1. Title page MasterCard and LBG 13th June 2014
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2. Title page Mastercard and LBG 13th June 2014
Introduction
Introduction
We have worked together as a team over the last 4.5 days with colleagues from different areas within LBG and globally from across MasterCard, to address the challenge to:
Create a flexible borrowing solution for credit cards
That has the potential to transform the UK payments & lending market
This is set within the context of 3 key things for LBG:
Wanting to meet identified customer needs
Growing market share
And ensuring our products continue to remain attractive and viable in a changing regulatory environment
So what is the problem we are solving for?...

3. The Problem
Card customers do not feel they are in control and do not feel they are making progress with paying off their purchases / debt in an affordable, structured way, on their terms
We performed extensive customer research in 2012/13:
ALL customers told us that having the tools to be in financial control was important
Financial control was an emotional as well as a functional need
Customers in control of their money felt in control of their life
SOME card customers told us specifically (more recently in in depth interviews):
They do not feel in control and
They do not feel they are making progress with paying off their debt in an affordable structured way, on their terms
And so, customers are currently meeting their needs with other, potentially more expensive, products such as:
Pay day loans
POS finance
And may be choosing not to spend because they don’t have the confidence that they can re-pay in an affordable way

4. Don’t use a card to finance larger purchases
Target Customers
Don’t use a card to finance larger purchases
Find managing a
revolving balance
complicated
Through our deep understanding of customer needs we have identified a range of segments
In particular, we have identified 2 sweet spot segments:
Those who don’t use a credit card to finance larger purchases
Those who find managing a revolving balance complicated
So how big is this opportunity?...

5. The Market x
£95bn
£34bn
In considering the market opportunity we looked at the unsecured lending market which includes loans, overdrafts, credit cards and point of sale finance which has a total market size of £95bn
However given our focus on the 2 sweet spot customer segments we then reduced this opportunity to determine an addressable market that excluded
Transactors paying off their balance in full each month
Non digital customers – given our digital focus with this product
Customers outside of current credit risk appetite for LBG
Therefore we believe that the addressable market opportunity is closer to £34bn
Over and above this identified customer need, what else gives us confidence that customers will adopt and use this type of product?...

6. Auchan (France) Spend uplift 150% Average ticket value increase 50%
Other Flexible Borrowing Solutions
Auchan (France) Spend uplift 150% Average ticket value increase 50%
HSBC cash instalment plan (Hong Kong)
So where did we start?
We looked at best practices internationally where we have seen examples of similar borrowing solutions in other regulated markets driving spend & ATV which again supports our view that customers will adopt and use this product
In particular, we have focused on 2 markets that are most closely aligned to the UK – Auchan (pro. Orshan), a French card issuer & ANZ the second largest retail bank in Australia
In the Auchan example – from when customers started using the instalment capability they evidenced:
Spend uplift of 150% over a 3 month period
ATV increased by 50%
These numbers are very encouraging
The ANZ offers a flexi loan facility within an existing credit card across tenures of 3,6 & 12 months at attractive preferential rates
These are only 2 examples – but there are many examples of card based instalment propositions around the world
However, there are none in the UK – giving us a potential first mover advantage
ANZ flexi-loan (Australia)

7. A Credit Card with Instalment Capability
The Product
A Credit Card with Instalment Capability
multiple instalment plans (lower APR)
separating day to day spend and instalments
choice of monthly payment amount and number of payments
managed through an app
clear line of sight to paying down
pre-purchase affordability calculator
post purchase app notification
In the past 4.5 days we have designed a credit card product with instalment capability that takes:
The best of the current system
And adds additional features with the potential to transform the UK market
The product works on an existing credit card with:
1 account
A single credit card limit
Using the current payment system infrastructure
This product has some great and unique features, including:
Multiple instalment plans (at a preferential APR)
Enabling users to separate out day to day spend and instalments
Providing a choice of monthly payment amount and number of payments
That can be managed through an app
With clear line of sight to paying down
Together with an easy to use pre-purchase calculator
And a post purchase app notification

8. The Proposed Roll-out
Digital acquisition only Friends and family / colleagues test Existing customers New Customers
Our proposed go to market strategy is not covered in a huge degree of detail due to the time limitations around what we needed to achieve in just one week
Our first cut launch roadmap is to roll out digitally to:
Friends & family
LBG colleagues
Followed by existing bank customers
We would propose a soft launch/ phased roll out to existing internet banking credit card customers (including dormant customers) using an online trades process with digital signature
Next, we would make available to new customers
Target Lloyds current account customers who are eligible for a credit card
And non-franchise digital acquisition (lloydsbank.com/ halifax.co.uk etc. and money aggregators)
So if we adopt the proposed roll out, what do we think we can achieve in terms of volumes?...

9. First Cut Financials £34bn £2m marketing ATL spend 150k cards p.a.
Returning to the addressable market opportunity of £34bn we know we will not attract all this balance but
If we were to spend £2m on above the line advertising
We think we could achieve 150k card sales p.a.
And build £1bn of balance over the next 5 years which equates to c.3% of the market opportunity
This is actually a conservative view compared with what we think the product could achieve but gives as a starting figure to work from
However we must also consider the challenges…
£1bn balance

10. Commercial Legal Conduct Risk
Key Challenges
Commercial Legal Conduct Risk
Our biggest commercial challenge is potential cannibalisation of existing higher APR balances
Those attracted by value/ low cost would be more likely to take out a 0% offer
We believe the bigger opportunity and the focus for the proposition positioning and advertising would be on purchases
So why wouldn’t customers just take a 0% offer instead?
Some customers are unhappy with the lack of control that these products offer
Others may have already moved from 0% to 0% and failed to pay the balance off over time without the control and clear line of sight to pay down
Legally, we know that we have a challenge to resolve around allocation of payments if we choose to have differentiated pricing between the regular transactions and the instalment plans, however, we have had initial conversations with the legal team and they are confident that we can find a way to resolve these through how we approach documentation for the product.
From a conduct risk perspective, we need to be able to evidence that the customer has been given the right information to help them determine the most appropriate product to meet their needs:
We can use lending pathways for acquisition
Need to work through process and customer experience for each instalment plan
There are issues, but they are not insurmountable…

11. The convenience of paying by card with the control of repaying like a loan
In conclusion…
We believe that this product will:
Introduce a totally new and compelling offer to the UK market
Bringing new features to customers - meeting identified needs & targeting a market gap
With the potential to transform LBG’s position in the UK market