous awards from prestigious international publications. The merged institution is now the second-largest bank in the country with a vast distribution network of more than 680 branches and over 1,200 ATMs nationwide. It has also recently acquired the American Express business in the Philippines, including the American Express Philippines US Dollar and Peso Card portfolios through its purchase of 100% equity in the American Express Savings Bank. BDO is an affiliate of the country's biggest department store chain and mall developer, SM Investments Corporation, and is owned by the countrys second wealthiest individual today, Henry Sy, Sr. The Product
* For a better understanding of the case, a briefer on how credit cards generally work is attached as Exhibit 1. The case focuses on the card-issuing function.

Among the varied corporate and consumer financial services offered by BDO are commercial credit cards for private individuals. It carries a number of credit card brands tied up with any of the four different providers: Visa, Mastercard, JCB, and American Express. (Exhibit 2 shows the various BDO credit card brands along with their general target markets.) JCB 4Gives credit card is JCB Easy Pay, rebranded and repackaged after Equitable PCI was acquired by Banco de Oro. JCB Easy Pay was first launched The look of the new JCB 4Gives Card by Equitable PCI in 2004 and offers the same cashless payment convenience as any other credit card but with a different payment scheme. The card is modeled and branded after the hulugan scheme which is almost always present in workplaces in the Philippines. In order to capitalize on the idea, payment due dates are set on paydays, the 15th and the 31st of the month. Hence, unlike the regular credit card, it has two billing cycles each month with fixed cut-off dates (3rd and 18th of the month) and an automatic add-on interest rate of 8% for two months. Payment for purchases are divided into four billing periods (two months) and total amount due for each bill are demandable in full. With the JCB Easy Pay's sluggish performance since it was introduced, BDO saw the opportunity to repackage and improve the product as the recent acquisition and change in company name made product relaunch inevitable anyway. Hence, the new JCB 4Gives was redesigned and positioned as the 'perfect starter card'. It primarily targets the minimum and regular income earners with regular standards of living who generally fall under the bank's mass market category. It attempts to segment this category further by appealing to the lower C and upper D classes, particularly those with blue-collar jobs. The cards tagline, Magaan sa budget, pay in 4Gives, is intended to emphasize the products chosen position, as the affordable credit card that offers the lightest and most flexible way to manage expenses. BDO, through the revitalised product, aims to tap the vast market of uncardables those without credit history and/or with income that do not meet the required minimum for regular credit cards. In fact, it claims to provide the following benefits to the cardholder: Extends spending capacity Provides discipline in spending i.e., avoid long term credit with high interest A first card that offers cashless payment convenience

Apart from its distinct payment scheme, JCB 4Gives also offers the following features: 4 Installments - Purchases are automatically divided into 4 installments spread over 2 months with an add on-rate of 1.5% for every 15 days. Simple Membership Requirements - Minimum monthly salary requirement is a low P7,500 with no guarantor required (unsecured). Or a deposit of at least P3,000 for a Secured JCB 4Gives and a minimum monthly salary of P5,000. Annual Fee of P300 which can also be paid in four (4) equal payments. Worldwide Acceptance Peso Billing Cash Advance of up to 30% of credit limit 24-hour Customer Service SMS Statement of Account rendition Lowest credit limit floor of P3,000 Approved cards are delivered by courier to the clients preferred address. (Exhibit 3 shows the welcome kit that is sent along with the credit card.)

Targets The primary objective for launching JCB 4Gives is to expand BDOs total card base by 40,000 on its first year by the tapping the mass market which accounts for 60% of the working class. This addition to the card base shall be used as a source of prospective real credit card customers, hence providing the bank with a reliable channel while taking a relatively lower risk (with the assignment of low credit limits) than issuing regular cards or personal loans to uncardables.

