sir fred goodwin group chief executive/media/files/r/rbs-ir-v2/archiv… · 12.20 tesco personal...
TRANSCRIPT
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Sir Fred GoodwinGroup Chief Executive
Sir Fred GoodwinSir Fred GoodwinGroup Chief ExecutiveGroup Chief Executive
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Slide 3
� Large Corporates - RBS� Mid Corporates and
Commercials-RBS/NW� Treasury - RBS� Greenwich Capital (US)� Lombard� Angel Trains� Specialist Businesses
RBS Group Structure
WealthManagement
MANUFACTURING
CUSTOMERSCUSTOMERS
CitizensRBSInsurance
RetailDirect
RBS CBFMNatWest UlsterBank
� Coutts� Adam� NatWest Offshore� RBSI
� Direct Line� Churchill� NIG� International
� Personal� Small Business� RSA
� Personal� Small Business� NW Life
� Ulster Bank� First Active� Personal� Business� Corporate
� Personal� Business� Commercial
Technology Operations Services
� RBS Cards� NatWest Cards� MINT� Lombard Direct� DLFS� One Account� Tesco PF� International
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Slide 4
RBS Group Structure
� Large Corporates - RBS� Mid Corporates and
Commercials-RBS/NW� Treasury - RBS� Greenwich Capital (US)� Lombard� Angel Trains� Specialist Businesses
WealthManagement
MANUFACTURING
CUSTOMERSCUSTOMERS
CitizensRBSInsurance
RetailDirect
RBS CBFMNatWest UlsterBank
� Coutts� Adam� NatWest Offshore� RBSI
� Direct Line� Churchill� NIG� International
� Personal� Small Business� RSA
� Personal� Small Business� NW Life
� Ulster Bank� First Active� Personal� Business� Corporate
� Personal� Business� Commercial
Technology Operations Services
� RBS Cards� NatWest Cards� MINT� Lombard Direct� DLFS� One Account� Tesco PF� International
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Slide 5
Group Operating Profit
2003 2002 Change Change£m £m £m
Corporate Bankingand 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%Ulster Bank 273 244 29 +12%Citizens 857 766 91 +12%Central items (629) (587) (42) -7%Group operating profit 7,151 6,451 700 +11%As reported
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Slide 6
Retail Direct
Agenda
10.35 Introduction and Overview Chris Sullivan11.00 Card Issuing Iain Clink11.25 Merchant Acquiring Tony Surridge
11.40 Coffee Break
12.10 The One Account Jayne-Anne Gadhia12.20 Tesco Personal Finance Jim Macdonald12.30 International and Conclusion Chris Sullivan
13.00 Questions & Answers
13.30 Lunch
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Retail DirectIntroduction and Overview
Retail DirectRetail DirectIntroduction and OverviewIntroduction and Overview
Chris SullivanChris SullivanChief Executive, Retail DirectChief Executive, Retail Direct
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Slide 8
Retail Direct
June2004
Total customers (million) 18.6
Total assets (£bn) 25.9
Total employees 8,900
Operations in UK, Europe and US
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Slide 9
Retail Direct
Principal UK Operations
▮ Edinburgh
▮ Glasgow
▮ London
▮ Southend
▮ Manchester
▮ Norwich
▮ Harrogate
▮ 7,200 employees
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Slide 10
Retail Direct
Continental European Operations
▮ Germany
▮ Netherlands
▮ Belgium
▮ Austria
▮ Ireland
▮ Hungary
▮ 800 employees
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Slide 11
Retail Direct
United States Operations
▮ People�s Bankcredit card businesses*
▮ Kroger partnership**
▮ Lynk Systems*
▮ 900 employees
* Nationwide** Kroger present in 32 states
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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 following transfer of certain activities to Manufacturing
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Slide 13
Retail Direct
Cards Business57%
2003 Income £1,835m
Tesco Personal Finance
19%
Own Brand Businesses
11%
The One account4%
International5%
Other4%
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Slide 14
Retail Direct
2003 Income £1,835m
Non-interest income 54%
Net interest income 46%
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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 transfer of certain activities to Manufacturing
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Slide 16
Grow Income
0
500
1,000
1,500
2,000
2000 2001 2002 2003
Total Income £m
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Slide 17
Grow Income
0
500
1,000
1,500
2,000
1H00 1H01 1H02 1H03 1H04
Total Income £m
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Slide 18
Improve Efficiency
0
10
20
30
40
50
2000 2001 2002 2003 1H04
Direct Cost:Income Ratio %
2003 and earlier years restated following transfer of certain activities to Manufacturing
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Slide 19
Contribution to Group Profit
0
200
400
600
800
1,000
2000 2001 2002 2003
Contribution£m
2003 and earlier years restated following transfer of certain activities to Manufacturing
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Slide 20
Contribution to Group Profit
0
200
400
600
800
1,000
1H00 1H01 1H02 1H03 1H04
Contribution£m
2003 and earlier years restated following transfer of certain activities to Manufacturing
