Development of tactical solutions for the e-credit card issuing industry

• Published date: 05 March 2018
• DOI: https://doi.org/10.1108/IJAIM-02-2017-0014
• Date: 05 March 2018
• Pages: 115-131
• Author: Bojun Fan,Hannah Ji,June Wei,Sherwood Lambert
• Subject Matter: Accounting & Finance,Accounting/accountancy,Accounting methods/systems

Development of tactical solutions

for the e-credit card

issuing industry

Bojun Fan

College of Business, University of West Florida, Pensacola, Florida, USA

Hannah Ji

School of Accounting, University of Florida, Gainesville, Florida, USA

June Wei

Department of Management and MIS,

University of West Florida, Pensacola, Florida, USA, and

Sherwood Lambert

Department of Accounting and Finance,

University of West Florida, Pensacola, Florida, USA

Abstract

Purpose –This paper aims to developa set of tactical electronicbusiness solutions for the electronic credit

card issuingindustry.

Design/methodology/approach –Specifically,a strategic credit card issuing (SCCI) model is developed

to analyze e-business in the credit card issuingindustry. Second, a set of tactical solutions is derived on the

basis of the SCCI model. Third, pattern analysis is conductedon the basis of data collected from dominant

credit card issuing companies to further investigate the implementation status on these electronicbusiness

solutionsin the credit card issuing industry.

Findings –The findings show that three categoriesof electronic business solution items can be classified.

The average variabilityof electronic business implementation patterns for business-to-business, business-to-

customer and business-to-internal in each company shows a variety of electronic business strategies

implementedby these dominant companies.

Originality/value –The results willhelp managers and executives when they make strategicand tactical

decisionson electronic business in the credit card issuing industry.

Keywords Credit card issuing, Electronic business, Strategic value chain

Paper type Research paper

1. Introduction

The economic segment of the general environment in the credit card issuing industry is

advancing as the US economy improves. As the employers’and employees’disposable incomes

are increasing, the number of people who are willing to borrow money for spending is also

increasing on a large scale, which will bring great benefits to the credit issuing industry.

Krajewski et al. (2007) mentioned five developments in the global market that require

companies to formulate effective global strategies. One of the developments is “loosened

regulations on financial institutions”that focused on the US Government’s effort to remove

“interest rate ceiling to allow domestic banks to attract more foreign investors by offering

e-credit card

issuing

industry

115

Received14 February 2017

Revised25 February 2017

Accepted2 March 2017

InternationalJournal of

Accounting& Information

Management

Vol.26 No. 1, 2018

pp. 115-131

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-02-2017-0014

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1834-7649.htm

higher rates.”On the other hand, “foreign banks removed barriers to entry.”The authors

stated that “the world’sfinancial systems became more open, making it easier for firms to

locate where capital supplies,and resources are cheapest”(p. 14).

However, Oja stated in Standard& Poors NetAdvantage Industry Surveyfor diversified

financial services (2014) that “currently, financial markets and their participants face more

regulations”(p. 12). Although the development of “loosened regulations on financial

institutions”is debatable, globalization has had a tremendous effect on financial services

industries, especiallythe credit card companies. Oja also stated that:

[...] credit card companies have generally concentrated on developed markets such as Canada

and the United Kingdom, where cultural attitudes toward credit are most in tune with those of the

US. As these markets have also matured, some companies have expanded to other markets (p. 20).

The “other markets”mentionedare financial markets in some developing countries, such as

China, that lacks proper third-party credit bureaus. Therefore, the problem with the

globalization efforts in credit cardcompanies is “the lack of credit bureaus limits unsecured

lending to some extent”(p.20).

According to the data and the trend in Carusotto (2014), revenues are the singlebiggest

dollar amount for credit card issuing industry. Industry value added (IVA) is the difference

between “the market value of goodsand services produced by the industry”and “the cost of

goods and services used in production.”IVA is also used to measure “the industry’s

contribution to GDP, or profit plus wagesand depreciation.”Enterprise is “a division that is

separately managed and keeps managementaccounts.”Establishment is “a single physical

location where business is conducted or where services or industrial operations are

performed”(Carusotto, 2014, p. 39).In other words, establishment is per unit and enterprise

is the total units. Industry revenue in the industry dropped significantly during the credit

crisis periods from 2008 to 2009. However, IVA dropped even more right before the crisis.

The profit loss should have given a warning to the companies that the crisis is about to

happen. Surprisinglyenough, the wages stayed fairly stable.

The credit crisis from 2007 to 2009 has incurred a detrimental effect on the industry

revenue and customer retention rate. Even after the crisis, credit card issuing industry has

not recovered as fast as some of theother industries because of the “elevated unemployment

levels and the consumer deleveraging process”(Carusotto, 2014, p. 5). Starting in 2013, the

credit card issuing industry was continuingits expansion process at a growth rate of 0.2 per

cent from 2014 (Carusotto,2014).

Credit card issuing industry focuses mainly on four groups of consumers, including college

students, working professionals, senior citizens and corporations (Carusotto, 2014). The

working professionals group has 60 per cent of the market, whereas college students group

has almost 15 per cent of the market for the industry (Carusotto, 2014). College students are

usually the deficit unit in the financial world because they normally spend more. Due to the

recent regulations on soliciting credit card applications to young adults, credit card issuers

have had to change their focus, directing more attention toward working professionals.

Working professionals are usually enticed by the cash reward program and travel reward

program that either generate more cash for them, or help them afford expensive airline tickets

for business and leisure trips. Most of them have just graduated from colleges and are craving

to spend off their first paychecks (Jagoda and Samaranayake, 2017).

Senior citizens are a growing market for credit card issuers in the recent years. Senior

citizens have always been thought as the surplus unit in the financial world, which states

that seniors tend to save more. Giventhe recent price inflations on medications and hospital

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