Alpen-Bank

________________________________________________________________________________________________________________HBSProfessorV.KasturiRanganandwriterSunruYongpreparedthiscasesolelyasabasisforclassdiscussionandnotasanendorsement,asourceofprimarydata,oranillustrationofeffectiveorineffectivemanagement.TheauthorsthankJudyBeiofCitibank(HBSMBA2001)andRobChenofVisa(HBSMBA1999)fortheirvaluablecontributionstothedevelopmentofthiscase.Thiscase,thoughbasedonrealevents,isfictionalized,andanyresemblancetoactualpersonsorentitiesiscoincidental.Thereareoccasionalreferencestoactualcompaniesinthenarration.Copyright©2010HarvardBusinessSchoolPublishing.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessPublishing.HarvardBusinessPublishingisanaffiliateofHarvardBusinessSchool.V.KASTURIRANGANSUNRUYONGAlpenBank:LaunchingtheCreditCardinRomaniaIntroductionInSeptember2006,GregoryCarlesatpensivelyathisdeskatAlpenBank’scorporateheadquartersinZurich.ThepreviouseveningheandtheseniormanagementteamhadenjoyedthemselvesdininglateabovethepicturesqueLimmatValley,butnowitwastimetofocushisattentiononthetaskathand.AsAlpen’scountrymanagerforRomania,CarlewascontemplatingacreditcardlaunchintheRomaniamarket,whichhewouldpursueifhecouldbeconfidentthatitwouldadd€5millionofannualprofittotheConsumerBanksegmentwithintwoyears(seeExhibit1forasummaryofthefinancialperformanceoftheConsumerBanksegmentofAlpenBankinRomania).CarlehadbeenwithAlpensince1992,whenhejoinedthebank’sglobalmarketinggroup.Hisappointmentin2000tocountrymanagerforRomaniacoincidedwiththebank’sopeningitsfirstbranchinthecapitalcityofBucharest.Sincethen,Carlehadoverseentheopeningof14additionalbranchesinRomania,withAlpenBankdevelopingareputationforexcellenceinservingaffluentclientele.Inadditiontobasicdeposit,checking,andpersonalloanservices,customershadaccesstoawealthmanagementprogramcomposedoffinancialplanningandinvestmentproducts.TheideaofacreditcardforRomanianconsumerswasnotnew.Historically,Alpenmanagementhadbalkedatlaunchingacardbusinessduetolowper-capitaincomelevels,apoorlydevelopedinfrastructureofpoint-of-saleterminals,andthepopulation’sinexperiencewithconsumercredit.Thecountry’simminententryintotheEuropeanUnionhadledtoareassessmentofthisdecision.However,RichardTschumperlin,headofthebank’sInternationalConsumerBusinessesandCarle’sboss,remainedskepticalthatitwastimeforAlpentointroduceacardbusiness:I’mnotsurethereisenoughofamarketthere.Arethereenoughhouseholdswithenoughmoney?Howmuchwoulditcostustobuildacustomerbase?Wehavebeenverysuccessful4559MAY19,20104559|AlpenBank:LaunchingtheCreditCardinRomania2BRIEFCASES|HARVARDBUSINESSPUBLISHINGbuildingaprofitablebankingbusinessforthewealthy—over200,000customersinacountrywithjust7.7millionhouseholds,whichisgreatpenetration.Iworrythatpursuingthiscreditcardideawouldbeariskydistraction.UnlikeTschumperlin,Carlebelievedacreditcardbusinesswouldbeanimportantgrowthvehicle,buthewasawareoftheskepticismwithintheZurichheadquarters.Certainly,hehadtoconsiderthefinancialandreputationalcostsofanymissteps.HewouldneedconvincinganalysistowinsupportfromtheZurichteam.Ifherecommendeda“go”forthedecision,hehadtoarticulateacompellingbusinessstrategywithclearproductpositioningandastrongeconomiccase.CreditCardIndustryBackgroundThecreditcardindustrycomprisesfourkeypartiesthatworktogethertoprovidecardtransactionservices:networksorcardassociations,merchantacquirers,merchants,andcardissuers:Networks/cardassociationsarethebackboneofthepaymentsystemandenabletransactionstobeclearedbyconnectingmerchants,merchantacquirers,andcardissuers.VisaandMasterCardarethetwomostextensivenetworksandsettheoperatingrulesbywhichallpartiesinthesystemabide.Merchantacquirersarethedistributionandsalesarmofthepaymentsindustryandarefrequentlyaffiliatedwithbanks.Theysignupmerchantsforcardacceptanceandprovidethesupportthatmerchantsrequiretoprocesscardtransactions:point-of-saleterminals,datatransmission,paymentauthorization,andpaymentsettlement.Merchantsaretherestaurants,retailers,gasstations,etc.,thatacceptcards.Cardissuersaretypicallybanks,andtheyowntherelationshipwiththecardholdersthemselves.Issuersauthorizepaymentsandbillcardholders.AsmembersoftheVisa/MasterCardassociations,banksmustabidebycard-logodesignstandards,butitislefttotheirdiscretiontodecideonbranding,positioning,pricing,andloyaltyprograms.Revenueinthecardpaymentsindustryisdeterminedbytransactionvolume.Apercentageofeverytransaction,calledthe“merchantdiscount,”istakenandsplitamongthemerchantacquirer,networkassociation,andcardissuer.Hencemerchantacquirersseektosignupattractivemerchantswithfrequenttransactionsandhigh“per-ticket”spending,whileVisaandMasterCardencouragecustomerstousetheircardsforeverypurchase.1Similarly,cardissuersbenefitfromtheamountsp