Analysis of the Credit Card Industry in Turkey Essay

The current Turkish government is precise pro western and secular, only its divided religious loyalties, issues surrounding classical sovereignty rights and fundamentalist groups threaten the expected 5 year stability of this administration. Government involvement in banking The Turkish Government has a accounting of involvement in banking affairs which is of concern to international investors. The Turkish render owns and finances a number of its banks and provides artificial stability to the banking system by and through with(predicate) soil funded initiatives. The Government has also tailored wages in note of hand with inflation casts e. g. minimum wages rates. With recent IMF hinderance the eagle-eyed term plan for Tur name is still not absolutely clear. EU Membership The Turkish Government is pro EU rank and file and this is potential droply the biggest paradigm shift on the horizon for jokesters pecuniary system, this factor is further dealt with as a key driv er. scotch pastime Rates Low relate rates in flop render loan take-up and gull ca expendd increase in ac citation badger issue. Historically high interest rates led to to a greater extent far-flung loan default and meant that less switching occurred as consumers were tied to provider.Economic growth in Turkey, with higher levels of middle and upper income, urban domicil professionals and reform devil to continuing education has undoubtedly increased faith witticism take-up. (This could also be construed as a social factor). spherical financial crisis The effectuate of the global financial crisis go forth do a major effect on banking restrictions to change and realization availability in Turkey. Turkeys export food grocerys go out be likely modify by the ongoing crisis which has a major effect on gross domestic product which in sport continues spending power. Social Higher standard of supportingHigher standards of living among consumers ache a beneficia l knock on effect for realization invoice issuers. In Turkey 7. 5% of gross domestic product is invested back into education thus consumers be more financial savvy. urban/Rural Divide Urban dwellers have a often higher likelihood of address card use given their potential for get to of issue and probability of a fixity wage earning role. As the saving develops Turks are increasingly moving off the land from poorly give seasonal work to the cities that offer a better chance of regular income and personal development. Technology E CommerceWorth in overindulgence of 2 billion euro to the economy and with 16 million people entrying the net profit E-Commerce is a huge growth area and potential distribution lead for the credit card constancy. It is also a medium for information operate purchasing through advertising potential and its access is furthered through band technology integration. SMART Cards The security afforded to the credit card industry through use of SM ART cards has a beneficial affect on wont through 1. Increased level of merchants accepting the adeptness 2. Security for use in Internet Cafes (here astronomical poetry access the mesh) 3.Security of service has become a battleground for competition among issuers linked with the above technologies, the explosion in EPOS facilities mean more access to products and work through credit card use, homogenising the innumerous of potential proceeding and benefiting both consumer and merchant. ATMs also have further facilities to get up the benefits of using plastic much(prenominal)(prenominal) as bill pay, planetary kiosks etcetera Legal Intervention of Government/Key official Institutions There have been widespread changes in the law in Turkey affecting the credit card industry such as 1. Restriction on credit card limits . Illegality of altering terms without informing consumer 3. Increases in minimum compensation required 4. The Central Banks lowering of the interest rate cap 5. Loosening of the frameworks around mix inrs and acquisitions All of these interventions alter the attractiveness of the grocery store for the credit card industry, which was historically fraught with lack of regulation and anti-consumer practises. chance upon the 4 KEY DRIVERS FACING THE CREDIT CARD SECTOR 1. proficient Advances 2. State Intervention in Financial Affairs 3. EU membership 4. Rural-Urban Migration Technological AdvancesThe rapidly advancing technology in the field of mobile payment will have a lasting effect on the credit card industry. Companies that can stay ahead of the game with freshly technologies in security, risk management and will be best set(p) to benefit from increased A physical credit card is in truth only a vehicle to hold a magnetic deprive containing coded information. In terms of technology this is already quite dated already systems are designed to swipe a card on a merchants mobile phone, this will allow for a myriad of services whi ch will no longer require cash traffic e. g. street traders. Advances in retina scanning technology are also at an advanced level and it is envisaged that the future of mobile payments may be through facial recognition or retina scanning. Other technology such as what is used in The Baja Beach Club in Barcelona where they inject a rice-size VeriChip RFID device into the wrist or upper arm of its patrons whom pay by swiping their arm adapted from http//www. creditcards. com/credit-card-news/credit-cards-of-the-distant-future State Intervention The level of further assign intervention in Turkeys financial affairs will be a key driver in Turkeys future credit card success or decline.As we have seen, moves by the government to regulate the industry have impacted on the potential earnings of the banks through lowering interest rates. In turn this type of regulation has stabilised the markets and led to economic growth which impacts positively on numbers of consumers available to the sector. Whether the current Republican Democracy in Turkey will be in power going preliminary is obviously of importance to this argument. With elections due in 2011 the future of state intervention in banking affairs is unclear. EU MembershipTurkey becoming a full member of the EU will be another key driver in the credit card industry. EU entry will mean the freeing of trade and access to a further five hundred million consumers. It is most likely that Turkey would be a