Natwest Group Plc · LSE:NWG
Natwest — The Royal Bank of Scotland Group — Retail Direct Conference 2004
175 slides from Natwest's conference presentation, Oct 4, 2004
Slide 1: Sir Fred Goodwin, Group Chief Executive
Sir Fred Goodwin Group Chief Executive
Slide 2: RBS Group Structure
Slide 3 RBS Group Structure CUSTOMERS • Coutts • Direct Line • RBS Cards • Personal • Personal • Large Corporates - RBS • Ulster Bank • Personal • NatWest Cards • Small Business • Mid Corporates and • First Active • Adam • Churchill • Small Business • Business • MINT • RSA Commercials-RBS/NW • Perso
Slide 3: RBS Group Structure
Slide 4 RBS Group Structure CUSTOMERS • Coutts • Direct Line • RBS Cards • Personal • Personal • Large Corporates - RBS • Ulster Bank • Personal • NatWest Cards • Small Business • Mid Corporates and • First Active • Adam • Churchill • Small Business • Business • MINT • RSA Commercials-RBS/NW • Perso
Slide 4: Group Operating Profit
Slide 5 Group Operating Profit 2003 2002 Change Change £m £m £m Corporate Banking and Financial Markets 3,620 3,261 359 +11% Retail Banking 3,126 3,019 107 +4% Retail Direct 873 701 172 +25% Manufacturing (1,875) (1,762) (113) -6% Wealth Management 438 454 (16) -4% RBS Insurance 468 355 113 +32% Uls
Slide 5: Retail Direct Agenda
Slide 6 Retail Direct Agenda 10.35 Introduction and Overview Chris Sullivan 11.00 Card Issuing Iain Clink 11.25 Merchant Acquiring Tony Surridge 11.40 Coffee Break 12.10 The One Account Jayne-Anne Gadhia 12.20 Tesco Personal Finance Jim Macdonald 12.30 International and Conclusion Chris Sullivan 13.
Slide 6: Retail Direct Introduction and Overview
Retail Direct Introduction and Overview Chris Sullivan Chief Executive, Retail Direct
Slide 7: Retail Direct
Slide 8 Retail Direct June 2004 Total customers (million) 18.6 Total assets (£bn) 25.9 Total employees 8,900 Operations in UK, Europe and US
Slide 8: Principal UK Operations
Slide 9 Retail Direct Principal UK Operations ▮ Edinburgh ▮ Glasgow ▮ London ▮ Southend ▮ Manchester ▮ Norwich ▮ Harrogate ▮ 7,200 employees
Slide 9: Continental European Operations
Slide 10 Retail Direct Continental European Operations ▮ Germany ▮ Netherlands ▮ Belgium ▮ Austria ▮ Ireland ▮ Hungary ▮ 800 employees
Slide 10: United States Operations
Slide 11 Retail Direct United States Operations ▮ People’s Bank credit card businesses* ▮ Kroger partnership** ▮ Lynk Systems* ▮ 900 employees * Nationwide ** Kroger present in 32 states
Slide 11: Retail Direct 2003 Results
Slide 12 Retail Direct 2003 Results 2003 2002 Change £m £m Net interest income 849 749 +13% Non-interest income 986 841 +17% Total income 1,835 1,590 +15% Direct expenses 657 601 +9% Contribution before provisions 1,178 989 +19% Provisions 297 281 +6% Contribution 881 708 +25% 2003 and 2002 restated
Slide 12: 2003 Income £1,835m
Slide 13 Retail Direct 2003 Income £1,835m Other International 4% 5% Tesco Personal Finance 19% Cards Business The One account 57% 4% Own Brand Businesses 11%
Slide 13: 2003 Income £1,835m
Slide 14 Retail Direct 2003 Income £1,835m Net interest income 46% Non-interest income 54%
Slide 14: 1H04 Results
Slide 15 Retail Direct 1H04 Results 2004 2003 Change £m £m Net interest income 453 400 +13% Non-interest income 544 468 +16% Total income 997 868 +15% Direct expenses 345 310 +11% Contribution before provisions 652 558 +17% Provisions 172 147 +17% Contribution 480 411 +17% 2003 restated following tr
Slide 15: Grow Income
Slide 16 Grow Income Total Income £m 2,000 1,500 1,000 500 0 2000 2001 2002 2003
Slide 16: Grow Income
Slide 17 Grow Income Total Income £m 2,000 1,500 1,000 500 0 1H00 1H01 1H02 1H03 1H04
Slide 17: Improve Efficiency
Slide 18 Improve Efficiency Direct Cost:Income Ratio % 50 40 30 20 10 0 2000 2001 2002 2003 1H04 2003 and earlier years restated following transfer of certain activities to Manufacturing
Slide 18: Contribution to Group Profit
Slide 19 Contribution to Group Profit Contribution £m 1,000 800 600 400 200 0 2000 2001 2002 2003 2003 and earlier years restated following transfer of certain activities to Manufacturing
Slide 19: Contribution to Group Profit
Slide 20 Contribution to Group Profit Contribution £m 1,000 800 600 400 200 0 1H00 1H01 1H02 1H03 1H04 2003 and earlier years restated following transfer of certain activities to Manufacturing
Slide 20: Retail Direct
Slide 21 Retail Direct CUSTOMERS Cards Business Own Brand The Tesco International Businesses One Personal account Finance Card Merchant Insurance Personal Savings Mortgages Retailer Issuing Acquiring Loans Cards Phone Internet Post RBS/NW Partners Intermediaries Group Operating Platform
Slide 21: Retail Direct
Slide 22 Retail Direct CUSTOMERS Cards Business Own Brand The Tesco International Businesses One Personal account Finance Card Merchant Insurance Personal Savings Mortgages Retailer Issuing Acquiring Loans Cards Phone Internet Post RBS/NW Partners Intermediaries Group Operating Platform
Slide 22: Customers
Slide 23 Customers June 2004 million United Kingdom 14.8 Continental Europe 2.3 United States 1.5 Total customers 18.6
