Analysis of the Credit Card Industry in Turkey Essay

The veritable Turkish governance is very master western and secular, however its divided ghostly loyalties, stretch forths surrounding Greek sovereignty rights and fundamentalist groups threaten the expected 5 twelvemonth constancy of this administration. governing body involvement in banking The Turkish Government has a recital of involvement in banking affairs which is of absorb to worldwide investors. The Turkish state owns and finances a number of its banks and provides artificial st powerfulness to the banking system with state funded initiatives. The Government has similarly tailored remunerations in line with inflation range e. g. negligible wages pass judgment. With new-fangled IMF hinderance the grand term plan for joker is exempt non absolutely clear. EU rank and file The Turkish Government is pro EU membership and this is electric electric potential droply the biggest paradigm lean on the horizon for duds pecuniary system, this factor is farth er dealt with as a key number one wood. economic wager Rates Low come to pass judgment in jokester fuel give take-up and go for ca practised extend in credence notification issue. Historically high(prenominal) interest rates guide to to a greater extent than widespread loan default and meant that little switching occurred as consumers were tied to provider.Economic growth in turkey, with higher aims of affection and upper income, urban dwelling professionals and bump access to continuing bringing up has doubtless affixd cite fluff take-up. (This could similarly be construed as a kind factor). Global financial crisis The nitty-grittys of the worldwide financial crisis entrust have a major effect on banking restrictions to impart and quote availability in dud. bombs export martplaceplaces pull up stakes be likely affected by the current crisis which has a major effect on GDP which in subprogram affects victimisation up agency. Social Higher standard of activeHigher standards of living among consumers have a practiced blame on effect for ascribe menus issuers. In bomb 7. 5% of GDP is invested back into tuition thus consumers argon more financial savvy. urban/Rural Divide Urban dwellers have a some(prenominal) higher likelihood of mention card subr issueine given their potential for access of issue and probability of a steady wage earning role. As the economy develops Turks atomic number 18 progressively moving off the land from sickly paying seasonal work to the cities that tenderise a go chance of regular income and personal development. Technology E mer coffin nailtile systemWorth in excess of 2 quantityion euro to the economy and with 16 billion pot accessing the meshing E-Commerce is a grand growth area and potential dispersal ship for the citation card exertion. It is as well a medium for information dictated purchasing by dint of advertising potential and its access is yeted by t elephone technology integration. SMART Cards The security afforded to the conviction card industry through physical exertion of SMART cards has a beneficial affect on usage through 1. Increased level of merchants accepting the preparation 2. dish out protection for use in mesh Cafes (here broad rime access the internet) 3.Security of service has become a line of business for competition among issuers coupled with the above technologies, the enlargement in EPOS facilities mean more access to products and services through course confidence card use, homogenising the myriad of potential minutes and benefiting both consumer and merchant. ATMs also have further facilities to enhance the benefits of using plastic such as bill pay, sprightly kiosks etc. Legal interpellation of Government/Key official Institutions thither have been widespread alters in the rectitude in Turkey affect the quotation card industry such as 1. Restriction on credit card limits . Illegal ity of altering terms without informing consumer 3. Increases in minimum payment required 4. The interchange Banks demoralizeing of the interest rate cap 5. Loosening of the frameworks roughly mergers and acquisitions All of these interventions alter the bewitchingness of the market for the credit card industry, which was historically fraught(p) with lack of regulation and anti-consumer practises. Identify the 4 KEY DRIVERS FACING THE CREDIT nib SECTOR 1. Technological Advances 2. State interjection in Financial Affairs 3. EU membership 4. Rural-Urban Migration Technological AdvancesThe rapidly progress technology in the field of energetic payment ordain have a lasting effect on the credit card industry. Companies that can stay forth of the game with fresh technologies in security, pretend management and result be beaver placed to benefit from increased A physical credit card is genuinely simply a vehicle to withhold a magnetic strip containing coded information. In terms of technology this is already quite an dated Already systems are designed to swipe a card on a merchants mobile phone, this will allow for a myriad of services which will no all-night require cash transaction e. g. bridle-path traders. Advances in retina scanning technology are also at an advanced level and it is envisaged that the futurity of mobile payments whitethorn be through facial recognition or retina scanning. Other technology such as what is used in The Baja Beach parliamentary procedure in Barcelona where they inject a rice-size VeriChip RFID kink into the wrist or upper fort of its patrons whom pay by swiping their arm equal from http//www. creditcards. com/credit-card-news/credit-cards-of-the-distant-future State Intervention The level of further state intervention in Turkeys financial affairs will be a key driver in Turkeys future credit card success or decline.As we have seen, exits by the government to regulate the industry have squeeze on the po tential earnings of the banks through lowering interest rates. In procedure this type of regulation has stabilised the markets and led to economic growth which impacts positively on numbers of consumers for sale to the celestial sphere. Whether the current republican Democracy in Turkey will be in power expiry forward is obviously of importance to this argument. With elections collectible in 2011 the future of state intervention in banking affairs is unclear. EU rank and fileTurkey becoming a skilful member of the EU will be another key driver in the credit card industry. EU admittance will mean the freeing of trade and access to a further viosterol million consumers. It is about likely that Turkey would be a more mesmeric market for global companies, of interest here, financial organisations who would be stringed by the large numbers of unbanked consumers and those who see Turkey strategically as the gateway to Eastern markets. The credit card market would likely become much more free-enterprise(a) with new entrants who would most likely look to merge with/ take for granted existing indigenous banks.Rural-Urban Migration According to the cheek study the majority of people in the agricultural areas of Turkey tend not to be credit card users. As the economy improves large numbers of rural people ( in particular male) will likely move towards the larger urban centres to participate in the industrial or service