Those who work in retail banking, in particular credit cards, must have noticed results of the Russia's National Financial Research Agency (NFRA) which in Russian mass media were published under headlines like '71% of Russians would have refused a credit card offer'.
NFRA surveyed 1,600 Russian citizens in 140 towns and 42 regions of Russia in April 2011. I am briefly citing key findings from their press release below. The majority of Russians (71%) would have refused a credit card offer. Only 15% would have had a positive reaction. 7% of those surveyed already have credit cards. Most popular reasons for rejecting the credit card offer - no need to borrow or sufficient income level (one third of Russians), high APRs (17%), dislike of credit (11%), insufficient repayment capacity (9%). Mistrust in banks is a reason for 8% of Russians. 18% of those surveyed could not explain the reason for rejecting the credit card offer.
71% is a lot. It means there is a lot of work ahead of credit card issuers in Russia. However segmentation by rejection reasons is also quite interesting. One third of Russians, it seems, consider credit cards a product for those with lower incomes. We can call this segment 'affluent traditionalists'. 17% of Russians consider credit cards expensive, let's call them 'economists'. 11% dislike credit ('credit avoiders') and 9% sound 'unbankable'. 8% have no
trust in banks ('distrustful').
Can we apply these numbers to the credit card market of Kazakhstan, where there is no NFRA, and how? Let's assume that Kazakhstan's credit card market follows the same segmentation (experience shows that it's most probably true). Before we discuss how issuers can work with the segments identified above, let's have a look at the numbers - what is the credit card market potential in Kazakhstan. Please note all calculations below are estimates.
Total population of Kazakhstan was estimated as 15,522,373 people as of July 2011 (I am using US CIA stats https://www.cia.gov/library/publications/the-world-factbook/geos/kz.html). As per Kazakhstan's Stat Agency data, there are 3,029,000 people in the 15-24 years old group and 1,086,566 people in the 65+ group. We will exclude these two groups as to have a chance to get a credit card in Kazakhstan you would normally have to fall into 24-64 years old group (11,406,807 people). There are 8,718,000 people employed in Kazakhstan (unemployed have practically no chance to get a credit card). As in Kazakhstan, many in the 20-24 years old group work full time, we will apply the ratio of 24-64 years old group to the total number of population (56%), to the number of employed - we will then estimate that out of all employed 6,387,811 people fall into 24-64 years old group and have a good chance to be approved for a credit card.
Urban population in Kazakhstan accounts for 59% of the total population, or 3,768,809 people from those employed and in the 24-64 years old group. Taking into account the complex process of credit card application in Kazakhstan (if you compare with, say, Russia) and inflexible credit risk assessment models of the banks, we can estimate the approval rate to be anywhere in the 50% range. Then, out of all population of Kazakhstan, only 1,884,404 people can get or already have a credit card, which is slightly above 10% of all population.
Let's now use NFRA findings from Russia. If 7% out of the above 1,884,404 identified prospects already have credit cards, this corresponds to my earlier estimates of the Kazakhstan credit card market (150,000-350,000 cards). 15% out of 1,884,404 prospects who are willing to get a credit card account for 282,660 prospects who most probably are already heavily targeted by the credit card issuers in Kazakhstan. Of course this group is too small an opportunity which has most probably been already exhausted. This means that credit card issuers in Kazakhstan who want to grow their credit card market shares and portfolios must be interested in how to work with other
segments - affluent traditionalists, economists, credit avoiders, unbankable and distrustful. The latter two segments would most probably be of the lowest interest to the credit card issuers, in light of the profitability and required effort. The first segment is the most promising one. This is where Russian market specifics have to be accounted for however - historically Russian banks sold (and are selling) credit cards as an alternative to the consumer loan. As a result, many Russians use their credit cards accordingly, hence most probably also the perception that this product is best for those with insufficient incomes.
The most likely tactic for working with the 'affluent traditionalists' is education, and namely communicating the message that credit card is not a product for those with lower incomes but rather a personal finance management tool (not only borrowing, see http://eng.bizmedia.kz/master_class/160-credit-card-as-a-saving-tool.html). Main message should be why use your own funds if you can use bank's money and reallocate your own funds to other uses (eg saving), repaying the outstanding amounts monthly, hence not paying any interest.
'Credit avoiders' is not a segment specific to Russia or Kazakhstan, they are quite common among post Soviet markets, perhaps it's part of a Soviet heritage when saving was far more valued than borrowing. In the developed countries (where this segment is described as 'those who want to be in control of their spending') there is a specific product for this audience - a charge card, which has not really took off in post Soviet. Perhaps, banks in Kazakhstan and Russia need to create a similar, hybrid (part debit, part credit) product for this audience. Alternatively, education may work - credit card is not all about credit, depends on how you use it.
Finally, 'economists'. This audience counts their money (and why not) and would not want to pay for overpriced bank products. Kazakhstan banks may ignore this audience (12% of population is not insignificant though), offer them low margin debit cards (as they do at the moment), or finally stop focusing on VIP segments only with Platinum and Gold cards, and develop credit card products for this segment - with competitive APRs, no or low annual fee, good value loyalty programs.
Thus we have shown how instead of focusing on the willing 15% (estimated) of population who meet the credit card criteria in Kazakhstan (estimated 282,600 people), Kazakhstan banks can quite realistically convert up to 40% more (from 1,884,404 prospects) who at the moment believe credit cards to be a product for low income audience, consider them overpriced or avoid credit because require control over their spending. This will require further market research (ours was just an estimate) and segment analysis, as well as top marketing work on educating the target audience and developing interesting products meeting their needs.