For decades, credit card issuers have focused heavily on selling new payment cards.
Whether via direct mail (the preferred method of card solicitation in North America, where extensive credit bureau data allows for underwriting non-relationship customers) or via branches (increasingly used in the US to crosssell to existing relationship customers and long the key channel for European issuers with less access to credit bureau data), new account acquisition has received a heavy share of issuer’s budgets.
Unfortunately, in our work with dozens of issuers, including many throughout Europe, we have found that a large percentage of issuers do not place enough emphasis on activities targeted at existing cardholders.
In these challenging times, maximising the profit of each cardholder must be of the utmost importance to issuers. Below is a list of some of the key activities which card issuers can perform to help maximise the value of their card businesses.
Educate all existing and prospective cardholders
One of the most basic, but often overlooked, activities for card issuers is to explain clearly what a payment card (be it debit or credit) can be used for, where it can be used, the safety and convenience features it provides, and how the amount borrowed can be repaid (in the case of credit cards).
Even in very advanced card markets like the US, there are still many people who do not understand these aspects and customer awareness is much lower in many other markets. Perhaps because card managers are in the business, they have a tendency to over-estimate their customers’ and prospects’ awareness of the benefits and mechanics of payment cards.
This leads to situations where even basically free education and advertising – the issuer’s web page – normally lacks such essential information as the types of situations where a card can be used in place of cash.
All customer communication, be it verbal, electronic or written, should include messages about where cards can be used. Other educational information should be provided as and where possible and constantly reinforced (e.g. via statement messages, statement inserts, customer newsletters, etc.).
Actively promote activation and usage
There is no sense spending money, directly via marketing or indirectly via branch-based sales assistance, if those cards are not activated and used.
For cards which are delivered inactive to customers (and mailing active cards is a large security risk), tactics such as sending email and/or SMS reminder messages and even making calls to customers (automated or using live customer service representatives, in markets with low personnel costs) are all effective at ensuring that customers’ cards are ready for usage at the point-of-sale.
However, activation in the issuer’s system is only the first step, and many issuers do not track this level among new cards. Usage at the point-of-sale itself (sometimes also referred to as initial activation) is really the key step in building desirable cardholder behaviour.
Issuers who do not track the POS activation of new cardholders are unable to take the necessary step of following up with these cardholders to ensure that they have their card and understand how and where it can be used to make purchases.
Generate additional revenue
A key driver of credit card profitability is to increase the number of cardholders who revolve their credit card balances and to increase the amount of balance per card. However, customers’ willingness to use cards for such purposes varies widely by market (due to a combination of factors which may include effective competition from products such as low-cost overdraft facilities, ineffective operational characteristics of the card products themselves, and cultural factors).
Individual issuers will have a difficult time combating many of these factors – at least in the short term. Nevertheless, tactics such as active credit line management, promotional interest rates, targeted offers, removal of 100% automatic repayment features, and simple but consistent education from the moment a card is sold have proved effective for issuers to make improvements no matter what the local market conditions are.
Issuers can also increase revenues through the cross-sale of additional cards, types of insurance, and other bank products.
Many of these cross-sale products are most effectively sold along with the card, but a heavy focus on cross-sell during card activation and welcome calls can boost cross-sell penetration rates.
Retain all valuable customers
Finally, attrition of profitable customers can be hugely damaging to an issuer’s P&L. Therefore issuers should strive to track as much attrition data as possible (at the product level, segment level, etc.) in order to identify trends. In markets where annual fees are charged, and therefore customer attrition is usually concentrated at certain points in the cardholder lifecycle and thus often preventable, issuers must be armed in advance.
Data on a customer, especially their profitability as a cardholder and more generally their relationship to the bank, are absolutely essential and allow customer service representatives (ideally in a specialised retention team) to gauge the value of the offers they can make to retain customers.
Admittedly, none of the ideas above is groundbreaking. However, they are all essential to the proper functioning of a card business. Before issuers spend any more money to sell new cards, let alone develop additional products, they should first ask themselves whether they have put in place the processes and activities necessary to ensure that every card’s performance is maximised.
