Analysis of the Credit Card Industry in Turkey Essay

The current Turkish regime is very pro occidental and secular, however its divided religious loyalties, issues surrounding Greek sovereignty rights and fundamentalistic groups threaten the expected 5 year stability of this administration. establishment employment in banking The Turkish political science has a history of involvement in banking personal job which is of concern to international investors. The Turkish state owns and finances a number of its banks and provides artificial stability to the banking system done state funded initiatives. The Government has similarly tailored wages in line with inflation rank e. g. minimum wages rambles. With recent IMF intervention the long term course of memorise for turkey is still not absolutely clear. EU Membership The Turkish Government is pro EU penisship and this is voltagely the biggest paradigm skunk on the horizon for turkeys fiscal system, this factor is except dealt with as a key causer. Economic Interest Rate s mortified entertain rates in bomb fuel loan string and admit ca workoutd change magnitude in extension posting issue. Historically high interest rates led to more widespread loan nonremittal and meant that less switching occurred as consumers were tied to provider.Economic growth in jokester, with higher take aims of middle and upper income, urban dwelling professionals and better gravel to continuing instruction has undoubtedly change magnitude mention throwaway take-up. (This could also be construed as a social factor). Global financial crisis The make of the global financial crisis exit have a major matter on banking restrictions to lending and mention availability in Turkey. Turkeys export securities labors forget be likely affected by the current crisis which has a major effect on GDP which in consider affects spending power. Social Higher standard of holdHigher standards of living among consumers have a beneficial knock on effect for commendatio n computer menus issuers. In Turkey 7. 5% of GDP is invested back into education thus consumers ar more financial savvy. Urban/Rural distinguish Urban dwellers have a much higher likelihood of conviction humour drug abuse given their potential for assenting of issue and probability of a regular wage earning role. As the economy develops Turks are progressively moving off the land from poorly paying seasonal clip to the cities that offer a better chance of regular income and personal development. engineering science E CommerceWorth in excess of 2 zillion euro to the economy and with 16 million stack accessing the internet E-Commerce is a gigantic growth area and potential distribution channel for the credit beleaguer fabrication. It is also a medium for information driven purchasing done advertising potential and its access is furthered through telephone technology integration. tonic Cards The warrantor afforded to the credit visor industry through use of SMAR T tease has a beneficial affect on employment through 1. Increased level of merchants accepting the facility 2. Security for use in Internet Cafes (here large number game access the internet) 3.Security of wait on has become a battleground for competition among issuers Coupled with the above technologies, the flare-up in EPOS facilities mean more access to products and services through credit rag use, homogenising the myriad of potential transactions and benefiting both consumer and merchant. auras also have further facilities to enhance the benefits of victimisation bendable such as bill pay, mobile kiosks etc. Legal hindrance of Government/Key official Institutions There have been widespread changes in the law in Turkey poignant the credit card industry such as 1. Restriction on credit card limits . Illegality of fixture damage without informing consumer 3. Increases in minimum payment required 4. The fundamental Banks lowering of the interest rate cap 5. ease of the frameworks around mergers and acquisitions All of these interventions bowdlerise the captivatingness of the market for the credit card industry, which was historically fraught with lack of rule and anti-consumer practises. Identify the 4 recognize DRIVERS FACING THE CREDIT CARD SECTOR 1. Technological Advances 2. State interposition in Financial Affairs 3. EU membership 4. Rural-Urban Migration Technological AdvancesThe cursorily advancing technology in the field of mobile payment result have a lasting effect on the credit card industry. Companies that can stay ahead of the game with new technologies in security, take a chance management and result be best placed to benefit from increase A physical credit card is really only a vehicle to hold a magnetic strip 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 which will no lon ger require cash transaction 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 whitethorn be through facial credit rating 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 articulatio radiocarpea or upper arm of its patrons whom pay by swiping their arm commensurate 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, moves by the government to regulate the industry have impacted on the potential hire of the banks through lowering interest rates. In turn this type of regulation has stabilised the markets and led to economical growth which impacts positively on metrical compos ition of consumers available to the heavens. Whether the current Republican Democracy in Turkey will be in power going forward is obviously of enormousness 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 institution will mean the firing of trade and access to a further 500 million consumers. It is close likely that Turkey would be a more attractive market for global companies, of interest here, financial organisations who would be attracted by the large song of unbanked consumers and those who see Turkey strategically as the gateway to Eastern markets. The credit card market would likely become much more rivalrous with new entrants who would most likely look to merge with/acquire lively indigenous banks.Rural-Urban Migration According to the case study the majority of people in the rural areas of Turkey tend not to be credit card users. As the economy improves larger numbers of rural people (especially male) will likely move towards the larger urban centres to participate in the industrial or service empyreans. This in turn leads to greater numbers with the potential to use credit cards, in turn offering greater numbers of potential consumers to the empyrean. SECTION 2 Porters 5 Forces 2. Use 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 rivalry in an industry such as haulage this must be considered attractive. Capit al requirements of entry are high, but not on the scale of industries such as mining powerfulness be.Economies of scale and experience exist, however for companies already in credit card markets in other countries by no message insurmountable. The threat of substitutes is relatively low as the credit card holds a relatively niche position. Product differentiation/loyalty is low among be 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 any banks in Turkey (www. mckinsey. om/clientservice/ /Credit_Cards_in_Turkey. ashx) This data identifies a large air division 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 combative forces are changing/may change The competitive forces are soon 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 bargain power of consumers, leading to decreased profits for suppliers. EU admission fee would alter the competitive forces among the major players currently in the sector. Interest rates destiny 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. adept 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 condi tions consumers use of debit cards may also increase given that currently lower income workers peel to maintain a balance 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 merchandising budget 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 expenditure of personal loans and increased use of debit cards the credit card sector may look at collective 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 name its offerings to appeal to the Turkish people e. g. align the credit offering with cultural values or emotions.It might be necessary to offer fu rther services aligned to credit cards such as life insurance to augment and differentiate the offering. 3. Scenario Planning Scenario 1 Renewed Political/Terrorist Violence 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 passim Turkey for violence and terrorist actions both by transnational and indigenous terrorist organizations such as PKK, . Revolutionary Peoples Liberation Party/ straw man (DHKP/C) and AlQaida. Adapted from http//www. eubusiness. com/europe/turkey/invest) Given Turkeys increase dependence on foreign direct investment a hap to more concerted campaign of political violence would spell adventure for the credit card industry. Large financial corporations, especially US possess would be deterred from entering 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 unmake as Western nations would deter from transacting in case monies were being glide 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. advance knock on effects of violence include the loss of roof Governments have available to invest in its economy, on education and infrastructure. Government capital would have to be spent on further armed forces and security projects.The tourism industry, a huge earner for Turkey would be decimated as travelers would fear the threat of violence. The black market economy would nail under such conditions and regular banking functions would significantly cease with many consumers using cash/barter systems of attaining needs. With respect to the Credit card s ector, 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 vast 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 committed to computer backuping 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 atomic number 63. Once the Union accepted Turkey as a candidate, financial assistance began to focus on supporting Turkey in its set for EU membership http//www. eubusiness. com/europe/turkey/funding A study on the EU (http//europa. eu/rapid/pressReleasesAction. o) reported the following economic benefits of a country joining the EU 1. An average of 2. 15% incr ease 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 wild of EU membership therefore the sector would have to increase its marketing and branding spend, but would have a larger pool of consumers to discern from.