Slide 23: Retail Direct
Slide 24 Retail Direct CUSTOMERS Cards Business Own Brand The Tesco International Businesses One Personal account Finance Card Merchant Insurance Personal Savings Mortgages Retailer Issuing Acquiring Loans Cards Phone Internet Post RBS/NW Partners Intermediaries Group Operating Platform
Slide 24: Cards Business Card Issuing
Slide 25 Cards Business Card Issuing ▮ 10.9 million customer accounts in UK ▮ Products – Personal credit cards (Visa and MasterCard) – Commercial cards, for business customers ▮ Distribution by direct mail, phone, internet, branches and through partners
Slide 25: Cards Business Merchant Acquiring
Slide 26 Cards Business Merchant Acquiring ▮ 0.3 million merchant customers in UK ▮ Enables merchant customers to accept payments by cards in store, by phone and internet ▮ Distribution through RBS/NatWest relationships with merchants, by direct sales force and via intermediaries
Slide 26: Own Brand Businesses
Slide 27 Own Brand Businesses ▮ 0.5 million customer accounts in UK ▮ Products include personal loans and mortgages ▮ Distribution by direct mail, phone and internet and via intermediaries
Slide 27: The One Account
Slide 28 The One Account ▮ 160,000 customer accounts in UK ▮ Current account mortgage combines mortgage, personal loan, savings account and credit card with a current account ▮ Distribution by phone and internet and through intermediaries
Slide 28: Tesco Personal Finance
Slide 29 Tesco Personal Finance ▮ 4.6 million customer accounts in UK ▮ Products include credit cards, motor insurance, personal loans, savings ▮ Leaflets in store, execution by phone, post and internet
Slide 29: International: Europe
Slide 30 International Europe ▮ Comfort Card – retailer cards ▮ Santander Direkt credit cards and loans business ▮ Direct loans ▮ Tchibo – retailer partnership, loans ▮ BIBIT – merchant acquiring
Slide 30: International: United States
Slide 31 International United States ▮ People’s Bank credit card businesses ▮ Kroger – retailer partnership, credit cards ▮ Citizens/Charter One – credit cards ▮ Lynk Systems – merchant acquiring
Slide 31: Retail Direct
Slide 32 Retail Direct CUSTOMERS Cards Business Own Brand The Tesco International Businesses One Personal account Finance Card Merchant Insurance Personal Savings Mortgages Retailer Issuing Acquiring Loans Cards Phone Internet Post RBS/NW Partners Intermediaries Group Operating Platform
Slide 32: Products
Slide 33 Products Own The Tesco Cards Brand One Personal Business Businesses account Finance Credit cards * Retailer cards Creditor insurance Personal loans * Savings * Mortgages Merchant acquiring Motor/home insurance Others * * Products included in current account mortgage
Slide 33: Products
Slide 34 Products June 2004 million Personal Customers Credit cards 12.1 Retailer cards 2.6 Motor/home insurance 2.2 Personal loans 0.6 Savings 0.5 Mortgages 0.2 Others 0.1 Total 18.3 Commercial Customers Merchant acquiring 0.3
Slide 34: Balances
Slide 35 Balances June 2004 £bn Credit cards 10.7 Retailer cards 0.9 Personal loans 4.8 Mortgages 8.8 25.2 Savings 4.4
Slide 35: Retail Direct
Slide 36 Retail Direct CUSTOMERS Cards Business Own Brand The Tesco International Businesses One Personal account Finance Card Merchant Insurance Personal Savings Mortgages Retailer Issuing Acquiring Loans Cards Phone Internet Post RBS/NW Partners Intermediaries Group Operating Platform
Slide 36: Channels
Slide 37 Channels Own The Tesco Cards Brand One Personal Business Businesses account Finance Phone Internet Post RBS/NatWest Partners Intermediaries
Slide 37: Retail Direct
Slide 38 Retail Direct CUSTOMERS Cards Business Own Brand The Tesco International Businesses One Personal account Finance Card Merchant Insurance Personal Savings Mortgages Retailer Issuing Acquiring Loans Cards Phone Internet Post RBS/NW Partners Intermediaries Group Operating Platform
Slide 38: Credit Card Centre – Southend
Slide 39 Credit Card Centre – Southend
Slide 39: Comfort Card – Dusseldorf
Slide 40 Comfort Card – Dusseldorf
Slide 40: Lynk Systems – Atlanta
Slide 41 Lynk Systems – Atlanta
Slide 41: Employee Opinion Survey
Slide 42 Employee Opinion Survey Retail Direct 2003 v UK Financial Services norm* Employment Security Workload and Stress Job Satisfaction Management Leadership Training and Development Customer Focus and Quality Communication Total Reward Image and Competitive Position Performance Management Employ
Slide 42: Group Operating Platform
Slide 43 Group Operating Platform Retail Direct Supported by Group Operating Platform ▮ IT systems – Cards issuing and acquiring – Current account mortgages – Loans, insurance ▮ Operations – Telephony/internet – Account management, payments and insurance underwriting ▮ Support – Purchasing – Propert
Slide 43: Market Position in UK
Slide 44 Market Position in UK #1 in card issuing #1 in merchant acquisition #1 in supermarket banking #1 in current account mortgages
Slide 44: What are the required characteristics for growth?