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Slide 21
Own BrandBusinesses
Tesco Personal Finance
Retail Direct
CUSTOMERS
Phone Partners
CardIssuing
MerchantAcquiring
MortgagesInsurance SavingsPersonalLoans
The One
account
Cards Business
Group Operating Platform
Internet RBS/NW Intermediaries
International
RetailerCards
Post
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Slide 22
Retail Direct
CUSTOMERS
Group Operating Platform
Own BrandBusinesses
Tesco Personal Finance
The One
account
Cards Business International
CardIssuing
MerchantAcquiring
MortgagesInsurance SavingsPersonalLoans
RetailerCards
Phone PartnersInternet RBS/NW IntermediariesPost
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Slide 23
Customers
June 2004 million
United Kingdom 14.8
Continental Europe 2.3
United States 1.5
Total customers 18.6
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Slide 24
Retail Direct
CUSTOMERS
Group Operating Platform
Own BrandBusinesses
Tesco Personal Finance
The One
account
Cards Business International
CardIssuing
MerchantAcquiring
MortgagesInsurance SavingsPersonalLoans
RetailerCards
Phone PartnersInternet RBS/NW IntermediariesPost
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Slide 25
Cards BusinessCard 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, branchesand through partners
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Slide 26
Cards BusinessMerchant Acquiring
▮ 0.3 million merchant customers in UK
▮ Enables merchant customers to accept payments by cardsin store, by phone and internet
▮ Distribution through RBS/NatWest relationships withmerchants, by direct sales force and via intermediaries
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Slide 27
Own Brand Businesses
▮ 0.5 million customer accounts in UK
▮ Products include personal loans and mortgages
▮ Distribution by direct mail, phone and internetand via intermediaries
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Slide 28
The One Account
▮ 160,000 customer accounts in UK
▮ Current account mortgage combines mortgage, personalloan, savings account and credit card with a currentaccount
▮ Distribution by phone and internet and throughintermediaries
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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
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Slide 30
International
Europe
▮ Comfort Card � retailer cards
▮ Santander Direkt credit cards and loans business
▮ Direct loans
▮ Tchibo � retailer partnership, loans
▮ BIBIT � merchant acquiring
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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
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Slide 32
Retail Direct
CUSTOMERS
Group Operating Platform
Own BrandBusinesses
Tesco Personal Finance
The One
account
Cards Business International
CardIssuing
MerchantAcquiring
MortgagesInsurance SavingsPersonalLoans
RetailerCards
Phone PartnersInternet RBS/NW IntermediariesPost
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Slide 33
Products
Own The TescoCards Brand One Personal
Business Businesses account Finance
Credit cards * Retailer cardsCreditor insurancePersonal loans *Savings *MortgagesMerchant acquiringMotor/home insuranceOthers ** Products included in current account mortgage
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Slide 34
Products
June 2004 millionPersonal Customers
Credit cards 12.1Retailer cards 2.6Motor/home insurance 2.2Personal loans 0.6Savings 0.5Mortgages 0.2Others 0.1Total 18.3Commercial CustomersMerchant acquiring 0.3
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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
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Slide 36
Retail Direct
CUSTOMERS
Group Operating Platform
Own BrandBusinesses
Tesco Personal Finance
The One
account
Cards Business International
CardIssuing
MerchantAcquiring
MortgagesInsurance SavingsPersonalLoans
RetailerCards
Phone PartnersInternet RBS/NW IntermediariesPost
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Slide 37
Channels
Own The TescoCards Brand One Personal
Business Businesses account Finance
Phone
Internet
Post
RBS/NatWest
Partners
Intermediaries
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Slide 38
Retail Direct
CUSTOMERS
Group Operating Platform
Own BrandBusinesses
Tesco Personal Finance
The One
account
Cards Business International
CardIssuing
MerchantAcquiring
MortgagesInsurance SavingsPersonalLoans
RetailerCards
Phone PartnersInternet RBS/NW IntermediariesPost
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Slide 39
Credit Card Centre � Southend
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Slide 40
Comfort Card � Dusseldorf
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Slide 41
Lynk Systems � Atlanta
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Slide 42
0 2 4 6 8 10 12 14 16 18
Work Organisation and Efficiency
Co-operation and Working Relationships
Management Practices
Employee Involvement
Performance Management
Image and Competitive Position
Total Reward
Communication
Customer Focus and Quality
Training and Development
Management Leadership
Job Satisfaction
Workload and Stress
