Case Study of J.P. Morgan Chase : The Credit Card Segment of the Financial Services Industry

As result of mergers and acquisitions activities Chase Credit Card Services (CCS) became fifth largest credit card issuer in the industry. Being a child of a highly reputable J.P. Morgan Chase bank the CCS has many competencies and competitive advantages in order to compete in already saturated credit card market. Evolvement of internet and technology, globalization, legislation and modernization of financial industry is giving new opportunities for expansion of the credit card business. Despite of intense competition among the banks to acquire and retain profitable customers this market still has a great potential for the right players. CCS reached a critical point when it is equipped with the right instruments and now needs to demonstrate that it is able to leverage them the most optimal way to maximize its profit and prove to its parent investment banking company that it still deserves to be a part of Chase core business.

Strategic Issues

  • Business and Corporate Credit Cards

This sector is growing and profitable segment of CCS which has a potential for even more growth especially in corporate card market. The revenue in this business is mainly derived from fee income and this reduces a reliance on interest rates. In addition to that the corporations guarantee payments on charges made by their employees that eliminate a problem of loan losses. Although this market is dominated by American Express the CCS has recently acquired Paymentech business with its industry leading platform for acquiring and servicing corporate credit cards. CCS’s president explicitly stated that this is a strategic growth area for the business.

  • Domestic and International Expansion

The trends of consolidation and technological advance in the credit card segment require CCS to decide the geographical scope it should expand the business. J.P. Morgan Chase did not have an international presence of its commercial banking but it did have a strong international presence of its investment banking sector. So CCS could leverage this brand name recognition on other countries to acquire new customers. Although CCS does not have an appropriate infrastructure to service credit card customers abroad it has a capital to acquire international portfolios along with the required technology and infrastructure. The only competitor of CCS in international business is Citibank which has a dominant position. However, the industry is consolidating much faster that Citibank alone can absorb. So if CCS starts competing for international portfolios it can participate with Citibank in absorbing this consolidation.

The consolidation trends are intense in domestic market as well. Many commercial banks exit credit card business and put their portfolios up for sale. CCS has a needed capital to acquire these portfolios as well as a leading infrastructure already in place to service them. Due to tremendous potential of the internet and technology CCS has lots of opportunities for internal growth on domestic markets. Online shopping and other activities require introduction of easy, secured and reliable payment methods and fast access to short-term credit.

Factors contributing to strategic issues

(a)     Industry Conditions

  • Intense Competition: Credit Card industry is already saturated several years and all players in this industry intensively competing to acquire new profitable customers. The companies explore different ways to do it: co-branded cards, affinity cards, agent banking cards and others. A strong competition is present in all sectors: Individual, Business and Corporate. As result of so intense competition there is a rapid consolidation in this industry. Smaller participants sell their credit cards portfolios to the largest firms and only those who have very strong competencies are able to survive in this business.
  • Buyers Power: There are three categories of the credit card customers: individuals, businesses and corporate clients. Individual customers is the largest segment of this market but due to lack of brand loyalty, lots of other products and low switching costs it is very hard and expensive to attain these customers. In this situation the customers have a high bargaining power which causes decrease in the profits. The main part of the income from individual and business customers is coming from the interest charged on revolving accounts. So these clients are strongly bargaining on the interest rates. The revenue from corporate clients is coming from fee income and does not depend on interest rates. Corporate clients are more loyal since they have more barriers to switch to other providers.
  • Substitutes: This is a very big threat. First of all, it is always possible to use cash, paper checks or electronic checks. Also there are debit and smart cards for online and regular transactions. The types of other credit cards are galore on the market. They all offer different features appealing to the clients: low interest rates, affinity with some organizations, rebates on certain purchases, etc.
  • Suppliers: Since each credit card must be supplied with a lot of capital and this market is still growing and have great potential and underserved areas the suppliers have a high power. They provide a capital, brand name and potential clients from their existing commercial and investment relationships.
  • Entry Barriers: In light of the situation in this market the only possible way to enter is through M&A. Due to saturation levels this industry is not that attractive for the new players.

(b)     Firm’s Relative Strengths

Largest credit card issuer in the domestic market; strong competitor for corporate and co-branded credit cards with established relationships within airlines, gasoline and other industries; Parent company is well known in investment banking domestically and internationally; Has a capital to acquire more credit card portfolios domestically and abroad; Possesses a leading industry platform Paymentech for acquiring and servicing clients; Has site for serving online customers allowing them to check balance, online statements and pay bills electronically;


Corporate clients segment.

  • Pros: still has good growth prospects; has a higher entry barrier since acquiring new corporate clients is more based on very strong reputation of the issuer; requires a special technology for servicing; does not depend on interest rates as revenue is coming from fee income; payment on charges is guaranteed by corporations so no loan losses.
  • Cons:  sector is dominated by American Express; more sales efforts should be done to acquire new clients (direct mail, advertisements, etc would not work).

Individual clients segment.

  • Pros: market is very large; various sources of income (interest charges, late and administrative fees, annual fees); many channels to offer cards (co-branding, affinity and agent banking);
  • Cons: extremely intense competition; lack of brand loyalty; dependence on interest rates; loss on defaulted loans; low switching costs; many other payment alternatives;

Domestic expansion only.

  • Pros: many portfolios are up for sale and CCS has a required capital; good technology for acquiring and servicing domestic clients is already in place; strong commercial banking presence would help to acquire loyal customers; the strongest competitor Citibank is more focused on international expansion; most large domestic corporations already have relationship with J.P. Morgan Chase; no need to compete with foreign banks who have good relationships with foreign corporations that could limit CCS abroad.
  • Cons: Citibank may change its focus from international back to domestic expansion; lack of diversification through international exposure which could protect CCS from declines in US economy

International Expansion.

  • Pros: provides a good international diversification; strong international presence in investment banking sector would facilitate acquiring new customers; CCS able to compete for international individual and corporate clients as well; Only Amex and Citibank have greater name recognition worldwide, but Amex is more focused on charge card market while rapid consolidation allows CCS to participate in consolidation along with Citibank; International presence can be significantly leveraged in the future.
  • Cons: lack of international commercial banking presence; lack of international infrastructure for servicing; dominant position of Citibank


In light of the situation on credit card market and considering abilities and constraints of CCS I recommend to simultaneously focus on two directions: international expansion and acquiring more corporate clients in both international and domestic markets. It is very important to act fast in these both directions. CCS has just 24 months in order to demonstrate to top management its high profitability and prove their right to exist as a part of the JP Morgan Chase. CCS also has to catch momentum on the market. Due to all these consolidations domestically and internationally, availability of the required capital, strong name recognition of the parent and industry leading technological platform CCS has all it is required to have a great success in all these markets. It needs to pay attention not only on the external activities but also on its internal relations with the top management who may consider selling off CCS. The CCS management has to activate economies of scope leveraging brand name of investment banking parent in obtaining corporate clients domestically and expanding all types of activities internationally. It should create a kind of value chain within the bank which would show to top management that every time investment banking gets a new client the potential revenue for the same client can be significantly increased due to cross-sale of credit card service.

One of the CCS most important goals is to create a one stop shop for financial services by leveraging a whole power of the financial giant which would allow it to become an integrative part of its core business and acquire a great market share of domestic and international credit card markets.

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