National Australia Bank is set to stir strategic tensions with global card schemes Visa and Mastercard after revealing it would pay A$1.2 billion to buy Citi Australia’s consumer banking assets.
Under a deal announced to the ASX on Tuesday afternoon, NAB said it would acquire Citi’s $7.9 billion mortgage book and almost $4.3 billion of unsecured lending (mostly credit cards), along with $9 billion of retail deposits.
If the deal is approved by regulators NAB will also pick up the personal charge card and buy now pay later businesses of Citi’s Diners Club subsidiary.
NAB and Citi have not yet clarified whether Diners’ corporate charge card portfolio, which includes a lucrative Commonwealth Government mandate, is included in the sale.
However, NAB noted in footnotes to its ASX announcement that it had agreed to acquire all shares in the Diners Club subsidiary “subject to certain additional conditions”.
While ACCC boss Rod Sims told Nine Media in July he would “take a very, very close look” if the Citi business was sold to a major bank, the market share implications of the sale are unlikely to upend the deal.
The prospects of the deal securing approval from the competition regulator are enhanced by NAB’s woeful record in the credit card market.
NAB has been a chronic underperformer in credit card issuing for more than two decades and the addition of Citi’s $3.5 billion credit card portfolio will make it only the second largest player in the product segment behind Commonwealth Bank ($8 billion).
While NAB’s credit card portfolio will almost double to around $7.4 billion, the strategic value of the deal will be mostly in acquiring Citi’s product development and marketing capability.
Around 800 Citigroup staff, including senior management, will join NAB as part of the deal.
In many ways the deal might amount to something of a reverse takeover of NAB’s ailing cards operation and could prompt speculation that card gurus at Citi’s head office in Sydney, such as Choong Yu Lum, will eventually squeeze out incumbent NAB executives.
As head of Citi’s cards business, Choong Yu has spearheaded a raft of product developments in recent years including the soon-to-be-launched Spot buy now pay later platform.
The elevation of Citi’s payments executives within NAB could also prompt the group to relocate its cards operation from Melbourne to Sydney.
Another fascinating feature of deal is that NAB – a long term strategic partner of Visa – will acquire a credit card business squarely aligned with Mastercard.
That’s a dichotomy bound to foster strategic tension within the merged cards business, but would ultimately strengthen NAB’s bargaining hand if it decides to wring an exclusive issuing deal with one of the schemes.
But it raises questions about the future of NAB’s strategic alliance with Visa.
NAB and Visa are more than halfway through a ten year alliance that has seen the global card scheme help develop new digital payments products for the Melbourne-based bank.
Under the terms of the alliance that began in November 2015 NAB agreed to be an exclusive issuer of Visa cards.
The substance of that arrangement is about