Slide 45 Retail Direct What are the required characteristics for growth?
Slide 45: Required Characteristics
Slide 46 Retail Direct Required Characteristics ▮ Large customer base ▮ Strong brands ▮ Low cost acquisition channels ▮ Diversity of income ▮ Low operating costs ▮ Good credit skills ▮ Able to make partnerships work ▮ Able to grow new businesses ▮ Able to make good acquisitions
Slide 46: Retail Direct Introduction and Overview
Retail Direct Introduction and Overview Chris Sullivan Chief Executive, Retail Direct
Slide 47: Card Issuing
Card Issuing Iain Clink Managing Director, Cards Business
Slide 48: 2003 Income £1,835m
Slide 49 Retail Direct 2003 Income £1,835m Other International Tesco Personal Finance Cards Business The One £1,056m account Own Brand Businesses
Slide 49: Credit Cards Business
Slide 50 Credit Cards Business Issuing bank issues card to cardholder
Slide 50: Credit Cards Business
Slide 51 Credit Cards Business Issuing bank Cardholder issues card to makes cardholder purchase with card
Slide 51: Credit Cards Business
Slide 52 Credit Cards Business Issuing bank Cardholder issues card to makes cardholder purchase with card Transaction information captured by acquirer
Slide 52: Credit Cards Business
Slide 53 Credit Cards Business Statement Cardholder to cardholder makes purchase with card Settlement Transaction with issuing information bank captured by acquirer
Slide 53: Card Issuing
Slide 54 Card Issuing Issuing bank Cardholder issues card to makes cardholder purchase with card Settlement Transaction with issuing information bank captured by acquirer
Slide 54: Card Issuing: Sources of Income and Costs
Slide 55 Card Issuing Sources of Income ▮ Interest income on borrowing on cards ▮ Interchange from spending on cards ▮ Fee income from insurance, forex, cash and others Costs ▮ Funding balances, including interest free period ▮ Operations, including staff ▮ Marketing and loyalty schemes ▮ Bad debt p
Slide 55: Merchant Acquiring
Slide 56 Merchant Acquiring Issuing bank Cardholder issues card to makes cardholder purchase with card Settlement Transaction with issuing information bank captured by acquirer
Slide 56: Merchant Acquiring: Sources of Income and Costs
Slide 57 Merchant Acquiring Sources of Income ▮ Merchant service charge on spending on cards ▮ Rental from terminals provided to merchants Costs ▮ Operations and sales, including staff ▮ Terminal depreciation and maintenance ▮ Telecommunications
Slide 57: Cards Business 2003 Income £1,056m
Slide 58 Cards Business 2003 Income £1,056m Fee income from insurance, forex, cash and others 21% Net interest on borrowing 37% Merchant service charge 20% Interchange income on spending 22%
Slide 58: Cards Business 2003 Income £1,056m
Slide 59 Cards Business 2003 Income £1,056m Non-interest income Net interest 63% income 37%
Slide 59: Credit Cards Business
Slide 60 Credit Cards Business Issuing bank issues card to cardholder Card Issuing
Slide 60: Personal Credit Cards
Slide 61 Personal Credit Cards Customers ▮ Transactor – Card is convenient way of spending – Pays off full amount each month – No interest charge ▮ Borrower – Card allows flexible financing of spending – Must pay off at least minimum amount each month – Monthly interest charge
Slide 61: RBS Personal Credit Cards
Slide 62 RBS Personal Credit Cards Split by Number of Accounts Borrowers Transactors 29% 71% June 2004
Slide 62: RBS Personal Credit Cards: Customer Propositions
Slide 63 RBS Personal Credit Cards Customer Propositions ▮ Transactor – RBS and NatWest brands – Air Miles loyalty scheme rewards spending on card – Competitive interest rate for occasional borrowing ▮ Borrower – MINT brand – Low interest rate, aimed at quality borrowers – Easy balance transfers
Slide 63: Multi-Brand Strategy
Slide 64 Multi-Brand Strategy High Average Spending Per Account Medium Low Low Medium High Average Balance Per Account
Slide 64: Recruiting New Customers
Slide 65 Recruiting New Customers
Slide 65: Recruiting New Customers
Slide 66 Recruiting New Customers RBS and NatWest Credit Cards ▮ Distribution mainly through RBS/NatWest branches – Automated sales prompts e.g. current account opening, customer service reviews – Branch staff incentivised by Retail Direct to sell credit cards – Cards income and direct costs in Reta
Slide 66: Recruiting New Customers
Slide 67 Recruiting New Customers RBS and NatWest Credit Cards Internet 13% Branch Post/Phone 74% 13%
Slide 67: Recruiting New Customers
Slide 68 Recruiting New Customers
Slide 68: Recruiting New Customers: MINT Credit Cards
Slide 69 Recruiting New Customers MINT Credit Cards ▮ Distribution via direct marketing: – Customer can apply by internet, phone, post ▮ Direct mail skills developed in RBS Advanta (established as JV in 1995) – Acquisition of quality customer lists – Pre-screening of target customers for risk – Deve
Slide 69: Recruiting New Customers
Slide 70 Recruiting New Customers
Slide 70: Internet Application - Site Comparison