Employment Security
Employee Opinion Survey
Retail Direct 2003 v UK Financial Services norm*
* Percent difference between scores Survey by International Survey Research, 1st quarter of 2003 %
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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� Property
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Slide 44
Market Position in UK
#1 in card issuing
#1 in merchant acquisition
#1 in supermarket banking
#1 in current account mortgages
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Slide 45
Retail Direct
What are the required characteristics for growth?
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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
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Retail DirectIntroduction and Overview
Retail DirectRetail DirectIntroduction and OverviewIntroduction and Overview
Chris SullivanChris SullivanChief Executive, Retail DirectChief Executive, Retail Direct
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Card IssuingCard IssuingCard Issuing
Iain ClinkIain ClinkManaging Director, Cards BusinessManaging Director, Cards Business
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Slide 49
Retail Direct
Cards Business£1,056m
2003 Income £1,835m
TescoPersonal Finance
Own Brand Businesses
The Oneaccount
InternationalOther
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Slide 50
Credit Cards Business
Issuing bankissues card to
cardholder
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Slide 51
Credit Cards Business
Cardholdermakes
purchasewith card
Issuing bankissues card to
cardholder
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Slide 52
Credit Cards Business
Transactioninformationcaptured by
acquirer
Cardholdermakes
purchasewith card
Issuing bankissues card to
cardholder
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Slide 53
Credit Cards Business
Statement to cardholder
Settlementwith issuing
bank
Cardholdermakes
purchasewith card
Transactioninformationcaptured by
acquirer
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Slide 54
Card Issuing
Cardholdermakes
purchasewith card
Transactioninformationcaptured by
acquirer
Issuing bankissues card to
cardholder
Settlementwith issuing
bank
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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 provisions and fraud
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Slide 56
Merchant Acquiring
Cardholdermakes
purchasewith card
Transactioninformationcaptured by
acquirer
Issuing bankissues card to
cardholder
Settlementwith issuing
bank
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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
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Slide 58
Cards Business
2003 Income £1,056m
Net intereston borrowing
37%
Fee income frominsurance, forex,cash and others
21%
Interchange incomeon spending
22%
Merchant servicecharge20%
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Slide 59
Cards Business
2003 Income £1,056m
Net interestincome
37%
Non-interestincome63%
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Slide 60
Credit Cards Business
CardIssuing
Issuing bankissues card to
cardholder
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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
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Slide 62
RBS Personal Credit Cards
Transactors71%
Borrowers29%
June 2004
Split by Number of Accounts
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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
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Slide 64
Multi-Brand Strategy
Average Balance Per Account
Aver
age
Spen
ding
Per
Acc
ount High
Medium
HighMediumLow
Low
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Slide 65
Recruiting New Customers
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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 Retail Direct
▮ Customers can also apply for cards by post, phone andinternet
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Slide 67
Recruiting New Customers
RBS and NatWest Credit Cards
Branch74%Post/Phone
13%
Internet13%
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Slide 68
Recruiting New Customers
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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
� Development of test and learn approach,analysing response to price, benefits, creative
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Slide 70
Recruiting New Customers
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Slide 71
Recruiting New Customers
Source: Intelligent Environments Group plc, May 2004
MIN
T
Benefits
Security features
Validation of data
Customer functionality
Customer presentation
Internet Application - Site Comparison
Other providers
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Slide 72
Recruiting New Customers
Post/Phone59%
Internet41%
MINT Credit Cards
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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 cardsand retailer cards
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Slide 74
