PLAN OUTLINE

1. Executive Summary 2. Background 3. Vision 4. Mission 5. SWOT Analysis 6. Risks Associated With Credit Card Lending 7. Risk management Control System 8. Key Success Factors 9. Product Portfolio 10. Market/Competitor Analysis 11. Corporate Objectives 12. Corporate Strategy 13. Marketing Objectives 14. Market Segmentation and positioning 15. Market Segmentation and Positioning Strategy 16. Marketing Strategy 17. Marketing Communications 18. Communication mix 19. Marketing Tactics and Activities 20. Action Plan 21. Controls 22. Conclusion

Annexure
i Assumptions ii Annual Revenue Plan

1.

Executive Summary The credit cards have evolved over the last thirty years into one of the most accepted, convenient, and profitable financial products. It is accepted by millions of consumers and merchants worldwide as a routine means of payment for all varieties of products and services. The rapid growth of the credit card industry evidences the cards value to the financial community, consumers, merchants, and issuing banks. The dynamics of todays credit card market make it necessary for the successful issuing bank to manage every aspect of the lending process. Competition, market saturation, and changing consumer demographics and attitudes have also forced the issuing bank to be innovative with the credit card products it offers and its customer selection and management methods. The rapid growth of credit cards also has caused banks to look elsewhere for funding rather than from traditional funding lines and deposit accounts. This creates an opportunity of securatizing credit card receivables as a funding vehicle for issuing banks. Statistics reveal that 80% of the credit cards are used within the country. But most of the credit cards used in our country are franchised to foreign banks or companies and colossal sums are paid to them as franchise fee. This is estimated as US$ 10M 20M annually. PMB Credit Card Company which is not linked to any franchise agents abroad believes to save this money inside the country and to contribute to national economy as A Truly Sri Lankan Credit Card company. Currently the company has issued approximately 8000 cards and which only 1800 are active. Currently the service is provided thro 900 merchant outlets. This report critically analyze the current position of the company and its competitor activities and paid more attention and emphasized in the areas of marketing and business development As mentioned, a variety of factors have caused the credit card business to become one of the most complex and competitive areas in the financial services industry. The market environment and risks make it essential for the Bank to have written operating policies tied to well-conceived business plans and risk management systems.

2.

Vision To become the most preferred, socially responsible and profitable Truly Sri Lankan Credit Card Company.

3.

Mission To provide an optimum return to share holders by maximizing the return on equity. To be a socially responsible organization that maintains high standards of business ethics and to have good corporate governance of practice. Be the most innovative and market sensitive local Credit/Debit Card company To contribute towards the economic development of the country.

4.

Goals Customers Employees To provide the most convenient, economic & comprehensive solutions. To promote morale through constant training and benefits for performing employees.

Share-holders To enhance the value of their investment. Community Organization To be strongly committed to social uplift. To experience steady growth with stability

5.0 External Environment Analysis

5.1 Political

Being a subsidiary of a state owned bank which holds substantial shares of the company, there can be political influence to a certain extent However, the volatile political environment in the country will have adverse effects of its operation, specially the North east war. This political uncertainty has limited the investors and tourists visiting to Sri Lanka resulting in a negative impact in economic growth. 3

5.2 Economy

Despite the war situation in North & East, the some what unstable political situation of the country, increasing oil prices in the international markets, the growth momentum in the Economy continued showing resilience according to Central Bank Reports. The Agriculture & Garment industry & service sector too has recorded a tremendous out put to the industrial sector. According to the report published, Sri Lanka Economy should reach an overall growth of 7% plus for year 2007. However the continues incensement of interest rates will give adverse effects on recovery of the Banks loan port folio and the future expansion. The impact created by the prevailing war situation has adversely effected on the economy as well as the financial sector of the country.
5.3 Social

Cultural changes could affect the demand for certain products to a certain extent. Muslim community is reluctant to enjoy interest bearing products. Hence the company has an opportunity to introduce a cultural friendly system like Muslim banking to attract the said community. Over the period of time customers have developed a great confidence in banking systems and concern about savings. This has led to an increase in fixed deposit customer base.
5.4 Technological

All the Banks in the industry understand that IT application can be a powerful engine to help achieve goals for enhanced business advantage, contributing towards competitiveness and profitability. Almost every financial institute, today all their core services have already been fully automated and proceeding towards a paperless office environment utilizing electronic delivery platform for daily operations with value added services. The advance technology has enhanced the Product/service quality to higher levels and expedited the process.

6.