Slide 71 Recruiting New Customers Internet Application - Site Comparison Benefits Security features Validation of data Customer functionality Customer presentation MINT Other providers Source: Intelligent Environments Group plc, May 2004
Slide 71: Recruiting New Customers: MINT Credit Cards
Slide 72 Recruiting New Customers MINT Credit Cards Post/Phone Internet 59% 41%
Slide 72: Profile of Credit Card Brands
Slide 73 Profile of Credit Card Brands Market Shares RBS NatWest MINT Share of accounts 3% 7% 3% Share of turnover 2% 10% 1% Share of balances 3% 6% 5% Credit quality prime prime prime Source: APACS, 12 months to June 2004, does not include other RBS brands, commercial cards and retailer cards
Slide 73: Managing Credit Risk
Slide 74 Managing Credit Risk RBS Application Credit Scoring ▮ Credit scoring is used to predict an applicant’s probability of default ▮ RBS uses various sources of information to score credit risk and set credit limit, including: – Application form – Credit bureaux
Slide 74: Managing Credit Risk: Credit Bureaux
Slide 75 Managing Credit Risk Credit Bureaux ▮ There are two major credit bureaux in the UK: – Experian – Equifax ▮ Credit card issuers can use credit bureau information for: – Credit scoring – Identity checks – Address verification ▮ Issuers cannot use credit bureau information for marketing
Slide 75: Managing Credit Risk: Credit Bureaux
Slide 76 Managing Credit Risk Credit Bureaux ▮ Bureaux collect data on consumer attributes/behaviours ▮ Bureaux do not hold identical data ▮ Credit information supplied by lenders – Number of credit applications – Credit defaults in the last six years – Repayment history – Balance outstanding and cr
Slide 76: Managing Credit Risk
Slide 77 Managing Credit Risk RBS Application Credit Scoring ▮ Based on various attributes and behaviours including: – Home ownership – Time with existing bank – Existing borrowing – Credit bureaux information RBS Credit Limits ▮ Based on: – Credit scoring – Income
Slide 77: Credit Scorecards
Slide 78 Managing Credit Risk Credit Scorecards ▮ Bureaux can provide their own generic scorecards ▮ RBS scorecards are: – Specific to different brands: RBS/NatWest, MINT – Built using data from both bureaux ▮ RBS uses own experience to continually update scorecards ▮ RBS benefits from large data ba
Slide 78: Setting Cut-Offs
Slide 79 Managing Credit Risk Setting Cut-Offs ▮ Set minimum credit score for each scorecard ▮ Trade-off between pass rate and loss rate ▮ Vary cut-off score in light of experience ▮ RBS focuses on cards with lower risk/lower income
Slide 79: Managing Credit Risk
Slide 80 Managing Credit Risk Sub Prime Near Prime Prime Risk Higher Lower Income Provisions Volatility
Slide 80: RBS Behavioural Credit Scoring
Slide 81 Managing Credit Risk RBS Behavioural Credit Scoring ▮ Ongoing credit scoring of active accounts: – Based on account behaviour – Calculated monthly for all active accounts ▮ Based on factors such as: – Credit limit utilisation – Type of spending – retail v cash – Pattern of repayments
Slide 81: Problem Account Management
Slide 82 Managing Credit Risk Problem Account Management ▮ Early stage – First missed payment triggers process – Focus on restoring relationship to normal behaviour – Highest risk accounts prioritised automatically l eg amount at risk, behavioural score – Early contact made through outbound power di
Slide 82: Illustration: Collections Strategy
Slide 83 Managing Credit Risk Illustration: Collections Strategy Payment This Month Y N Previously Paid N Y Age of Account >6 (months) Balance 0 - 1999 2000 - 3999 >4000 (£) Behavior Score - Risk H L H M L H M L Days 5 No Call Letter Call Call Letter Action 10 Call Letter Call Letter Letter Call Let
Slide 83: RBS delinquency experience is better than the industry
Slide 84 Managing Credit Risk RBS delinquency experience is better than the industry % of Total Portfolio Balances – 3 Payments Delinquent 0.8 RBS Cards Industry 0.6 0.4 0.2 0.0 2001 2002 2003 1H04 Source: APACS; June 2004
Slide 84: Percentage of Portfolio Balances Greater Than 3 Payments Delinquent
Slide 85 Managing Credit Risk Percentage of Total Portfolio Balances Greater Than 3 Payments Delinquent % 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2001 2002 2003 1H04
Slide 85: Provisions
Slide 86 Managing Credit Risk Provisions ▮ Provisions automated, based on: – Amount of delinquent balances – Expected loss rate, according to number of missed payments ▮ Expected loss rates relatively stable over time ▮ Provide for expected loss at all stages of delinquency ▮ Trends fed back into fu
Slide 86: Balance Sheet Provisions as Percentage of Delinquent Balances
Slide 87 Managing Credit Risk Balance Sheet Provisions as a Percentage of Delinquent Balances Greater Than 90 Days % 100 80 60 40 20 0 2000 2001 2002 2003 2004
Slide 87: Fraud is an Industry Problem
Slide 88 Managing Fraud Risk Fraud is an Industry Problem ▮ Traditionally fraudsters: – Stole credit cards – Applied fraudulently for credit cards ▮ Recent fraud more organised and sophisticated: – Information taken from magnetic stripe – Stealing people’s identity
Slide 88: Managing Fraud Risk
