November 30, 2004

'Cash back' cards: Will Citibank be rewarded?

Citibank recently launched its 'cash back' credit cards in several Asian countries amid fierce market competition that has seen a proliferation of cards offering typical rewards. Competitors say they are not worried.

Within the last month, Citibank, the world’s largest credit card issuer, has launched its version of a ‘cash back’ credit card in India, Malaysia, Thailand, and Singapore and will introduce the card to two more markets in the region this year in the hope of replicating the success of its card in the US. “We felt first mover advantage was critical,” Lillian Wang, Citibank Singapore cards marketing director, said of the reason behind the global bank’s regional initiative now. Pioneered by Discover Financial Services in the US in 1986, ‘cash back’ cards or cards that ironically provide rewards in cash and not just points exchangeable for goods and services, has “taken the US by storm,” Yuen Kum Fai, Citibank Singapore business director for credit payment products, said during the recent launch of the card in the city-state. Over the past three years, cash back cards made significant inroads into the saturated US cards market, now constituting close to 40 percent of cards issued, Yuen pointed out. There, cash back cards offer far higher cash rewards with the Discover Card just finishing a special offer of up to 10 percent cash back on restaurant meals. In Asia, credit card issuers already have cash back type cards in one form or another, but the Citibank Dividend MasterCard, or, in some Asian markets, Citibank Cash Back MasterCard, is the first ‘dedicated’ cash back card. In Singapore, cardholders get an actual check in the mail of up to two percent or three percent of purchases, depending on the market, instead of rewards, rebates or special promotions. Based on the average annual spend of a Citibank cardholder in Singapore, the bank has estimated that cardholders would get an average of S$50 back per quarter. Yuen said the cost of the incentives and promotions for this card portfolio would actually end up being twice that of the bank’s existing cards that are primarily rewards-based, but it also expected to achieve a similar 20 percent increase in spending as was achieved by the card in the US. In terms of card growth, Yuen said Citibank expected to grow its current card base of about 600,000 cards by 30 percent over the next two to three years. In Malaysia a 15 percent expansion in its existing base of one million cards was projected, while in Thailand, where it has been more than a month since the cash back card was launched, the reception was reportedly ‘encouraging’. Wang said she would not be surprised to see competitors follow Citibank’s move with similar cash back cards, but other issuers were unimpressed. “Consumers are more discerning today than the smartest marketers,” Andy Chan, group head for unsecured lending and credit cards for Singapore-based OCBC Bank, told The Asian Banker at the recent launch of that bank’s Titanium credit card, which sports a unique design, caters to the high end market and offers golf and spa membership privileges and other benefits. In terms of discounts at petrol stations, Chan pointed out that OCBC credit card holders could already get a rebate of six percent at the point of sale on top of the usual five percent discount, so a three percent cash back where the cardholder would have to go to the bank and deposit a check would not be convenient. “Cash back is already embedded in a lot of our products and services,” Chan pointed out, adding that aside from point of sale discounts, bonus or reward points earned by cardholders can also be converted into vouchers which can be used immediately and there is no need to wait for a check every quarter. “People want instant gratification,” he asserted, noting that, in the US, the cash back card may have worked because point-of-sale discounts are not readily available. - E. Torrijos