Objective of the Challenge

Objective of the Challenge

This is an online real-time simulation platform, where participants act as
competing Credit Card issuing companies, trying to maximize their profits
in a common marketplace.
The marketplace comprises of different “cities”, each with unique
characteristics.
Objective of the Game
This is an online real-time simulation platform, where participants act as
competing Credit Card issuing companies, trying to maximize their profits
in a common marketplace.
The marketplace comprises of different “cities”, each with unique
characteristics.

But How?
Key Steps
Assess the Profitability of the cities

Understand the competitive landscape

Watch out for Unexpected Events !

Key Steps
Assess the Profitability of the cities

• The Transaction Process

• Profitability Drivers for Card Issuers

Understand the competitive landscape

Watch out for Unexpected Events !

The Transaction Process
 Transaction process
1. Cardholder
presents the Card
2. Authorization
8. Transaction request
Cardholder completed Merchant
7. Approval

9. Monthly 10. Payment

Statement
6. Approval
Merchant Acquirer
5. Approval
Third Party 3. Authorization
Processor/ request
Network
Card Issuing 4. Authorization
request
Bank
 Transaction process
1. Cardholder
presents the Card
2. Authorization request
8. Transaction
Cardholder completed Merchant
7. Approval

9. Monthly 10. Payment

Statement Merchant Acquiring
6. Approval Bank

5. Approval Third Party 3. Authorization request

Processor/
Network
Card Issuing4. Authorization request
Bank
Purchases 1. Cardholder Sells goods
goods and presents the Card and
services services
Acquires merchants
2. Authorization and transmits
8. Transaction request information between
completed merchant and
Cardholder Merchant network

9. Monthly 7. Approval
Statement
Dis
cou
10. Payment nt R
Provides credit
to cardholders
ate 6. Approval
and authorizes Merchant Acquiring
Discount rate is charged to merchants for facilitating
transactions Bank
the transaction.

5. Approval
3. Authorization
Third Party request
Processor/
Network Real-time
Card Issuing authorization of
4. Authorization
Bank transactions and
request
aggregation of issuers
Profitability Drivers for Card
Issuers
 Profitability Drivers
Revenue Drivers: Sources of Expense:

•Discount Revenue •Cost of Funds

•Interest Revenue •Write-off Losses

•Fee Revenue •Loyalty Expenses

•Other Revenue •Acquisition Expenses

•Other Expenses
 Revenue Drivers: Sources of Expense:

Revenue earned on spending by card members,

•Discount Revenue •Costdriven
usually of Funds
by discount rate which is
percentage of the spend amount.
•Interest Revenue •Write-off Losses

•Fee Revenue •Loyalty Expenses

•Other Revenue •Acquisition Expenses

•Other Expenses
 Revenue Drivers: Sources of Expense:

•Discount Revenue •Cost of Funds

Revenue earned if card member wants to avail
•Interest Revenue the credit afterLosses
•Write-off the due date, driven by interest
rate as percentage of outstanding balance and
varies by product.
•Fee Revenue •Loyalty Expenses

•Other Revenue •Acquisition Expenses

•Other Expenses
 Revenue Drivers: Sources of Expense:

•Discount Revenue •Cost of Funds

•Interest Revenue •Write-off Losses

Annual fee: Annual fee paid by card
member for availing the card services.
•Fee Revenue •Loyalty
Late fee: Fee chargedExpenses
for payments
missing due date.
•Other Revenue •Acquisition Expenses

•Other Expenses
 Revenue Drivers: Sources of Expense:

•Discount Revenue
FX revenue•Cost of Funds
is earned for facilitating
transactions outside the country or in
•Interest Revenue foreign currencies.
•Write-off Losses
Some exclusive services like
supplementary cards, insurance,
•Fee Revenue •Loyalty Expensescan have
membership reward enrollment
fee associated with them.
•Other Revenue •Acquisition Expenses