Slide 89 Managing Fraud Risk ▮ Use of counterfeit/lost and stolen cards – Automated system for real time profiling of account behaviour, using neural network – All transactions are monitored – Exceptional transactions are identified eg mobile phone top-ups, unusual international payments – Customer
Slide 89: Managing Fraud Risk
Slide 90 Managing Fraud Risk ▮ Card not present – Remote transactions when card is used to make purchases by post, phone, internet – Fraud charged back to retailers ▮ Card not received – Secure mail used – Card has to be activated (by phone) ▮ Identity theft – Use other person’s details to apply for
Slide 90: Chip & PIN
Slide 91 Managing Fraud Risk Chip & PIN ▮ Industry initiative to reduce fraud losses: – Counterfeit card, lost and stolen, card not received ▮ RBS is industry leader ▮ By December 2004 RBS will have: – 85% bank-owned terminals Chip & PIN enabled – 7.1m Chip & PIN cards issued ▮ Major retailers alrea
Slide 91: Card Issuing
Card Issuing Iain Clink Managing Director, Cards Business
Slide 92: Merchant Acquiring
Merchant Acquiring Tony Surridge Managing Director, Acquiring
Slide 93: Credit Cards Business
Slide 94 Credit Cards Business Issuing Bank Cardholder Issues card to makes Cardholder purchase with card Settlement Transaction with issuing information bank captured by acquirer
Slide 94: Merchant Acquiring: Large Market
Slide 95 Merchant Acquiring Large Market ▮ Transaction value £230 billion in 2003 ▮ Transaction volume 5 billion in 2003 Growing Market ▮ Growth in value of retail sales ▮ Plastic substituting cash and cheques ▮ Additional acceptors of cards e.g. McDonalds Economies of Scale ▮ Leverage Group IT plat
Slide 95: RBS Market Position
Slide 96 Merchant Acquiring RBS Market Position #1 in UK #1 in Europe #4 globally #1 in UK by internet – WorldPay #1 in Europe by internet #1 in international multi-currency e.g. airlines – Streamline International
Slide 96: Merchant Acquiring Customers
Slide 97 Merchant Acquiring Customers ▮ Large/national retailers – e.g. supermarkets, petrol stations, high street chains – Retailer POS system linked to bank payments system ▮ Small retailers – e.g. corner shops, pharmacists, local professionals – Stand-alone terminal, BT line to bank
Slide 97: RBS Customers
Slide 98 RBS Customers Focus on Large Retailers Tesco Matalan M&S HMV Safeway WHSmith Boots Carpetright Next Somerfield Dixons Halfords Signet Do Merchant Acquiring for Other Banks Abbey National Australia Group
Slide 98: RBS Customers
RBS Customers JOHN LEWIS PARTNERSHIP 2) TESCO oe TOTAL BRITISH AIRWAYS HiMV GROUP PLO MARKS & SPENCER DEBENHAMS BRITAIN'’S FAVOURITE DEPARTMENT STORE
Slide 99: Recruiting New Customers
Slide 100 Recruiting New Customers Large/National Retailers ▮ Proposal prepared by specialist sales team in Merchant Acquiring, working with CBFM RM ▮ Key issues are technical competence (reliability), price ▮ Renewal process, normally every two or three years Small Retailers ▮ Mainly sold through b
Slide 100: Internet: WorldPay
Slide 101 Internet WorldPay ▮ 6% of retail sales, growing very rapidly ▮ WorldPay is Payment Service Provider – Focuses on small retailers – #1 in UK – Builds payments page for retailer website – Passes payments to RBS Merchant Acquiring – Generates additional source of revenue ▮ Strong internet cap
Slide 101: International Multi-Currency: Streamline International
Slide 102 International Multi-Currency Streamline International ▮ Specialist capability established for British Airways in 1992 – Allows customers to buy tickets in over 200 countries in 127 currencies – Able to settle for the retailer in any of 14 currencies – First acquirer in the world to build c
Slide 102: Risk
Slide 103 Risk ▮ Risk that retailer may default between payment for goods and delivery of goods e.g. furniture, carpets ▮ Merchant acquiring tender is treated like lending, with normal processes for credit approval, due diligence etc ▮ Patterns of spending are monitored, to give early warning of any
Slide 103: RBS Transaction Value
Slide 104 RBS Transaction Value Value of Payments Processed £bn 120 100 80 60 40 20 0 2001 2002 2003
Slide 104: RBS Transaction Value
Slide 105 RBS Transaction Value Value of Payments Processed £bn 120 100 80 60 40 20 0 1H01 1H02 1H03 1H04
Slide 105: Merchant Acquiring: over 400,000 transactions
Slide 106 Merchant Acquiring Since you arrived Streamline has processed … over 400,000 transactions
Slide 106: Merchant Acquiring
Merchant Acquiring Tony Surridge Managing Director, Acquiring
Slide 107: The One Account
The One Account Jayne-Anne Gadhia, Managing Director, The One Account
Slide 108: 2003 Income £1,835m
Slide 109 Retail Direct 2003 Income £1,835m Other International Tesco Personal Finance Cards Business The One account £72m Own Brand Businesses
Slide 109: The One Account
Slide 110 The One Account ▮ Introduced current account mortgages (CAM) to the UK ▮ Launched in 1997, joint venture with Virgin Direct ▮ RBS acquired 100% of the business in 2001 ▮ Successfully rebranded as ‘The One account’ in 2003
Slide 110: The One Account