SWOT Analysis Strengths Young energetic and motivated staff. Fully automated and link branch network covering 6 branches and provision for major expansion. Sophisticated software system which could provide back office support to any other company. Use of state of the art technology and sharing of POS terminals with HNB and HSBC. Group strength of Peoples bank and LOLC. 4

Public confidence and the image that had developed on Peoples Bank and hence Peoples Merchant Bank PLC. Personalized customer service. Availability of wide range of product port folio. More flexibility towards customer requirements.

Weakness Few island wide merchant network hindering wide geographical penetration level. Tarnished brand image among cardholders due to the current crisis. Lost confidence among the merchant network due to non payment of outstanding on time. Poor corporate communication and branding. Non availability of professionals for specialized fields. Card could be used only in Sri Lanka.

Opportunities Potential of untapped market segments, those can be attracted by using available resources at the branch level. Changes in life styles and popular demand for Credit/Debit cards. Promoting Debit cards to Peoples Bank Savings Accounts holders. Providing back office support to Peoples Bank Credit Card operation. Ability to securitize the card receivables. Capitalizing on the existing branch network of PMB in promoting the credit cards in the respective geographical locations

Threats Aggressive direct competition from other financial institutions such who promote globally accepted cards as VISA, MASTER and AMEX. Pressure from the depositors for withdrawal of deposits will have a great impact to the cash flow. Unethical trade practices by the competitors. Present unstable Political and economical situation of the country. High bargaining power of customers due to the thick competition. Risk of potential credit card defaults 5

7.

Risks Associated with Credit Card Lending For purposes of discussion of risk, we should assess banking risk relative to its impact on capital and earnings. From a supervisory perspective, risk is the potential events, expected or unanticipated, may have an adverse impact on the banks capital or earnings. We have defined nine categories of risk for bank supervision purposes. The primary risks associated with credit card lending are: Credit, Interest Rate, Liquidity, Transaction, Compliance, Strategic, and Reputation. These are discussed more fully in the following paragraphs.

Credit Risk Credit risk poses the most significant risk to banks involved in credit card lending. Since credit card debt is an unsecured line of credit, repayment depends primarily upon a borrowers capacity to repay. The highly competitive environment for credit card lending has provided consumers with ample opportunity to hold several credit cards from different issuers and to pay only minimum monthly payments on outstanding balances. As a result, borrowers may become overextended and unable to repay, particularly in times of an economic downturn or a personal catastrophic event. In addition to credit risk posed by individual borrowers, credit risk also exists in the overall credit card portfolio. Relaxed standards, aggressive solicitation programs, inadequate account management, as well as a deterioration of general economic conditions, can increase credit risk. When the credit card holders delay the full payment by making only the minimum payment due, there is a risk that PMB is exposed to a substantial debt even though a higher interest is being derived for the delayed recoveries. This might steer to a situation where PMB facing a funding crisis. Transaction Risk

Risk to earnings or capital arising from problems with service or product delivery. This risk is a function of internal controls, information systems, employee integrity, and operating processes. Transaction risk exists in all products and services. The banks success in credit card lending depends in part on achieving economies of scale. Credit card operations are highly automated, have a large transactional volume, and require strong operational controls. Aggressive growth has the potential to stretch operational capacity and can cause problems in handling customer accounts and in processing payments.

Liquidity Risk Liquidity risk is the risk to earnings or capital arising from a banks inability to meet its obligations when they come due, without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. Liquidity risk also arises from the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. Liquidity risk is present in a banks obligation to fund unused credit card commitments. Bank must be aware of seasonal demands. Liquidity risk is also present if a bank securatizes its credit card portfolio. Strategic Risk Strategic risk is the risk to earnings or capital arising from adverse business decisions or improper implementation of those decisions. This risk is a function of the compatibility between an organizations strategic goals, the business strategies developed to achieve those goals, the resources deployed against these goals, and the quality of implementation. Reputation Risk 7

Reputation risk is the risk to earnings or capital arising from negative public opinion. This risk affects the institutions ability to establish new relationships or services, or continue servicing existing relationships. This risk can expose the Bank to litigation, financial loss, or damage to its reputation. Reputation risk exposure is present throughout the organization and includes the responsibility to exercise an abundance of caution in dealing with its customers and community. In addition, the bank can lose existing relationships if poor service of existing accounts occurs routinely or it does not resolve consumer issues or process payments in a timely manner.