Managing Credit Risk
RBS Application Credit Scoring
▮ Credit scoring is used to predict an applicant�s probabilityof default
▮ RBS uses various sources of information to score creditrisk and set credit limit, including:� Application form
� Credit bureaux
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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 formarketing
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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 credit limit
▮ Public information� Electoral roll� County Court judgements/bankruptcies
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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
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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 base and experiencev �off the shelf� scorecards from bureaux
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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
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Slide 80
Managing Credit Risk
Sub Prime Near Prime Prime
Hig
her
Lower
Risk
Income
Provisions
Volatility
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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
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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
� eg amount at risk, behavioural score� Early contact made through outbound power dialling at times
when customer is likely to be home
▮ Late stage� Third consecutive missed payment triggers process� Focus on recovering debt� Account passed to debt collection agency
� First in house, then external agency� Account is closed, continued action to recover debt
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Slide 83
Managing Credit Risk
RBSActions
H LML HH
>4000
LM
2000 - 3999
N
YPayment This Month
Previously Paid
Age of Account(months)
Balance(£)
Behavior Score - Risk
0 - 1999
Illustration: Collections Strategy
Y
N
Days
5 No Call Letter Call Call LetterAction
10 Call Letter Call Letter Letter Call Letter
15 Default Letter Letter Call Letter
20 Call Call Letter
>6
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Slide 84
Managing Credit Risk
0.0
0.2
0.4
0.6
0.8
2001 2002 2003 1H04
RBS delinquency experience is better than the industry
% of Total Portfolio Balances � 3 Payments Delinquent
Source: APACS; June 2004
RBS CardsIndustry
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Slide 85
Managing Credit Risk
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2001 2002 2003 1H04
Percentage of Total Portfolio Balances Greater Than3 Payments Delinquent%
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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 future scorecards
▮ Trends fed back into expected loss rates for futureprovisioning
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Slide 87
Managing Credit Risk
0
20
40
60
80
100
2000 2001 2002 2003 2004
Balance Sheet Provisions as a Percentage of DelinquentBalances Greater Than 90 Days%
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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
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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 identifiedeg mobile phone top-ups, unusual international payments
� Customer at retailer required to verify identity
� Need to manage balance between fraud protection andcustomer convenience
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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 or take over an
account
� Credit bureaux information used to verify personal details
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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 already live include Tesco, Asda,Post Office and Marks & Spencer
▮ Major customer education programme underway
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Card IssuingCard IssuingCard Issuing
Iain ClinkIain ClinkManaging Director, Cards BusinessManaging Director, Cards Business
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Merchant AcquiringMerchant AcquiringMerchant Acquiring
Tony Tony SurridgeSurridgeManaging Director, AcquiringManaging Director, Acquiring
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Slide 94
Credit Cards Business
Issuing BankIssues card to
Cardholder
Cardholdermakes
purchasewith card
Transactioninformationcaptured by
acquirer
Settlementwith issuing
bank
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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 platform
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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
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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
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Slide 98
Do Merchant Acquiring for Other BanksAbbeyNational Australia Group
RBS Customers
Focus on Large Retailers
TescoM&SSafewayBootsNextDixonsSignet
MatalanHMVWHSmithCarpetrightSomerfieldHalfords
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Slide 99
RBS Customers
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Slide 100
Recruiting New Customers
