NAB Bulks Up on Credit Cards

NAB Buys Citibank’s Australian Consumer Business?

NAB spends A$1.2 billion (a very good price) to buy Citibank’s Australian consumer business, the biggest piece is credit cards.

Moves NAB into second place in cards/unsecured – Westpac now last of four majors!

NAB is Visa only – Citi is Mastercard so sets up battle royal between the associations.

FIS will be desperate to retain NAB as outsource client.

Will NAB retain Coles and Qantas the major card partners Citi has?

The key for NAB is retaining key Citi people e.g. Choong Yu Head of Cards and his team in Sydney – also challenge NABs myopic docklands view – senior management will have to spend time in Sydney to avoid talent drain.

Biggest obstacles – untangling the raft of spaghetti that is Citi’s operations – 65% processing is done in Singapore – vs other sites.

CREDIT CARDS

It’s not the $36 billion – that is total receivables, which includes transactors (which make no money) – it’s the $20 billion of revolving balances that’s the key – which by international standards is very low.

Average balance owing $20 billion or 15% below 12 months ago with average balance per card?- A$1231 or US$946 which is very low by international standards, USA US$8076, UK US$6674.

Australians starting switching to debit cards in 2009 – this trend has just increased e.g. debit use in April $36 billion up $10.6 billion from prior year (almost as much as BNPL’s $11 billion annually).

Debit growing at double digits vs credit and BNPL in single digits.

BNPL HAS PEAKED

BNPL has certainly peaked in Australia, New Zealand and mainland Europe –

Total Australian annual retail consumer payments $1.5 trillion.

Australia 70.1 million cards spending $741 billion

National Payment Platform (NPP/Osko) 7.1 million users with $632 billion

Cash and ATMs $113 billion,

BNPL 5.8 million users with $11 billion,

Cheques $4.7 billion

?

Afterpay last six months ANZ sales down 3.3% which includes Q2 sales down a massive 18.6%

Global BNPL app leader Klarna has made no significant penetration in ANZ – just reduced rates to zero.. why?

Citi buyout will test NAB’s 'exclusive alliance' with Visa

BANKING DAY?10 August 2021

National Australia Bank is set to stir strategic tensions with global card schemes Visa and Mastercard after revealing it would pay A$1.2 billion to buy Citi Australia’s consumer banking assets.

Under a deal announced to the ASX on Tuesday afternoon, NAB said it would acquire Citi’s $7.9 billion mortgage book and almost $4.3 billion of unsecured lending (mostly credit cards), along with $9 billion of retail deposits.

If the deal is approved by regulators NAB will also pick up the personal charge card and buy now pay later businesses of Citi’s Diners Club subsidiary.

NAB and Citi have not yet clarified whether Diners’ corporate charge card portfolio, which includes a lucrative Commonwealth Government mandate, is included in the sale.

However, NAB noted in footnotes to its ASX announcement that it had agreed to acquire all shares in the Diners Club subsidiary “subject to certain additional conditions”.

While ACCC boss Rod Sims told Nine Media in July he would “take a very, very close look” if the Citi business was sold to a major bank, the market share implications of the sale are unlikely to upend the deal.

The prospects of the deal securing approval from the competition regulator are enhanced by NAB’s woeful record in the credit card market.

NAB has been a chronic underperformer in credit card issuing for more than two decades and the addition of Citi’s $3.5 billion credit card portfolio will make it only the second largest player in the product segment behind Commonwealth Bank ($8 billion).

While NAB’s credit card portfolio will almost double to around $7.4 billion, the strategic value of the deal will be mostly in acquiring Citi’s product development and marketing capability.

Around 800 Citigroup staff, including senior management, will join NAB as part of the deal.

In many ways the deal might amount to something of a reverse takeover of NAB’s ailing cards operation and could prompt speculation that card gurus at Citi’s head office in Sydney, such as Choong Yu Lum, will eventually squeeze out incumbent NAB executives.

As head of Citi’s cards business, Choong Yu has spearheaded a raft of product developments in recent years including the soon-to-be-launched Spot buy now pay later platform.

The elevation of Citi’s payments executives within NAB could also prompt the group to relocate its cards operation from Melbourne to Sydney.

Another fascinating feature of deal is that NAB – a long term strategic partner of Visa – will acquire a credit card business squarely aligned with Mastercard.

That’s a dichotomy bound to foster strategic tension within the merged cards business, but would ultimately strengthen NAB’s bargaining hand if it decides to wring an exclusive issuing deal with one of the schemes.

But it raises questions about the future of NAB’s strategic alliance with Visa.

NAB and Visa are more than halfway through a ten year alliance that has seen the global card scheme help develop new digital payments products for the Melbourne-based bank.

Under the terms of the alliance that began in November 2015 NAB agreed to be an exclusive issuer of Visa cards.

The substance of that arrangement is about

?

?