Slide 111 The One Account Current Mortgage Savings Loan Card account account
Slide 111: One Account v Offset
Slide 112 One Account v Offset Benefits of The One account ▮ No need to sweep money between accounts ▮ No need to apply for overdrafts, loans or credit cards ▮ No multiple statements to reconcile ▮ No multiple interest rates
Slide 112: The One Account
The One Account Make G2 day today
Slide 113: Make One Day Today
Slide 114 Make One Day Today
Slide 114: Selling by Phone
Slide 115 Selling by Phone ▮ 600 inbound calls per day ▮ Call follows customer not Conversion Performance % script 16 ▮ Application completed 14 over the phone 12 ▮ Immediate credit 10 approval-in-principle given 8 for 25% of customers 6 ▮ Property valuation can be 4 instructed immediately 2 ▮ 15% o
Slide 115: Selling by Internet
Slide 116 Selling by Internet ▮ Step-by-step personalised illustration of account benefits ▮ Paperless application process ▮ 30% of internet contacts become customers (2001: 17%)
Slide 116: Selling Through Intermediaries
Slide 117 Selling Through Intermediaries ▮ Relationships with major national IFAs and mortgage brokers ▮ Individual broker relationships managed over phone with limited face-to-face support ▮ Broker can place business over the phone, fax or online
Slide 117: Customer Satisfaction
Slide 118 The One Account Customer Satisfaction % % customers very satisfied 90 % customers extremely satisfied 80 70 60 50 40 30 20 10 0 The One Other Providers account Source: NOP FRS Base: 6 months to end of June 2004
Slide 118: The One Account Customers
Slide 119 The One Account Customers % 50 40 30 20 UK Mortgage Market 10 The One account 0 AB C1 C2 D/E Source: NOP FRS
Slide 119: Customer Accounts
Slide 120 The One Account Customer Accounts 000s 180 160 140 120 100 80 60 40 20 0 2000 2001 2002 2003 1H04
Slide 120: Borrowing Facilities
Slide 121 The One Account Borrowing Facilities £bn 10 8 6 4 2 0 2000 2001 2002 2003 1H04
Slide 121: UK Financial Services New Entrants
Slide 122 UK Financial Services New Entrants Commenced Profit/(Loss) 2003 Scottish Widows Bank 1995 £17m Goldfish 1996 (£30m) The One account 1997 £27m Sainsbury’s Bank 1997 £22m Tesco Personal Finance 1997 £160m Egg 1998 (£34m) Standard Life Bank 1998 £5m Marbles 1999 not reported Smile 1999 not re
Slide 122: The Royal Bank of Scotland Group
Slide 123 The Royal Bank of Scotland Group ▮ Launched NatWest One account in 2001 ▮ RBS One account in plan ▮ Expertise utilised in launch of NatWest and RBS Offset ▮ Launched First Active brand in the UK in 2004 These are not reflected in Retail Direct results
Slide 123: The One Account
The One Account Jayne-Anne Gadhia, Managing Director, The One Account
Slide 124: Tesco Personal Finance
Tesco Personal Finance Jim Macdonald Chief Executive, Tesco Personal Finance
Slide 125: 2003 Income £1,835m
Slide 126 Retail Direct 2003 Income £1,835m Other International Tesco Personal Finance £346m Cards Business The One account Own Brand Businesses
Slide 126: Tesco Personal Finance: Business Model
Slide 127 Tesco Personal Finance Business Model ▮ 50:50 joint venture, established in 1997 – Not supplier relationship ▮ Financial products branded Tesco – Not RBS branded products for Tesco customers ▮ Broad range of personal financial products – Not just banking
Slide 127: Creating Value Through Partnership
Slide 128 Tesco Personal Finance Creating Value Through Partnership Distribution ▮ Leaflets in store, execution by phone and internet ▮ Tesco.com leading internet site in UK Low cost distribution Manufacturing ▮ RBS broad range of personal banking/insurance products ▮ RBS efficient manufacturing pla
Slide 128: Leaflets at Checkout
Slide 129 Tesco Personal Finance Leaflets at Checkout
Slide 129: Leaflets with Relevant Products
Slide 130 Tesco Personal Finance Leaflets with Relevant Products
Slide 130: Motor and Breakdown Insurance
Slide 131 Tesco Personal Finance Motor and Breakdown Insurance
Slide 131: Some Products "Off the Shelf"
Slide 132 Tesco Personal Finance Some Products “Off the Shelf”
Slide 132: TPF Sales Through Internet
Slide 133 Tesco Personal Finance TPF Sales Through Internet % 35 30 25 20 15 10 5 0 2000 2001 2002 2003 1H04
Slide 133: Tesco Personal Finance Products
Slide 134 Tesco Personal Finance Products 1997 ATMs, credit card, instant access savings, loans 1998 Home, travel insurance 1999 Motor, pet insurance 2000 Life insurance 2001 Instant travel insurance, travel money 2002 Car breakdown cover 2003 Instant car breakdown cover, mortgage life insurance 200
Slide 134: Clubcard Loyalty
Slide 135 Tesco Personal Finance ▮ 10 million active Clubcard holders ▮ Financial products offer Clubcard loyalty points ▮ Clubcard points can be converted into Tesco vouchers which can be used for shopping or other offers e.g. Deals
Slide 135: RBS Manufacturing
Slide 136 Tesco Personal Finance RBS Manufacturing ▮ RBS provides operational support to TPF through: – 13 call centres – 6 service centres – 3,300 fully trained staff ▮ TPF supported by Group IT platform ▮ RBS also provides risk management and fraud prevention expertise
