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The Profile
Athens-based Eurobank EFG banking group, was established in 1990, and offers a full range of banking products aimed at individuals, corporations and institutions. Employing over 17,000 people, it is Greece’s leading provider of consumer loans and credit cards, small business lending, SME lending and mutual fund management.
Its subsidiary, Eurobank Cards SA, is the largest consumer lending organisation in the region with 2 million credit card customers and 60,000 merchants generating revenues of over 2 billion euros per year. It is one of only 13 banks in Europe with more than 1 million Visa credit cards in circulation and processes up to 8000 new applications each day for all types of consumer lending products. Eurobank Cards SA sustains annual growth in volumes of 20% and is expected to continue doing so over the next 5 years.
Business Challenge
As the leading player in a local consumer lending market reaching maturity, Eurobank EFG could not significantly further increase its dominant 30% share in the Greek market. It therefore looked to export its successful business model to other areas in South East Europe and focused on Romania, Bulgaria, Serbia and Cyprus.
Although Eurobank EFG had some knowledge of the local markets in these territories through subsidiary banks it owned, consumer credit was a largely unknown and unproven concept. Its product offering therefore required a series of unique selling points to attract new business and a flexible multi-country issuing systems architecture that could scale-up as demand dictated without incurring additional costs.
TSYS Card Tech Solution
Eurobank chose TSYS Card Tech’s card and merchant management software, PRIME, and ONLINE authorization and switching engine, to support all its international issuing and acquiring credit card business in the target expansion markets. Central to its decision was PRIME’s innovative Instalments product which provided a delivery platform for the range of USPs Eurobank had identified as crucial for customer acquisition.
The multi-country, multi-institution, multi-currency and multi-lingual functionalities offered by the PRIME solution were further enhanced by additional functionality provided by PRIME Collector, Scorer and Rewards modules.
Background
Eurobank Cards used its subsidiary, Bulgarian Retail Services (BRS), to begin its expansion campaign by issuing and acquiring the Euroline credit card in Bulgaria in January 2003. This proprietary brand was to be launched as a revolving credit card in all countries and would be backed up by quick and simple application procedures, good customer service and a wide distribution network.
Eurobank EFG adopted a two-stage strategy to build market share from scratch. Phase 1 would concentrate on quick market penetration by capitalizing on the financing element of the proprietary Euroline product. The focus of its Fast Credit approach was to attract Point Of Sale financing merchants, such as those offering domestic and electrical appliances, travel packages, mobile phones, furniture and home improvements.
Phase 2 of the strategy involved increasing card usage by developing the Euroline card as a payment tool. After reaching a critical mass of cardholders, the focus would shift to POS transaction merchants, with particular emphasis on travel and entertainment vendors, high street shops, petrol stations and supermarkets.
Challenges
Eurobank EFG international expansion programme presented a range of business and technical challenges. Firstly, the Balkan territories have limited experience of credit and therefore only a few scoring agencies exist. Secondly, the high risk of bad debt would require thorough verification procedures. Also, once Eurobank EFG began its marketing campaigns, speed was of the essence in order to circumvent competitors.
As such, technical implementations needed to offer fast, cost-effective speed to market and be sufficiently adaptable to offer flexible localization for each territory. Business issues aside, the crucial technical challenge was the classic one — how do you quantify system requirements to meet unknown demand?
Implementations
Eurobank EFG chose to solve these challenges through a Fast Credit system based on interest-free instalments. Managed by PRIME’s Instalments module, the system enabled credit applications to be initiated at the point of transaction via POS terminal or over the internet.
Pre-approval of purchases was able to take place in as little as one hour and, coupled with interest free credit, proved a very strong incentive to customers. Cardholders prefer instalments because fixed monthly sums are easier to understand than a minimum payment concept and acquirers see the potentially significant new revenue streams derived from instalment discounting as a strong differentiating advantage for the acquirer’s POS terminals.
PRIME Instalments uses a parametric system design offering a number of options at both the issuer and acquirer level. Cardholders can be assigned a special limit for instalment transactions and the acquirer chooses when to start generating the instalments (next day, 1 month later, specific day each month). No interest is charged by the system - the transaction amount is split into equal monthly instalments.
On the issuing side, monthly instalments are treated by the system like normal sales drafts. Merchants have two payment options available — either regular monthly payments, on the instalment anniversary date, or a single payment based on agreed discount rate.
To further accelerate Eurobank EFG fast market penetration, TSYS Card Tech developed an online application processing component, Web Credit, which interfaced directly with PRIME’s New Cards module and enabled merchants to submit applications over the web, view their status in real-time and benefit from even shorter response times.
The PRIME solution was implemented by BRS and TSYS Card Tech in Bulgaria in less than three months.
Benefits
Eurobank EFG was able to benefit from its custom PRIME solution in a number of important ways.
PRIME provided a cost-effective, reliable, future-proof vehicle with which to quickly penetrate the target territories and rapidly increase market share. The company was also able to reduce costs and benefit from efficiency savings by employing a centralized administration solution — and benefit from easier and cheaper support.
Since a single PRIME hub could be applied across all locales, and was sufficiently flexible so as to enable multi-currency, multi-language portfolio management, new products developed for one country could be quickly applied to others. Indeed, PRIME’s built-in new product templates made it possible for Eurobank EFG to develop custom solutions itself.
Results
Since launching in Bulgaria in 2003, Eurobank EFG has now issued over 1 million cards in Bulgaria, Romania, Serbia and Cyprus and attracted 25,000 merchants in the process. Proof of the success is perhaps best shown by the BRS experience in Bulgaria where the company made 1.5m euros profit in its first year — this after provision for bad debt. The Eurobank EFG Fast Credit mechanism accounted for nearly 80% of BRS card acquisitions with 68% of POS transactions comprising Instalment payment schemes.
Eurobank EFG now accounts for 47% of the total card issuing market in Bulgaria and just under 40% in Romania.
The Future
Eurobank EFG plans to extend its international expansion into Poland in 2006 where projected volumes should yield healthy profits. Within the territories it has already penetrated it intends to begin adding brands to its proprietary Euroline card. Mastercard, Visa and American Express brands will be added in 2006 — the latter is already onboard in Bulgaria and Romania. In addition, Eurobank EFG will also begin to offer a range of value-added banking services to its Euroline card in these territories.
Conclusions
Eurobanks EFG successful deployment of its Euroline card in previously virgin territories has shown that it's not only possible, but profitable, to create your own solution on a relatively limited investment. By using TSYS Card Tech PRIME as the selected platform to drive this expansion it has benefited from a fast, cost-effective, reliable, low maintenance solution that offers scalability and customization.
With market penetration further substantiated by the introduction of PRIME Instalments and Web Credit module for new applications, Eurobank EFG has proven that financial institutions in the cards market don’t need a Payment Association to be profitable — they can add the brands later.