Alpen Bank Credit Card Case Study

Alpen bank in Romania has been very successful in building a profitable banking business for the wealthy client. It had over 200,000 customers in a country of 7.7 million households. However, there is hesitation over the years in launching credit cards because of low per-capital income levels, a poorly developed infrastructure of point-of-sale terminals, and the population’s inexperience with consumer credit. Gregory Carle, Alpen bank’s country manager, believed that it is time to reconsider because credit card business would be an important growth vehicle.  Macroeconomic in Romania trend now is encouraging. Rapid economic growth and rising incomes, particularly among the emerging middle and upper-middle class, had dramatically increased total disposable income. In this case study, Carle has to make recommendation to his boss, Richard Tschrumperlin, on whether Alpen bank should enter credit card market in Romania and define target consumers, i.e., consumers with an annual income of at least €3,000 or €4,500. We believe Carle should proceed with the proposal to launch a new credit card catered for affluent customers whose annual incomes are at least €4,500. Our recommendation is derived from both qualitative considerations of the Romanian credit card market and quantitative analysis of possibility to generate €5 Million profit within 2 years.

 Based on quantitative analysis, Carle should choose option-2, i.e., launch credit card among consumers with an annual income of at least €4,500. It shall generate the profit of €5.16 Million in 2 years and meet profit target of €5 million (see Exhibit I). In contrast, option-1 will cause loss by about €950,000 (see Exhibit E). The profit result is obtained by calculating the expected yearly revenue per cardholder. The yearly revenue can be calculated by assuming that the proportion of new customers is the normalized proportion of the total population. This gives us yearly revenue of €163.31 (see Exhibit F) per cardholder if targeting affluent customers. This is higher than the expected revenue from including middle class customers, which is €122.78 (see Exhibit B). Additionally, average cost of acquisition for the affluent customers turns out to be cheaper at €18.31 (see Exhibit G), compared to the cost for obtaining middle class customers which is at €18.70 (see Exhibit C). The difference in acquisition cost can be accounted to lower utilization of direct mail marketing for acquiring affluent customers, since the direct mail marketing is most expensive among the 5 direct marketing channels. Lastly, taking into account the fixed costs of infrastructure and advertising, net profit for targeting affluent customer will net us €5.16 Million (see Exhibit I). This profit could be more if Carl is more selective of the marketing channels by reducing the Direct mail and growing the Branch Cross-Sell together with more branch openings.

The evaluation to choose option-2 (than option-1 or option-3) from quantitative data is strongly supported by some qualitative analysis. From company perspective, credit card business would be an important growth for company as it will generate more revenue to the bank by interchange revenue, charging annual fees, penalty fees and interest income. Targeting affluent consumers is in line with company brand image to serve premium customers. Alpen Bank’s existing customer base is 200,000 affluent clienteles, thus to maintain the premium position in the market, Alpen Bank should introduce the premium credit card targeted for the affluent customers. The credit card offer would complement Alpen Bank existing core business to provide banking services for the wealthy customer.