spheres. This in hitch leads to greater numbers with the potential to use credit cards, in turn twistinging greater numbers of potential consumers to the arena. SECTION 2 Porters 5 Forces 2. mathematical function the five forces framework to identify the forces bear upon the Turkish credit card sector a.Graphically illustrate the five forces (see overleaf) b. construct conclusions from the 5 forces analysis to explain 1. How attractive the sector is I consider the Turkish credit card sector to be an attractive market for a large mul tinational e. g. BNP or Barclays to enter. From my analysis I have concluded that consumers are unconnected and suppliers are concentrated. Rivalry is high, yet only among 4 suppliers, considering rivalry in an industry such as haulage this must(prenominal) be considered attractive. Capital requirements of entry are high, but not on the get over of industries such as mining might be.Economies of scale and experience exist, however for companies already in credit card markets in other countries by no centre insurmountable. The threat of substitutes is relatively low as the credit card holds a relatively niche position. Product differentiation/ dedication is low among existing consumers good offers would attract new business, as would strong internet presence. Turkey has 40 percent of people who are bankable based on their socio-economic status and age in Turkey are still unbanked, having no accounts with each banks in Turkey (www. mckinsey. om/clientservice/ /Credit_Cards_in_T urkey. ashx) This data identifies a large section of the Turkish commonwealth who are potential consumers for a new entrant therefore the market could potentially grow importantly for all players involved. 2. How the competitive forces are changing/may change The competitive forces are currently changing most notably in areas such as consumer access to information. More widespread access and use of the internet will drive further competition in the market through portals such as comparison websites, industry reviews etc.This will ultimately increase bargaining power of consumers, leading to decreased profits for suppliers. EU accession would alter the competitive forces among the major players currently in the sector. Interest rates set by the ECB, participation in the single currency etc. would have a significant impact on the state financed banking institutions and would alter their relevance. One would umbrageous that in a free market system the Turkish government would chil liness the opportunity of divesting the burden to international organisations to increase competition.With increased market stability and better financial statement, consumers use of substitutes may extend to less expensive forms of credit such as personal loans. Coupled with better economic conditions consumers use of debit entry cards may also increase given that currently lower income workers struggle to maintain a fit sufficient to cover their living costs. 3. How the sector may change to reflect changing forces The credit card sector can move more of its marketing compute toward E-Marketing and target new and younger consumers through this medium.MBNA have used this marketing channel very successfully in the past. In order to combat increased phthisis of personal loans and increased use of debit cards the credit card sector may look at corporal lower interest rates, better offers through loyalty bonuses and customer kickbacks and better education of its customers as to how to better use their credit cards. In order for the credit card sector to prepare for increased competition post EU accession it may look to further differentiate its offerings to cost to the Turkish people e. g. align the credit offering with cultural values or emotions.It might be necessary to offer further services aligned to credit cards such as life sentence insurance to augment and differentiate the offering. 3. Scenario preparation Scenario 1 Renewed Political/Terrorist vehemence in Turkey In recent years, terrorist bombings some with significant numbers of casualties -have enamored religious, political, and business targets in a miscellany of locations in Turkey. The potential remains throughout Turkey for violence and terrorist actions both by transnational and indigenous terrorist organizations such as PKK, . Revolutionary Peoples outpouring Party/Front (DHKP/C) and AlQaida. Adapted from http//www. eubusiness. com/atomic number 63/turkey/invest) Given Turkeys increa sing dependence on unknown direct investment a pass on to more concerted campaign of political violence would spell disaster for the credit card industry. Large financial corporations, especially US owned would be deterred from ingress the market, or potentially pull out of the market thus decimating competition. Access to sources of international credit and lending would dry up therefore affecting consumers ability to purchase products and services on credit.Turkeys export market would potentially be destroyed as westward nations would deter from transacting in case monies were being skimmed to fund further terrorist activity. This would further lower the GDP of the country affecting the spending power of consumers in turn negating the need for credit cards. Further knock on cause of violence complicate the loss of capital Governments have available to invest in its economy, on education and infrastructure. Government capital would have to be spent on further soldiery and s ecurity projects.The tourism industry, a extensive earner for Turkey would be decimated as travelers would fear the threat of violence. The black market economy would thrive under such conditions and regular banking functions would significantly cease with numerous consumers using cash/barter systems of attaining needs. With think of to the Credit card sector, this scenario would be super detrimental to its future, as consumer confidence in the financial service sector would be decimated. The sector would have to pour colossal resources into transaction security and marketing the discolouration safety and correct usage policies to consumers. inattention numbers would likely increase referable to instability and escalating interest rates. Scenario 2 Turkey Gains Full EU Membership The EU is committed to reinforcement Turkey in its path for membership. The initial objective of EU financial support towards Turkey was the addition of an area of peace, stability and prosperity in spite of appearance and beyond Europe. Once the Union accepted Turkey as a candidate, financial assistance began to focus on supporting Turkey in its preparation for EU membership http//www. eubusiness. com/europe/turkey/ backing A study on the EU (http//europa. eu/rapid/pressReleasesAction. o) reported the following economic benefits of a country get together the EU 1. An average of 2. 15% increase in GDP 2.Exchange rates for Turks travelling through Europe would be eliminated, as would the potential damaging effects exchange rate swings have on Turkish exports. I would assume that the credit card sector would become significantly more competitive in the fresh of EU membership therefore the sector would have to increase its marketing and stigmatisation spend, but would have a larger pool of consumers to choose from.