more attractive market for global companies, of interest here, financial organisations who would be attracted 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 belligerent with new entrants who would most likely look to merge with/acquire existing indigenous banks.Rural-Urban Migration According to the instance study the majority of people in the plain areas of Turkey tend not to be credit ca rd users. As the economy improves larger numbers of rural people ( curiously male) will likely move towards the larger urban centres to inscribe in the industrial or service sectors. This in turn leads to greater numbers with the potential to use credit cards, in turn offer greater numbers of potential consumers to the sector. SECTION 2 Porters 5 Forces 2. office the five forces framework to identify the forces affecting the Turkish credit card sector a.Graphically illustrate the five forces (see overleaf) b. Draw 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 multinational e. g. BNP or Barclays to enter. From my analysis I have concluded that consumers are fragmented and suppliers are concentrated. Rivalry is high, yet only among 4 suppliers, considering ambition in an industry such as haulage this must be considered attractive. Capital requirements of entry ar e high, but not on the collection plate 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 means insurmountable. The threat of substitutes is relatively low as the credit card holds a relatively niche position. Product differentiation/ homage is low among existing consumers good offers would attract new business, as would ironlike internet presence. Turkey has 40 percent of people who are profitable based on their socio-economic status and age in Turkey are still unbanked, having no accounts with any banks in Turkey (www. mckinsey. om/clientservice/ /Credit_Cards_in_Turkey. ashx) This data identifies a large section of the Turkish population who are potential consumers for a new entrant therefore the market could potentially grow significantly for all players involved. 2. How the war-ridden 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 at long last 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. by-line rates set by the ECB, participation in the single property etc. would have a significant impact on the state financed banking institutions and would alter their relevance. One would suspect that in a free market system the Turkish government would relish the opportunity of divesting the burden to international organisations to increase competition.With increased market stability and better financial education, consumers use of substitutes may extend to less expensive forms of credit such as personal loans. Coupled with better economic conditions consumers use o f debit cards may also increase given that currently lower income workers struggle to maintain a balance sufficient to finish up their living costs. 3. How the sector may change to reflect changing forces The credit card sector can move more of its merchandising 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 differentiate to flake increased uptake of personal loans and increased use of debit cards the credit card sector may look at bodied 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 adventure EU accession it may look to further differentiate its offerings to arouse to the Turkish people e. g. align the credit offering with cultural set or emotions.It might be necessary to offer further services aligned to credit cards such as life policy to augment and differentiate the offering. 3. Scenario Planning Scenario 1 Renewed Political/Terrorist ferocity in Turkey In recent years, terrorist bombings some with significant numbers of casualties -have struck religious, political, and business targets in a variety of locations in Turkey. The potential remains throughout Turkey for strength and terrorist actions both by international and indigenous terrorist organizations such as PKK, . Revolutionary Peoples judgement of dismissal Party/Front (DHKP/C) and AlQaida. Adapted from http//www. eubusiness. com/europe/turkey/invest) Given Turkeys increasing dependence on foreign direct investing a return 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 entering the market, or potentially coerce out of the market thus decimating competition. Access to sources of international credit and lending would dry up therefore affecting consumers ability to obtain products and services on credit.Turkeys export market would potentially be destroyed as Western nations would deter from transacting in case monies were being skimmed to fund further terrorist activity. This would further lower the gross domestic product of the country affecting the spending power of consumers in turn negating the need for credit cards. Further knock on effects of violence take on 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 military and security projects.The tourism industry, a huge wage 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 terminate with many consumers using cash/barter systems of attai ning needs. With respect to the Credit card sector, this scenario would be highly detrimental to its future, as consumer confidence in the financial service sector would be decimated. The sector would have to pour extensive resources into transaction security and marketing the brand safety and correct usage policies to consumers.Default numbers would likely increase due to instability and escalating interest rates. Scenario 2 Turkey Gains Full EU Membership The EU is pull to supporting Turkey in its path for membership. The initial objective of EU financial support towards Turkey was the extension of an area of peace, stability and prosperity within 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/ reenforcement A study on the EU (http//europa. eu/rapid/pressReleasesAction. o) report the following economic benefits of a country jo ining the EU 1. An modal(a) of 2. 15% increase in GDP 2.Exchange rates for Turks traveling through Europe would be eliminated, as would the potential damaging effects exchange rate swings have on Turkish exports. I would have that the credit card sector would become significantly more competitive in the light of EU membership therefore the sector would have to increase its marketing and branding spend, but would have a larger pool of consumers to choose from.