•Other Expenses
 Revenue Drivers: Sources of Expense:
Cost incurred for arranging funds to
extend credit to card members till the
payments•Discount
are receivedRevenue
back.
•Cost of Funds
•Interest Revenue •Write-off Losses

•Fee Revenue •Loyalty Expenses

•Other Revenue •Acquisition Expenses

•Other Expenses
 Revenue Drivers: Sources of Expense:

•Discount Revenue •Cost of Funds

Amount lost due to default on
payments and is written-off.
•Interest Revenue
Interest Revenue •Write-off Losses
•Fee Revenue •Loyalty Expenses
•Other Revenue •Acquisition Expenses

•Other Expenses
 Revenue Drivers: Sources of Expense:

•Discount Revenue •Cost of Funds

•Interest Revenue •Write-off Losses

Cost of redemption of loyalty points
accrued by the card members based
•Fee Revenue
on their spending on cards. •Loyalty Expenses
•Other Revenue •Acquisition Expenses

•Other Expenses
 Sources of Expense:
Revenue Drivers:

•Cost of Funds
•Discount Revenue
•Write-off Losses
•Interest Revenue
Costs associated with contacting •Loyalty Expenses
•Fee Revenue to get new card
and incentivizing
members.
•Other Revenue •Acquisition
Expenses
•Other Expenses
 Revenue Drivers: Sources of Expense:

•Discount Revenue •Cost of Funds

•Interest Revenue •Write-off Losses

Operation costs for providing services to
•Feemembers,
card Revenue managing portfolio and •Loyalty Expenses
running the business.
Losses resulting from fraud, legal and
•Other Revenue
regulatory issues. •Acquisition Expenses

•Other Expenses
Key Steps
The Competitive Landscape
 • What drives acquisition ?
• How does competition affect us ?
• What is saturation?
 But only 60% of them respond to any card offer.
Let’s say a city has a total population of 20 Implies, response rate=60%

Case 1
Contacting 10 targets, gives 6 responses

Acquired Customers
In this competition, we
assume all responders are
approved for cards
In the competition, detailed information is provided to understand size,
responsiveness, profile and customer behavior to assess profitability of target cities.
The cost of contact for all cities is USD 1 per target.
Case 2 Total population: 20, Target Population: 20,
Saturation = 100% Response Rate = 60%
Target Target
10 prospects 10 prospects
Card Issuer Card Issuer
1 2
Response from Response from
6 prospects 6 prospects

Differing
Total population: 20, Target Population: 20, Investment
Case 3 Levels
Saturation = 100% Response Rate = 60%
Target Target
15 prospects 5 prospects
Card Issuer Card Issuer
1 2
Response from Response from
9 prospects 3 prospects

In the competition, total responsive population in each target city is assumed to be

fixed, and all investing teams (issuers) distribute the profit from responders in
proportion to their investments in that city.
Case 4 Total population: 20 : Target Population: 30 Target
Target Saturation = 150% Response Rate = 60% 10 prospects Card
10 prospects Issuer 2
Response from
Card Issuer
4 prospects
1
Response from Target 10
4 prospects prospects
Card
Issuer 3
Response from
4 prospects
Increasing
Case 5 Competition
Total population: 20 : Target Population: 30 Target
Target Saturation = 150% Response Rate = 60% 10 prospects Card
15 prospects Issuer 2
Response from
Card Issuer
4 prospects
1
Response from Target 5 prospects
6 prospects
Card
Issuer 3
Response from
2 prospects

The maximum number of respondents in a city, and the profits from them is capped by
the response rate. Hence in case of oversaturation (total investment exceeds the
investment capacity), the maximum profit only gets distributed, leading to lower RoI.
Increase in competition reduces the share of individual players in market and thus
they make less gains at same investments. Key assumptions are as below:
1) The responder population is homogenous and display same behavior once they
become customers irrespective of the credit card issuers
2) All issuers have identical product offerings

Increase in Investment, increases the return on investment but only till the market
is not saturated. Beyond that there is no incremental returns on increasing
the investment in a saturated market.
Key Steps
Real Time SURPRISES
 and
All the very Best !