Large/National Retailers
▮ Proposal prepared by specialist sales team in MerchantAcquiring, working with CBFM RM
▮ Key issues are technical competence (reliability), price
▮ Renewal process, normally every two or three years
Small Retailers
▮ Mainly sold through branch network� Immediate sale by small business RM
� Telephone sale by Merchant Acquiring sales team
▮ Also direct sales, and via intermediaries
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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 capability enables RBS to provide fullservice across cash, cheques, cards, internet
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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 capability and get schemepermission
� Received 2003 Queen�s Award in international trade category
▮ Over last decade has expanded into broader travel andentertainment market e.g. car hire, hotels
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Slide 103
Risk
▮ Risk that retailer may default between payment for goodsand delivery of goods e.g. furniture, carpets
▮ Merchant acquiring tender is treated like lending, withnormal processes for credit approval, due diligence etc
▮ Patterns of spending are monitored, to give early warningof any potential problem
▮ Each customer is subject to normal credit review every12 months � or more frequently, if appropriate
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Slide 104
RBS Transaction Value
0
20
40
60
80
100
120
2001 2002 2003
Value of Payments Processed£bn
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Slide 105
RBS Transaction Value
0
20
40
60
80
100
120
1H01 1H02 1H03 1H04
Value of Payments Processed£bn
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Slide 106
Merchant Acquiring
Since you arrived
Streamline has processed �
over 400,000 transactions
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Merchant AcquiringMerchant AcquiringMerchant Acquiring
Tony Tony SurridgeSurridgeManaging Director, AcquiringManaging Director, Acquiring
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The One AccountThe One AccountThe One Account
Jayne-Anne Gadhia,Jayne-Anne Gadhia,Managing Director, The One AccountManaging Director, The One Account
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Slide 109
Retail Direct
Cards Business
2003 Income £1,835m
Tesco Personal Finance
Own Brand Businesses
The One account£72m
InternationalOther
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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
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Slide 111
The One Account
Currentaccount
Mortgage Savings account
Loan Card
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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
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Slide 113
The One Account
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Slide 114
Make One Day Today
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Slide 115
Selling by Phone
▮ 600 inbound calls per day▮ Call follows customer not
script▮ Application completed
over the phone▮ Immediate credit
approval-in-principle givenfor 25% of customers
▮ Property valuation can beinstructed immediately
▮ 15% of callers becomecustomers (2001: 10%)
Conversion Performance
0
2
4
6
8
10
12
14
16
2000 2001 2002 2003 1H04
%
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Slide 116
Selling by Internet
▮ Step-by-step personalisedillustration of accountbenefits
▮ Paperless applicationprocess
▮ 30% of internet contactsbecome customers(2001: 17%)
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Slide 117
Selling Through Intermediaries
▮ Relationships with major national IFAs and mortgagebrokers
▮ Individual broker relationships managed over phone withlimited face-to-face support
▮ Broker can place business over the phone, fax or online
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Slide 118
The One Account
Customer Satisfaction%
0102030405060708090
The Oneaccount
Source: NOP FRSBase: 6 months to end of June 2004
% customers very satisfied% customers extremely satisfied
Other Providers
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Slide 119
The One Account
Customers%
0
10
20
30
40
50
AB C1 C2 D/E
Source: NOP FRS
UK Mortgage Market
The One account
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Slide 120
The One Account
Customer Accounts000s
020406080
100120140160180
2000 2001 2002 2003 1H04
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Slide 121
The One Account
Borrowing Facilities£bn
0
2
4
6
8
10
2000 2001 2002 2003 1H04
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Slide 122
UK Financial Services New Entrants
Commenced Profit/(Loss) 2003
Scottish Widows Bank 1995 £17mGoldfish 1996 (£30m)The One account 1997 £27mSainsbury�s Bank 1997 £22mTesco Personal Finance 1997 £160mEgg 1998 (£34m)Standard Life Bank 1998 £5mMarbles 1999 not reportedSmile 1999 not reportedCahoot 2000 (£15m)Intelligent Finance 2000 (£53m)Zurich Bank 2001-03 closed Mar 03Profit/(loss) before exceptional items
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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
