Cembra Conference Call Notes – July 22nd(!) – Competition from Technology Driven Players, Crowd Lenders – Tailwinds: Still 30% Use Cash, Maestro vs Mastercard and Visa, Retailer Scepticism, Supervisory and Competition Bodies involved

Considering the loss of the Migros Credit Card, August 23rd, 2021 the following statements from the July 22nd, 2021 conf call are noteworthy, useful to remember. Also note that Migros had signalled this competitive renewal weeks and months ago, so it is likely that management of Cembra knew in advance that the loss of this client was a considerable risk. Especially also considering what happend with Coop Credit Card (TopCard vs SwissCard).

Below the transcript excerpts from the conf call:

Q: Maybe quickly on a competition in personal loans. Can you maybe elaborate quick a little bit more on where exactly you see the fiercest competition? Is it from established players coming in with lower prices or is it from new entrants into the market?

Competition in Personal Loans, Technology Driven Players, Crowd Lenders

CEO: Competition on personal loans. I think you get a bit of both. You know, the big players like ourselves. They've been active, the bank now and Migros bank of course. But we also have seen recently and this is what I was alluding to with similar trends in other places: There's a lot of smaller, more technology driven players that come into the market. Crowd, lenders, bob finance and others that, that sort of take a piece out of the value chain do that really will partner with other players in the market and all that. Now I think, first of all, I think that's great. That gives again, it gives a good dynamic into the market. It gives choice to customers and at the end of the day, it's our job to make sure that we have the products and the service and deliver them in a way that the customer are willing to buy them from us. I think the other thing I would say is, And as I mentioned, I was I was in this business for 3, 3.5 years in the early 2000s. And I've seen this at that time already: you will always have a few people trying to rapidly grow into this space because it is quite attractive. But we've also seen a lot of people fail because perhaps they don't have all the depth and expertise that it takes to sustainably succeed. We've been doing this for decades and we're in this for the long game. And so that's I think one of our , what we bring to the table with our expertise and with our experience. But that said, I do want us to watch this carefully, always good to look a bit over your shoulder when you're market leader and then really actively define how we continue to grow the business here. That's what I'd say on competition.

Client Behaviour, Pandemic as a Trend Accelerator

CEO: Cards in terms of client behavior. In this industry, as many others, the pandemic really has accelerated trends that were already visible before. Penetration of card users versus cash is growing, mobile payments is growing versus cash etcetera etcetera. So I would say that that global trend that you're seeing will continue. I think that does by and large provide some tailwind and overall still north of 30% of transaction Switzerland are cash. If you go to the Nordic it's well below 10%. So there is room to grow in this space and we're excited to continue to build our capabilities.

Maestro vs Mastercard and Visa, Retailer Scepticism, Supervisory and Competition Bodies involved

CEO: Most banks have started to replace the Maestro card's with the new Mastercard and Visa debit cards and will complete this process over time. But I think it's also fair to say that these cards are meeting some resistance from swiss retailers. The fees are significantly higher by multiple than those on the Maestro card. There've been some complaints, some of the supervisory and competition bodies have gotten involved. So that kind of remains to be seen right there. There's a healthy dose of skepticism, I would say certainly from the retailer side. And then of course, as you may also know, these cards cannot be used in all industries and purchasing processes in the same way. Such as a bit of a challenge for rental car companies, hotels and the likes, given the uncertainty about the ultimate fees on this. But I think these cards ultimately are going to be used in a very similar way as the previous Maestro Cards. And that's what we see the trend going.

Conf Call

Using Python to transcribe Conf Calls, Webcasts

The above audio was uploaded to an S3 Amazon Bucket, then was fed via a Python script to Amazon Transcribe service which resulted in a raw transcript. That raw transcript was then used for the quotes above. By default Amazon Transcribe does not seperate speakers, has difficulty with abbreviations or names.

For more on transcription see this article: Link

Questions or feedback?

Feel free to write me at contact@zuberbuehler-associates.ch or add a comment.

Background

Cembra and Migros to terminate credit card partnership as of June 2022

  • Cembra and Migros terminate successful credit card partnership after 15 years; in future Migros will issue its own card via Migros Bank
  • Cembra plans to introduce an attractive successor product and sees alternative growth potential in the credit card business
  • Termination will have an impact on net profit from 2022; outlook for the current year and mid-term targets are confirmed, sustainable dividend policy is secured due to strong capital base

Zurich – After a successful 15-year partnership, Cembra and Migros will terminate their cooperation agreement for the Cumulus-Mastercard credit card as of June 2022. For strategic reasons, the Federation of Migros Cooperatives (Migros-Genossenschafts-Bund) has decided to issue a proprietary credit card via Migros Bank in future.

No changes for customers until their card expires
Nothing will change for Cembra customers with a Cumulus-Mastercard credit card, until their card expires. They will be able to continue using it as before, with the same terms and benefits.

Cembra plans to introduce an attractive successor product
Starting in mid-2022, Cembra will offer a simple and attractive replacement for the more than 850,000 Cumulus-Mastercard credit cards issued. The successor product will be consistently geared towards today’s customer needs, attractively priced and combined with innovative services. In addition, Cembra is constantly expanding its portfolio of products and partnerships and exploring alternative growth opportunities.

Mid-term targets confirmed – strong capital base ensures sustainable dividend policy
Taking these measures into account, Cembra confirms its outlook for the current year and its mid-term targets.1 From 2022 on, Cembra also expects that the termination of the partnership will temporarily lead to a decline of 10%-15% in net profit relative to the bank’s plan; but Cembra expects to be able to compensate for this in the medium term through appropriate measures. Thanks to Cembra’s strong capital base and flexible capital management, its sustainable dividend policy will continue to be ensured.

Holger Laubenthal, CEO of Cembra, commented: “The Cumulus-Mastercard has set standards in many respects. We are proud of what we have achieved in these 15 years together with Migros. We see this situation as an incentive to become even better and even more innovative. It’s not only our existing customers who will benefit from these measures and our strong position in the credit card business, but our new credit card business partners too.”

1 Mid-term targets: Return on equity >15%, Tier 1 capital ratio of at least 17%, dividend payout ratio of 60-70%

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