The Launch Roll-out date for the product was on April 23, 2007. It was launched simultaneously at BDO and Equitable Card Network (ECN).1 Radio (DZBB AM radio, 90.7 Yes FM) and print advertisements in major newspapers/magazines (Philippine Daily Inquirer, Philippine Star, Libre, YES magazine) as well as posters, standees, flyers, (in branches and frontlines2) and public transport-related collaterals (FX stickers and MRT coach wraps and tube cards) were used to promote product awareness. A page each was also dedicated to the product in the bank's BDO and ECN websites. (Some of these marketing collaterals are shown in Exhibit 4.) Upon roll-out, card application forms were made available through the following channels:
1 Despite the integration of Equitable PCI Bank operations into BDO, the Equitable Card Network could not be fully assimilated due some technicalities with respect to Equitable's existing co-brand cards. 2 Booths set-up by Direct Sales [Unit] at malls and other high-traffic areas

1. Direct Sales Agents - main acquisition channel 2. BDO Frontline - kiosks located in high-traffic areas, e.g. SM malls 3. 700 BDO Branches nationwide Results Based on data compiled by the end of the sixth month (October), year-end targets are unlikely to be met. Where cards in force (number of cards issued) should be about 75% of the targets, actual statistics show that they have approved only about 47%. Total number of applications received is only about 26% of the expected/targeted turn-ins. Total amount of billings (revenue) for 2007 was also below target since card volume was way below projection. However, it is twice the projected amount on a per card basis while receivables are four times the amount expected because of delinquencies resulting mostly out of the JCB Easy Pay cards issued in the past. The bigger concern for Ms. Tatco remains to be the actual number of cards-in-force since this product is primarily aimed at generating a bigger card-base for the company by tapping a segment of the market that is currently untapped by competitors. The Competition Other credit cards available in the market and their features that may be of significance to JCB 4Gives's possible target markets are: Citibank Clear Visa/Mastercard Enjoy the advantage of the largest card base in the country with Citi having a total of more than one million two hundred thousand cards in force. Being a product of Citi, it also enjoys superior technology, streamlined operations, efficient processes, and the best customer support systems with the banks commitment to customer satisfaction and highlyempowered Citiphone officers. The companys recent thrusts are built around customer satisfaction, and thus, a larger portion of the banks resources are dedicated to customer service. - Minimum annual income requirement of P120,000 - P90 monthly fee - 'Mini' version may be availed for an additional monthly fee of P50 - Finance charge (effective) rate is 3.25% per month - Rewards revolving cardholders with cash rebates up to a maximum of P5,000 per year. - Worldwide discounts and privileges - CitiBank OnLine facility for utility and other bills payment - Installment payment schemes for selected transactions with the following regular rates:

HSBC Visa and Mastercard Classic Since the Citi came out with releases of having reached the one million card base mark last year, HSBC has launched aggressive efforts in gaining on Citi's lead. In a few months' time, it boasts of reaching the same one million mark, a feat that took Citi several years to achieve. Currently has around 1.1 million total cards in force. - Annual income requirement of at least P100,000 (only P2,500 higher than JCB 4Gives) - Annual fee of P1,000. - Finance charge rate of 3.5% per month. Discounts and freebies at partner merchants Rewards program (1 peso for every P10 usage) Installment payment schemes for selected transactions for 3-, 6-, 12-, 18-, and 24-month tenors, and during promotional periods, also for 4-, 8-, and 14month tenors. Internet Banking facility for settlement of utilities and other bills BPI Express Credit Classic Provides two credit lines that are convertible from one to the other: one line for regular purchases and another for Special Installment Plan (SIP). It imposes finance charges only on unpaid past due transactions unlike cards issued by other banks that impose such charges on revolvers average daily balances including recent transactions. However, it is accepted only by selected local merchants. To date, cards in force are in the 700,000 range. - Requires a minimum fixed monthly income of P10,000 - Annual fee of P1,250 - Monthly finance charge rate of 2.99%. - One free supplementary card for life - Free card insurance package which includes Lost Card Insurance, Credit Protect (pays outstanding card balance on event of cardholders accidental death, and Travel Insurance) - Rewards program (1 point for every P20 charged) BPI offers the only EMV-compliant (Europay-MasterCard-Visa) chip card in the Philippines hence, providing better security and flexibility in some markets and environments by enabling secure offline transactions. Standard Chartered Bank D3 Visa Defy flat... The hip card. The only credit card offered in the country that has a unique 3-dimensional effect.