Interest Rate Risk Interest rate risk is the risk to earnings or capital arising from movements in interest rates. The economic perspective focuses on the value of the bank in todays interest rate environment and the sensitivity of that value to changes in interest rates. Compliance Risk Compliance risk is the risk to earnings or capital arising from violations or non-conformance with laws, rules, regulations, prescribed practices, or ethical standards. This exposes the bank to fines, civil money penalties, payment of damages, and the voiding of contracts. Compliance risk can lead to a diminished reputation, reduced franchise value, limited business opportunities, lessened expansion potential, and lack of contract enforceability. 8. Risk Management Control Systems Control systems identify, measure, and monitor risks. These systems include audit, loan review, and risk management. The structure and function can vary 8

depending on the size and complexity of credit card operations. The technology, level of sophistication, and staffing levels also have to be identified. The bank must determine how and where the function is performed, and assesses its effectiveness. The bank should have adequate management information systems (MIS) in place to perform its risk management functions effectively. The MIS should be able to provide sufficient information to evaluate and measure the impact of actions taken. Senior management should receive reports derived from MIS data outlining portfolio dimensions, composition, and performance. Reports should include portfolio risk levels, trends, concentrations, and earnings. The bank should establish a strict credit evaluation system when issuing credit cards on non secured basis in order to mitigate the risk associated with credit card defaults.

9.

Key success factors Apparently the Peoples Bank is willing to extend their corporation in numerous ways to carry out this operation and those can be considered as key success factors. Opportunity to provide the back office operation to Peoples Bank with the sophisticated software system. Easy access to Peoples Bank healthy saving account holders to promote debit cards. Peoples Bank 7 years soft loan facility of Rs. 100M 200M to start the operations. Ability to use Peoples Bank Branch network to promote Debit and Credit cards. Ability to facilitate the ATM withdrawals using nationally spread ATM network of Peoples Bank

10.

Product Portfolio Credit Cards Debit Cards (To be introduced) Gift Cards

11.

Market/Competitor Analysis The MasterCard, along with the Visa Card, are the most widely accepted credit cards in the world. MasterCard is owned by over 20,000 member organizations. They serve customers in over 210 countries, and process over 15 million transactions a day in over 180 currencies. Visa credit cards are the number one credit card used by people around the world. Visa has unsurpassed acceptance in more than 150 countries, as well as at Internet merchants. And with a Visa credit card, you can get cash at more than 840,000 ATMs in the Visa Global ATM Network. It's suppose to be a secure, reliable way to pay for anything you need, anywhere in the world. American Express cards offer free rewards program and great rates. Cards include Blue, Gold and Green Reward cards. As per the statistics 1.5M Credit Cards issued into the market in year 2006/2007. In Sri Lanka VISA, MASTER, AMEX is franchised by HSBC, STCB, SAMPATH, BOC, SEYLAN, COMMERCIAL, GKCC, PEOPLES, NTB.

12.

Corporate Objectives

10

 13.

To achieve a revenue of 150M in 1st year and increase by 150% in 2nd year and 50% by 3rd year.
See the annxture

To achieve a net profit growth of 15% To increase the existing Market Share by 1.5% (21,000 cards whereas the market size of credit card is1.5 million) in year 3 To increase the shareholder value of PMB. Extend our position as a leading brand name in the category. To provide back office support to Peoples Bank Credit Card operation.

Corporate Strategy The company can adopt both differentiation and niche strategies for the existing product range. Gift Cards can adopt the differentiation strategy by branding and positioning to attract the customer segments.

14.

Marketing Objectives Statistics shows the Peoples Bank posses approximately 5M active savings accounts. Out of which 400,000 accounts are very healthy and functioning well. Our target is to promote our Debit cards to 25% of the healthy account holders To increase the active credit cards issues to 9000, 15000, and 21000 by end of year 1, 2 and 3 respectively. To promote 40,000 debit cards to Peoples Bank savings accounts holders in the first year and increase it to 75,000 in year 2 and to 100,000 by end of year 3 To increase the awareness among the target groups by 75% by end of year 3 Increase the merchant base to 10,000 by end of year 3 Develop and introduce new products to the existing and new customers. Form alliances to achieve cost reduction and earn more revenue. Conduct joint marketing programs. Increase walk in customers by 50%. Increase online sales by 25%. Expansion of distribution channel.

11

15.

Market Segmentation and Positioning We position our self as a Truly Sri Lanka Credit Card Company and an excellent provider of innovative financial products and services to our existing and potential customers. Our main target segments are Reputed corporate clients. Young professionals. Upper and middle income earners. Small and medium scale business men. Senior citizens. Peoples Bank savings account holders. Individuals who have healthy credit history. Teenagers. (Gift Cards)

16.

Target Market segmentation and Positioning Strategy Our strategy is based on serving our niche markets exceptionally well by;

Emphasizing on exceptional service. Emphasizing on the theme on Truly Sri Lankan Credit Card Create awareness of the unique features of the products/services available. Focus on our target markets. Marketing Strategy Market penetration We can find the ways to increase the market share of our current products in our current market. 12

17.

