In a world of commoditized features and benefits, 0% interestrate promotions and oversolicitation, issuers need to take a fresh look at product innovation.
Issuers traditionally have placed tremendous emphasis on their card products’ up-front appeal and caché. And now it is hard to distinguish one card product or offer from the next. This lack of differentiation has caused response rates to suffer greatly and has accelerated price competition.
To grow, issuers must develop robust inventories of rewards options and use customer segmentation to target and deliver only relevant offers where appropriate.
But first, issuers must better understand their customers’ needs. In our opinion, transactional data is the single-most underutilized resource in card marketing. Available to all issuers, transactional data long has been a source of rich information. But few issuers have cracked the code on how to turn those insights into compelling value for customers.
This information can yield entirely new approaches to cardproduct development and card marketing. Integrating this data into point-of-sale systems and other customer touch points has enormous potential. Over time, leading issuers may separate themselves from the pack by using transactional data to partner with merchants to drive preferential behaviors.
We are seeing signs of card innovations in several emerging areas. Issuers are testing contactless payments, mobile commerce and multipurse-type products that combine debit, credit and stored-value product functions.
This is not to say that issuers have not been innovative in the past. The affinity model that MBNA created demonstrated that a credit card’s value proposition could extend beyond lower annual percentage rates. MBNA proved that customers would migrate purchases based on affinity relationships.
Unfortunately, in today’s saturated affinity market, the primary consumer question is, “what’s in it for me?” More recently, rewards-program proliferation has again altered the customer’s mindset and has transformed the industry’s financial models. Extensive marketing has trained customers to expect rewards for their card transactions, and consumers previously resistant to credit cards now use plastic aggressively for their payments.
Issuers now compete with one another to deliver the mostrelevant value for consumers. Generic reward points offer no differentiation. Consumers need frequent bonus offers at merchants or categories of interest that deliver meaningful value to remain engaged. Rewards are essentially a new form of price competition that forces issuers to build better rewards-based mousetraps.
Card-product barriers such as merchant adoption, merchant resistance to interchange and issuer conservatism still exist, but the equation is shifting. Pressure to retain good customers is growing, while customers want easier access to their accounts and funds. Such players as PayPal and Bill Me Later are bridging the gap between online and brick-and-mortar shopping experiences. Most merchants are fully aware of payment-acceptance costs, technology developments and alliance opportunities. Even the card networks are adding to heightened competition as they transition to publicly traded companies.
The approach of enhancing products by lowering balancetransfer rates and APRs is fading in effectiveness. Conversely, leveraging transactional data to deliver enhanced value or to create new payment forms is rising in importance. As pressures build in the industry, issuers able to match customer needs to emerging solutions will be rewarded as the true innovators.
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Cards and Payments