Minimum annual income requirement of P120,000 Monthly fee of P100 Finance charge rate of 3.5% per month Option to pick the 15th, 18th or 29th of the month as due date Installment payment schemes for selected transactions for 3-, 6-, 12-, 18-, and 24-month tenors Rewards program (1 point for every P10 usage)

Metrobank 'M and M Lite (new product, released in 2008) Mastercards The only credit card with no annual fees (M Mastercard)/2.49%. Thats interest in your best interest (M Lite). - Minimum annual income requirement of P120,000 - Annual fee of P1,400 for M Lite, M Mastercard offers free membership - Finance charge rate of 3.5% and 2.49% per month, respectively - Installment payment schemes for selected transactions for 3-, 6-, 12-, 18-, and 24-month tenors - Discounts and freebies at partner merchants Metrobank has the biggest depositor base, to the advantage of its credit card products. With a highly reliable database of names that are prospective clients, Metrobank holds the third highest number of cards in force today. BDO, however, is fast gaining in terms of depositor-base. BDO ShopMore Mastercard The credit card of CHOICE at SM. Soon after the SM Advantage Card clicked, BDO released the ShopMore Mastercard using SM Advantages database as initial list of prospective clients. - Minimum annual income requirement of P120,000 - Interest rate of 3.25% - Installment Facility (3-, 6-, 12-month schemes) - Card available in 4 colors (Blue, Green, Orange & Pink) - Discounts and Freebies - World-wide acceptance - Rewards program (1 'SM peso' per P100 charged to card) Aside from above features, all competing brands provide for an automatic debit facility for utility bills and insurance premiums.

The Market Demographics and Preferences As of the last quarter of 2007, BDO has around 300,000 cards-in-force. This number is derived after cleaning up the banks database and closing long inactive accounts. Before clean-up, (which is the current status of all other major card-issuing banks), the company ranked third in terms of total number of cards in force at 900,000 cards. This is not surprising as stiff competition in the industry tends to drive card-issuers to encourage cardholders to maintain their credit cards even if they find no use for them because of the numerous credit cards that they already own. This results in high figures for total cards-in-force with a corresponding high proportion of inactive accounts.

Because the credit card industry in the Philippines is relatively young, card-issuing entities as well as prospective cardholders remain conservative. This is evident in the stringent credit approval processes of most card-issuers and the seeming reluctance and hint of aversion of the market as compared with other countries with more mature credit card industries. There are generally three types of cardholders the cardholders who pay their full amounts due each month are called transactors; those who pay amounts between the total and the minimum amounts due are revolvers; and those who hardly pay even the minimum amounts due are the delinquents. The ratio of revolvers to total cardholders is inversely proportional to their income brackets, meaning, the lower the salary group, the higher the proportion of revolvers in the group. The banks credit card portfolio for the past year was profiled but the only notable observation derived from such is that there is a significantly higher number of female than male cardholders for non-premium credit cards. These regular cards account for 81% of the total card base, 67% of which is comprised of women.