 Use PMBs branch network to promote credit cards and debit cards in the respective geographical area. Use the deposit base of PMB and Silvereen finance company to market the credit cards Attract competitor customers by offering more benefits. Attract new customers through promotions and PR activities. Retaining and cross selling to the existing customers. Offering financial rewards such as discounts or rebates by co branding to increase credit card receivables. Market Development We can look for new markets whose needs might be met by our current products. Expanding branch network to cover more geographical locations. Outsource marketing companies and appoint freelancers to promote Credit/Debit cards. Make strategic alliances with merchant to promote gift cards. Targeting parents who dont like their teenage children to meddle with money. Corporate card for company employees.

Product Development We can consider new product/service possibilities Debit Cards Privet label cards Secured credit cards

Diversification Diversification growth makes sense when good opportunities can be found out side the present business activities. 18. Marketing communications

13

The brand name is tarnished in terms of confidence in the eyes of the credit card holders and also merchants. The communication plan should address to re brand and reposition the brand. Repositioning strategy should focus on renaming the card and communicate thro press conference, media advertising. The Banks strengths like service quality, product benefits and other facilities have to be communicated to the target customer segments. Company should allocate a 5% of its turnover as marketing communications and promotional budget. Any how the company needs to have strong integrated communication strategy to support the marketing strategy.

19.

Communication Mix Media Brand * Individual * Corporate Web * * * S/Promotions * PR * * * P/Selling * * Sponsorships *

The above schedule summaries my recommendations as to how various elements of the communication mix can be employed. This should be further developed with more specific and additional information. 20. Marketing Tactics and Activities It is paramount important to have a tactical plan to reach our target customer groups. We have to carefully design the activities to increase our revenue and profits, these tools will give life to our overall strategy. Personnel selling. Web based marketing. Outsourcing brokers and freelancers. Mass media advertising. Direct mailers. 14

 21.

Joint promotions with other business partners Develop a digital visual to be used as a selling tool. Participating exhibitions. Internal promotion to employees Customer promotions such as special discounts and free offers. Recruiting, training and motivating all customer contact employees. Hoardings at strategic locations. Increase the visibility of the brand at the merchant outlets Q1 Q2 Q3 Q4

Action Plan Mass media Direct Mailers Hoardings Internal promotions Customer promotions PR activities Merchandising E-Marketing Branding/Joint Promo

15

22.

Controls Good controlling systems will help to monitor the achievements periodically and rethink about the strategies and the tactics of the organization. Regular monitoring is a proactive method in a highly competitive environment to achieve the final goals.
Financial results

Revenues Profitability ROI Margins

Marketing focus

Sales growth Customer complaints New customers New customers changed over from competitors Speed of the attention to the customer requests/queries Customer awareness levels Number of new distribution channels opened. Number of online sales Customer perception levels. Customer behavioral patterns through a proper database system
Process perspective

Number deviations from laid down procedures Audit queries. Number of process improvements introduced. Time of receipt & time of delivery of service. Customer complaints about our procedures.
Learning & growth

Number of educational and training sessions conducted. Number of staff meetings.

Number of promotional opportunities secure by the staff members.

23.

Conclusion The step towards inauguration of PMB credit card as a truly Sri Lankan Credit Card in the Sri Lankan financial sphere is envisaged to bring multitude of benefits to both the company and the country. The strategic approach, which is to acquire the operations of ongoing business rather than establishing a new business, allows the company to enter into the market in a less lead time. However this business avenue is coupled with a great magnitude of financial and marketing risks since the image of the ABC Credit Cards, the current operator, has been tarnished and the business is being taken over with nearly Rs. 850 million liabilities. Yet, it is expected that PMBs strengths and the brand name earned from its 25 year of operations can be successfully synergized to re-launch the credit card under the PMB brand name and also the support of Peoples Bank and value of the property of ABC which is being transferred to PMB to dilute the risk associated with the exposure to the extensive liability.

Annexure

Assumptions

1 2 3 4 5 6 7 8 9 1 0

Current number of active credit cards Annual Fee Number of credit cards at the end of year 1 Number of credit cards at the end of year 2 Average spending on a card Merchant commission Number of debit cards at the end of year 1 Number of debit cards at the end of year 2 Number of debit cards at the end of year 3 Interest on credit card outstanding bill has not accounted for

No Rs. No No Rs.

6000 500 9,00 0 15,00 0 15,00 0 2.50% 40,00 0 75,00 0 100,00 0

Annexu re

II

Annual Revenue plan

Year 1 No of credit cards No of debit cards 9,0 00 40,00 0 24,500,00 0 122,625,00 0 147,125,0 00

Year 2 15,00 0 75,00 0

Year 3 21, 000 100, 000 60,500, 000 480,562,5 00 541,062, 500 48%

Income from Annual fee Revenue from merchant commission

45,000,000 320,437,500 365,437,50 0 148%