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The One AccountThe One AccountThe One Account
Jayne-Anne Gadhia,Jayne-Anne Gadhia,Managing Director, The One AccountManaging Director, The One Account
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Tesco Personal FinanceTesco Personal FinanceTesco Personal Finance
Jim MacdonaldJim MacdonaldChief Executive, Tesco Personal FinanceChief Executive, Tesco Personal Finance
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Slide 126
Retail Direct
Cards Business
2003 Income £1,835m
Tesco Personal Finance
£346m
Own Brand Businesses
The One account
International Other
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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
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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 platform
Low cost manufacturing
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Slide 129
Tesco Personal Finance
Leaflets at Checkout
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Slide 130
Tesco Personal Finance
Leaflets with Relevant Products
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Slide 131
Tesco Personal Finance
Motor and Breakdown Insurance
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Slide 132
Tesco Personal Finance
Some Products �Off the Shelf�
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Slide 133
Tesco Personal Finance
TPF Sales Through Internet%
0
5
10
15
20
25
30
35
2000 2001 2002 2003 1H04
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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
2004 FTSE tracker bond, flexible mortgages, over 60�s life ins
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Slide 135
Tesco Personal Finance
▮ 10 million active Clubcard holders
▮ Financial products offer Clubcard loyalty points
▮ Clubcard points can be converted into Tesco voucherswhich can be used for shopping or other offers e.g. Deals
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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 preventionexpertise
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Slide 137
Tesco Personal Finance
Customer Satisfaction � Motor Insurance%
0102030405060708090
TPF
% customers very satisfied% customers extremely satisfied
Source: NOP FRSBase: 6 months to end of June 2004
Other Providers
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Slide 138
Tesco Personal Finance
Customersm
0.0
1.0
2.0
3.0
4.0
5.0
1997 1998 1999 2000 2001 2002 2003
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Slide 139
Tesco Personal Finance
Profit Before Tax£m
-40
0
40
80
120
160
1998 1999 2000 2001 2002 2003
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Slide 140
UK Financial Services New Entrants
Commenced Profit/(Loss) 2003
Scottish Widows Bank 1995 £17mGoldfish 1996 (£30m)The One account 1997 £27mSainsbury�s Bank 1997 £22mTesco Personal Finance 1997 £160mEgg 1998 (£34m)Standard Life Bank 1998 £5mMarbles 1999 not reportedSmile 1999 not reportedCahoot 2000 (£15m)Intelligent Finance 2000 (£53m)Zurich Bank 2001-03 closed Mar 03Profit/(loss) before exceptional items
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Slide 141
Europe � PartnershipTPF International
Tesco in Europe
▮ Ireland� 85 stores, #1 supermarket
▮ Hungary� 62 stores, #1 supermarket
▮ Poland� 70 stores, #1 supermarket
▮ Czech Republic� 22 stores, #3 supermarket
▮ Slovakia� 26 stores, #1 supermarket
Jointly prioritised:
� Size
� Consumer finance attractiveness
Under evaluation
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Slide 142
Europe � PartnershipTPF 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
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Slide 143
Europe � PartnershipTPF 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
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Tesco Personal FinanceTesco Personal FinanceTesco Personal Finance
Jim MacdonaldJim MacdonaldChief Executive, Tesco Personal FinanceChief Executive, Tesco Personal Finance
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InternationalEstablishing Strategic Options
InternationalInternationalEstablishing Strategic OptionsEstablishing Strategic Options
Chris SullivanChris SullivanChief Executive, Retail DirectChief Executive, Retail Direct
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Slide 146
Retail Direct
Cards Business
2003 Income £1,835m
Tesco Personal Finance
Own Brand Businesses
The Oneaccount
International £84m
Other
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Slide 147
Retail Direct 2000
UK Europe US
Consumer finance *
Credit card issuing
Merchant acquiring
* RBS is active in US consumer finance via Citizens
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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
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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 transactionsSources: Bank of England, Federal Reserve, European Central Bank
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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 skills
� RBS customers
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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