Slide 136: Customer Satisfaction – Motor Insurance
Slide 137 Tesco Personal Finance Customer Satisfaction – Motor Insurance % % customers very satisfied 90 % customers extremely satisfied 80 70 60 50 40 30 20 10 0 TPF Other Providers Source: NOP FRS Base: 6 months to end of June 2004
Slide 137: Customers
Slide 138 Tesco Personal Finance Customers m 5.0 4.0 3.0 2.0 1.0 0.0 1997 1998 1999 2000 2001 2002 2003
Slide 138: Profit Before Tax
Slide 139 Tesco Personal Finance Profit Before Tax £m 160 120 80 40 0 -40 1998 1999 2000 2001 2002 2003
Slide 139: UK Financial Services New Entrants
Slide 140 UK Financial Services New Entrants Commenced Profit/(Loss) 2003 Scottish Widows Bank 1995 £17m Goldfish 1996 (£30m) The One account 1997 £27m Sainsbury’s Bank 1997 £22m Tesco Personal Finance 1997 £160m Egg 1998 (£34m) Standard Life Bank 1998 £5m Marbles 1999 not reported Smile 1999 not re
Slide 140: Europe – Partnership: TPF International
Slide 141 Europe – Partnership TPF International Tesco in Europe ▮ Ireland Jointly prioritised: – 85 stores, #1 supermarket – Size ▮ Hungary – Consumer finance – 62 stores, #1 supermarket attractiveness ▮ Poland – 70 stores, #1 supermarket ▮ Czech Republic – 22 stores, #3 supermarket Under evaluatio
Slide 141: TPF International: Ireland
Slide 142 Europe – Partnership TPF International Ireland ▮ Launched TPF in 2001 ▮ Products – Credit cards – Personal loans – Life insurance ▮ Distribution – In-store presence to raise awareness, as in UK – Application through direct mail, telephone, internet
Slide 142: TPF International: Hungary
Slide 143 Europe – Partnership TPF International Hungary ▮ Launched TPF in 2003 ▮ Products – Instalment finance card – Personal loans – Credit cards ▮ Distribution – In-store presence – Sales desks in 36 stores – Applications in-store
Slide 143: Tesco Personal Finance
Tesco Personal Finance Jim Macdonald Chief Executive, Tesco Personal Finance
Slide 144: International: Establishing Strategic Options
International Establishing Strategic Options Chris Sullivan Chief Executive, Retail Direct
Slide 145: 2003 Income £1,835m
Slide 146 Retail Direct 2003 Income £1,835m International Other £84m Tesco Personal Finance Cards Business The One account Own Brand Businesses
Slide 146: Retail Direct 2000
Slide 147 Retail Direct 2000 UK Europe US Consumer finance * Credit card issuing Merchant acquiring * RBS is active in US consumer finance via Citizens
Slide 147: Europe – Comfort Card
Slide 148 Retail Direct 2000 Europe – Comfort Card ▮ Point of sale finance: retailer-branded store cards ▮ Present in four European countries: – Germany, Netherlands, Belgium and Austria ▮ 1.6m customer accounts ▮ €750m balances
Slide 148: International Markets
Slide 149 International Markets 2003 UK Europe US Consumer finance* £122bn £529bn £715bn Credit card borrowing £54bn £17bn £412bn Card transactions** £230bn £802bn £1,258bn * Excluding credit cards ** Debit and credit card transactions Sources: Bank of England, Federal Reserve, European Central Bank
Slide 149: Approach to Internationalisation
Slide 150 Approach to Internationalisation ▮ Large attractive markets – Europe: Consumer finance – US: Credit cards ▮ Low risk entry strategy – Establish capabilities ▮ Export Retail Direct capabilities – Direct distribution – Partnerships ▮ Leverage Group capabilities – Acquisition and integration
Slide 150: Europe
Slide 151 Europe Organic ▮ Build Comfort Card ▮ Launch direct loans Partnership ▮ Tchibo Acquisition ▮ Santander Direkt credit card and loan portfolios ▮ BIBIT internet merchant acquiring business
Slide 151: Europe – Organic: Build Comfort Card
Slide 152 Europe – Organic Build Comfort Card ▮ Enhanced retailer recruitment – Telesales – Field force ▮ Introduced retailer staff training and incentivisation ▮ Broadened product range – Loan top-ups – Freestanding loans ▮ Improved product functionality: ATM access ▮ Balance growth 21% pa 2000 – 2
Slide 152: Europe – Organic: Launch Direct Loans
Slide 153 Europe – Organic Launch Direct Loans ▮ Launch direct personal loans – Germany in 2003, Netherlands 2004, Belgium 2005 ▮ Direct advertising by press and TV to generate customer applications ▮ Telephone and internet applications ▮ Instant decisioning ▮ €36m balances in first 12 months
Slide 153: Europe – Partnership: Tchibo
Slide 154 Europe – Partnership Tchibo ▮ Distinctive German retailer – Coffee – Non-food ▮ Over 900 stores nationwide ▮ 99% brand awareness in Germany ▮ 54% of customers visit shops at least once a week ▮ #3 German internet retailer ▮ Presence in other European markets – Austria, Hungary, Czech Repub
Slide 154: Europe – Partnership: Tchibo
Slide 155 Europe – Partnership Tchibo ▮ Exclusive partnership, formed 2004 ▮ Products – Fixed-term personal loan – Hybrid credit card/overdraft product, tailored for German market ▮ Distribution – In-store presence - leaflets, posters – Direct mail – Weekly magazine (1m circulation), mail order inse
Slide 155: Europe – Acquisition: Santander Direkt