Exhibit 1: Credit Cards in the Philippines The credit card industry started aggressively infiltrating the Philippine market sometime in 1992 when the Equitable Card Network launched its products. The following year, Citibank began their active campaign for the introduction of their credit cards to the Filipinos lifestyle. Today, all major banks in the country have their own credit card brand as part of their product portfolios. How Credit Cards Work A credit card transaction moves generally along the cycle illustrated below:

2. Demands payment (e.g. discounted at 3%)

MerchantAcquirer

MerchantClient

3. Demands payment (e.g. discounted at 2%)

1. Buys goods on credit at full retail price

Payment Network

Cardholder

4. Demands payment (e.g. discounted at 1%)

CardIssuer

5. Demands payment of full retail. Otherwise, subjected to finance (revolving credit) or carrying (fixed installment) charges

Three Common Credit Card Industry Functions 1. Card-Issuance Credit cards are issued by banks in partnership with several major retail electronic payments network brands (such as Visa, Mastercard, American Express, JCB, and Diners Club) to individuals and/or corporations. Each credit card is assigned a credit limit which is the maximum amount that a cardholder may use as payment for transactions with merchant-clients. A monthly cut-off date is also assigned to the cardholder which is the date when all transactions made beginning the day after the previous months cut-off shall be billed to the cardholder. Payment become due after 15-24 days from cut-off. The cardholder has the option to pay the total amount due in full or a minimum portion as prescribed by the bank on or before the due date. No finance charge is applied if the total amount due is paid in full on or before the due

date, otherwise, the cardholder becomes a revolver and is billed finance/interest charges (usually between 2.49-3.75% per month) on the accounts average daily balance in addition to the principal balances. Failure to pay the minimum amount on the due date results in the imposition of a late payment fee equivalent to a percentage (ranging from 5-7%) of the unpaid minimum) or a fixed amount (anywhere between P300-700), whichever is higher. 2. Transaction-Processing Transactions paid using credit cards are recorded using a point-of-sale terminal which is connected to the merchant-acquiring banks system. Charge slips (2-3 copies: one for merchant-clients reference, one for submission to merchant-acquirer, and one for cardholders reference) corresponding to the details of the transaction are issued and affirmed by the cardholder to acknowledge his obligation to the card-issuer and as the merchant-acquiring banks proof of transaction for purposes of collecting from the payment network service provider. The latter pays the merchant-acquirers at a discounted rate. Merchant-Acquiring Merchant-clients receive discounted but immediate payment from merchant-acquiring banks for credit card transactions. This provides convenience and greater security for merchants than granting in-house credit lines to customers. Definition of Relevant Terms Average daily balance The average of total transactions per day Merchant-acquiring banks Act as collection agents of merchants who accept credit cards as payment for goods that they sell EMV-compliant technology EMV is the acronym for Europay, Mastercard, and Visa, the three companies which initially cooperated to develop a standard for interoperation of integrated circuit (IC) cards ("Chip cards") and IC capable point-of-sale terminals and ATM's, for authenticating credit and debit card payments. (It works just like the usual electronic payment systems that require keying-in of PIN codes for validation except that instead of the magnetic stripe, information is stored in an IC chip.)

Exhibit 2: BDO Card Products and Primary Target Markets:

Market Segment

Brand/Position

Mass market - minimum and regular JCB 4Gives: Uniquely Pinoy way of income earners with regular paying standards of living (based on BDO ShopMore Mastercard: Your spending activities) card of choice at SM Middle market earners with a standards of living regular income Classic Visa relatively high Gold Visa: The Dual Currency Card BDO Gold MasterCard: thats FREE for life The card

Mass affluent - high-income earners

Elite - VIP bank clients determined Travel Card Titanium MasterCard: based on average relationship Your VIP card, security card, and balance flight companion rolled into one Platinum MasterCard: Have it All Specialized market specific needs those with American Express (Classic/Gold): The perfect companion card to your Visa or Mastercard BDO Home MasterCard: The card with free accident insurance and rebates on Meralco payments Commercial cards - corporations Classic/Gold Corporate Visa

Exhibit 3: Welcome Kit

Welcome Envelope

Tutorial Guide

Exhibit 4: Other Marketing Collaterals

Print Ads (7 x 40 cm)

Coach Wraps

Tube Cards