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Slide 152
Europe � OrganicBuild 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 � 2003
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Slide 153
Europe � OrganicLaunch Direct Loans
▮ Launch direct personal loans� Germany in 2003, Netherlands 2004, Belgium 2005
▮ Direct advertising by press and TV to generate customerapplications
▮ Telephone and internet applications
▮ Instant decisioning
▮ �36m balances in first 12 months
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Slide 154
Europe � PartnershipTchibo
▮ 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 Republic, Slovakia, Poland, Russia,
Switzerland
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Slide 155
Europe � PartnershipTchibo
▮ 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 inserts
▮ Successful pilot in 42 stores
▮ Rollout of 263 stores starting 4 October, remainderstarting Q1 2005
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Slide 156
Europe � AcquisitionSantander 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
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Slide 157
Europe � AcquisitionSantander 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 Card customers
� Commercial credit cards to Comfort Card retailers
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Slide 158
Europe � AcquisitionBIBIT
▮ Acquired May 2004
▮ Allows internet merchants to accept a wide range of debitpayment 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 corporate merchants
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Slide 159
Europe � AcquisitionBIBIT
Delivery of Transaction Benefits
▮ Integration with WorldPay and Streamline International� Three IT systems into single Group platform
▮ Offer full pan-European internet merchant acquiringproposition� Credit and debit
� SME and large corporates
▮ Cross-selling internet payment acquiring to� Streamline merchants
� CBFM customers
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Slide 160
United States
Acquisition
▮ People's Bank credit card business
▮ Lynk Systems
Partnership
▮ Kroger
Organic
▮ Citizens/Charter One customers
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Slide 161
United States � AcquisitionPeople'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
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Slide 162
United States � AcquisitionPeople'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 2004� 50,000 new accounts recruited
▮ Realise Group funding and purchasing benefits
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Slide 163
United States � AcquisitionLynk 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
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Slide 164
United States � AcquisitionLynk 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 synergies with Citizens and Manufacturing
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Slide 165
United States � PartnershipKroger
▮ 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
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Slide 166
United States � PartnershipKroger
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Slide 167
United States � PartnershipKroger
▮ Launched Kroger credit card integrated with loyaltyprogramme
▮ First mailing to existing Kroger credit cardholders in July2004
▮ First mailing to Kroger loyalty cardholders in October 2004
▮ Store rollout commencing October 2004� 103 stores initially
▮ Phased rollout nationally commencing 2005
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Slide 168
United States � PartnershipKroger
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Slide 169
United States � OrganicCitizens/Charter One
▮ Distribute credit cards to Citizens and Charter Onecustomers� Citizens 2.5m personal customers
� Charter One 1.7m personal customers
▮ Marketing through branches and direct mail
▮ Customer applications through branch, phone, postand online
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Slide 170
Retail Direct International
0
50
100
150
200
250
300
350
2003 2004
Income£m
*1H04 pro forma annualised
*
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Slide 171
Retail Direct 2004
UK Europe US
Consumer finance *
Credit card issuing
Merchant acquiring
* RBS is active in US consumer finance via Citizens
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ConclusionConclusionConclusion
Chris SullivanChris SullivanChief Executive, Retail DirectChief Executive, Retail Direct
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Slide 173
Retail DirectCharacteristics
▮ Large customer base
▮ Strong brands
▮ Low cost operation
▮ Diversity of income
▮ Good credit skills
▮ Able to make partnerships work
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Slide 174
Retail Direct
Summary
▮ Not only credit cards
▮ Not only lending
▮ Not only UK
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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
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Retail DirectRetail DirectRetail Direct
Questions & AnswersQuestions & Answers