Slide 156 Europe – Acquisition Santander Direkt ▮ Acquired July 2003 ▮ Based in Frankfurt ▮ 0.5m prime personal and commercial card accounts ▮ #8 Visa/MasterCard issuer in Germany ▮ #3 commercial credit card issuer in Germany ▮ €171m personal loan balances
Slide 156: Santander Direkt: Delivery of Transaction Benefits
Slide 157 Europe – Acquisition Santander Direkt Delivery of Transaction Benefits ▮ Personal loans business integrated into Comfort Card ▮ Credit card integration underway – Conversion to Group IT platform – Integration of operations with Comfort Card ▮ Cross-sales – Credit cards to existing Comfort
Slide 157: Europe – Acquisition: BIBIT
Slide 158 Europe – Acquisition BIBIT ▮ Acquired May 2004 ▮ Allows internet merchants to accept a wide range of debit payment methods in fragmented EU markets ▮ 75 payment types accepted – e.g. Carte Bleu (France), ELV (Germany) ▮ Service provided in 25 countries ▮ Customers are large international c
Slide 158: BIBIT: Delivery of Transaction Benefits
Slide 159 Europe – Acquisition BIBIT Delivery of Transaction Benefits ▮ Integration with WorldPay and Streamline International – Three IT systems into single Group platform ▮ Offer full pan-European internet merchant acquiring proposition – Credit and debit – SME and large corporates ▮ Cross-selling
Slide 159: United States
Slide 160 United States Acquisition ▮ People's Bank credit card business ▮ Lynk Systems Partnership ▮ Kroger Organic ▮ Citizens/Charter One customers
Slide 160: United States – Acquisition: People's Bank Credit Card Business
Slide 161 United States – Acquisition People's Bank Credit Card Business ▮ Acquired March 2004 ▮ Headquarters in Bridgeport, Connecticut ▮ #20 US credit card issuer ▮ Prime portfolio – 1.5m accounts – $2.3bn balances ▮ Nationwide distribution by direct mail ▮ Distribution through partner brands
Slide 161: People's Bank: Delivery of Transaction Benefits
Slide 162 United States – Acquisition People's Bank Credit Card Business Delivery of Transaction Benefits ▮ Business migrating to newly established RBS National Bank ▮ New call centre in Bridgeport ▮ Conversion to Group IT platform completed in 6 months ▮ First direct mailing under RBS brand in July
Slide 162: United States – Acquisition: Lynk Systems
Slide 163 United States – Acquisition Lynk Systems ▮ Acquired September 2004 ▮ Full service merchant acquirer, similar to Streamline in UK – Headquarters in Atlanta, Georgia – 9th largest US merchant acquirer – 74,000 merchants – Nationwide presence
Slide 163: Lynk Systems: Delivery of Transaction Benefits
Slide 164 United States – Acquisition Lynk Systems Delivery of Transaction Benefits ▮ Exploit RBS distribution – Citizens: 240,000 business customers – Charter One: 98,000 business customers ▮ Extend to medium and large corporate merchants ▮ Implement Streamline sales approach and processes ▮ Cost s
Slide 164: United States – Partnership: Kroger
Slide 165 United States – Partnership Kroger ▮ Exclusive partnership formed July 2004 ▮ Second largest US supermarket retailer ▮ 3,774 stores ▮ Present in 32 states across US ▮ Large customer base ▮ Established loyalty programme ▮ Multiple brands
Slide 165: United States – Partnership: Kroger
Slide 166 United States – Partnership Kroger
Slide 166: Kroger credit card launch
Slide 167 United States – Partnership Kroger ▮ Launched Kroger credit card integrated with loyalty programme ▮ First mailing to existing Kroger credit cardholders in July 2004 ▮ First mailing to Kroger loyalty cardholders in October 2004 ▮ Store rollout commencing October 2004 – 103 stores initially
Slide 167: United States – Partnership: Kroger
Slide 168 United States – Partnership Kroger
Slide 168: United States – Organic: Citizens/Charter One
Slide 169 United States – Organic Citizens/Charter One ▮ Distribute credit cards to Citizens and Charter One customers – Citizens 2.5m personal customers – Charter One 1.7m personal customers ▮ Marketing through branches and direct mail ▮ Customer applications through branch, phone, post and online
Slide 169: Retail Direct International Income
Slide 170 Retail Direct International Income £m 350 * 300 250 200 150 100 50 0 2003 2004 *1H04 pro forma annualised
Slide 170: Retail Direct 2004
Slide 171 Retail Direct 2004 UK Europe US Consumer finance * Credit card issuing Merchant acquiring * RBS is active in US consumer finance via Citizens
Slide 171: Conclusion
Conclusion Chris Sullivan Chief Executive, Retail Direct
Slide 172: Retail Direct Characteristics
Slide 173 Retail Direct Characteristics ▮ Large customer base ▮ Strong brands ▮ Low cost operation ▮ Diversity of income ▮ Good credit skills ▮ Able to make partnerships work
Slide 173: Summary
Slide 174 Retail Direct Summary ▮ Not only credit cards ▮ Not only lending ▮ Not only UK
Slide 174: Summary
Slide 175 Retail Direct Summary ▮ Range of different businesses – Brands, channels, products ▮ Vibrant businesses – Exciting prospects for future growth ▮ Have made important strategic moves – External capabilities outside the UK
Slide 175: Questions & Answers
Retail Direct Questions & Answers
The Royal Bank of Scotland Group — Retail Direct Conference 2004 on 6ix