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Credit Card Retention Strategies

Published By :

Timetric

Published Date : Sep 2012

Category :

Banking

No. of Pages : 124 Pages


Synopsis
  • The report illustrates the significance of the credit card business for banks
  • The report explores customer retention in the credit card industry both in general and in light of present conditions
  • It discusses best practices in developing and implementing a successful retention strategy for global issuers
  • The report also looks at the areas which pose the biggest threat to customer spending on credit and debit cards, notably online payments rivals like PayPal and Bill Me Later

Summary

The search for innovative card products has been a major focus in the past decade. However, the importance of customer retention for credit card issuers has grown in the wake of the global economic slowdown. The switch towards debit and cash spending in mature markets, the emergence of a range of new payment channels, increase in legislation and the continuing trend for customers to reduce consumption all present significant obstacles to the credit card industry. Credit card issuers in the US took drastic measures during the recession, such as making it harder for consumers to compare credit card offers online and more expensive to transfer balances to other providers. Issuers also cut back their cooperation with comparison sites and raised fees for balance transfers. While such actions were stop-gap measures, and not necessarily indicative of mature retention strategies, they do attest to the increasing importance being placed on card retention in todays economic climate.

Scope
  • The report illustrates retention strategies for acquisition, portfolio management and anti-attrition segments of the credit card life cycle
  • It includes examples of best practice programmes, strategies and channels that have been used to support each phase of the credit life cycle with further analysis of the strategies that worked, the strategies that didn't, and why
  • It assesses and recommends which data tools you can use in order to improve retention
  • It demonstrates how marketing, customer service and risk management can be better aligned to work together more effectively to enhance retention
  • It shows how marketing can be improved, with special emphasis on how better segmentation can yield better results

Reasons To Buy
  • Gain insight into the various credit card retention strategies adopted by issuers across globe
  • Measure the success of retention strategies 
  • Understand the relevance of credit card customer retention
  • Develop credit card customer retention strategies and measure ROI for the same
  • Understand and develop suitable product and pricing strategies for customer retention

Key Highlights
  • Credit card business normally provides a return of three to four times the cost of equity in markets like the UK and the US.
  • Though the profitability of the US credit card industry declined a little during the recession, profitability started showing signs of recovery to pre-recession levels in 2012. 
  • Credit and debit cards are still used for four out of five payments online, but that share is steadily declining.
  • Successful retention strategies encompass an organizational vision including an agreed set of goals to which all components of the credit card organization agree including, profit, and other key metrics.
Table of Content

1 Executive Summary 

2 The Significance of the Credit Card Business for Banks

2.1 Profitability of Credit Cards
2.2 Interest Income
2.3 Non-Interest Income
2.4 Fees
2.5 The Importance of Payments in the Customer Relationship
2.6 Country Survey: The UK 

3 The Importance of Credit Card Customer Retention
3.1 The Favourable Economics of Customer Retention
3.2 Retention as a Response to Competition and Regulation
3.3 The Impact of Regulation on Card Profitability
3.4 Retention as a Response to Alternative Payment Systems 

4 Understanding Customer Retention
4.1 Defining Customer Retention
4.2 Customer Engagement and Retention
4.3 Economic Defection 

5 Life-Cycle Management
5.1 The Market Life Cycle
5.2 The Card Life Cycle 

6 Setting the Retention Strategy 

7 Measuring the Success of the Retention Strategy

8 Understanding Customers

8.1 Customer Segmentation
8.2 Data Mining and Retention Prediction Tools
8.3 Fractal Analytics Case Study
8.4 Listening to Customers
8.5 JPMorgan Chases facebook marketing initiative
8.6 The Visa Business Network on Facebook
8.7 American Express Open Forum 

9 Retention and Organisational Structure 

10 Retention and Marketing

10.1 Using acquisition to enhance retention
10.2 Using Word-of-Mouth Marketing to Enhance Retention
10.3 Using Branding and PR to Enhance Retention
10.4 Best practices in engaging customers with social media
10.5 Using Rewards and Promotions to Enhance Retention
10.6 Merchant-Funded Rewards
10.7 Payment Information Value Added Services (PIVAS)
10.8 Using Activation and Usage-Stimulation Programmes to Enhance Retention 

11 Retention, Product Design and Pricing
11.1 Retention and Product Design
11.2 Personalization and Customization
11.3 Pricing and Retention 

12 Retention and Credit Risk Management 

13 Retention and Customer Service

13.1 Customer Service and Engagement
13.2 Bank of America Customer Service on Twitter
13.3 Customer Service and the Mobile Channel

14 Retention and Credit Card Payments
14.1 Customer Retention in POS Credit Card Payments
14.2 Customer Retention for Online Credit Card Payments

15 Appendix
15.1 Methodology
15.2 Contact Us
15.3 About Timetric
15.4 Disclaimer

List of Table


Table 1: Return on Assets, Large US Credit Card Banks, 20012011 (%)
Table 2: Average Most Common Interest Rates on Credit Card Plans (20002011)
Table 3: Proportion of Non-Cash Payments (in Volume Terms) by Payment Type in the UK
Table 4: Number and Value of Transactions Debit Cards
Table 5: Number and Value of Transactions Credit and Charge Cards
Table 6: Visa Interchange Fees for Selected UK Payment Methods
Table 7: Account Life-Cycle Management
Table 8: Example Prime vs Sub-Prime Portfolios
Table 9: US Card Issuer Account Benchmarks
Table 10: Major differences Prime and Sub-Prime Segments
Table 11: Examples of Possible Segmentation
Table 12: Possible segmentation strategies, example 2 (Source: VRL KnowledgeBank)
Table 13: External view of a European market (* signifies total number of cards (issued)
Table 14: Activation and Usage-Stimulation Programmes
Table 15: Retention Tactics in Usage-Stimulation Programmes
Table 16: Successful product upgrade timings (Source: VRL KnowledgeBank)
Table 17: Successful cross-selling strategies
Table 18: Comparison of Online Panels and Online Communities
Table 19: Example of Basic Segment Product Features
Table 20: Pricing and Enhancements

List of Chart


Figure 1: Non-Interest Revenue as Percentage of Assets for Credit Card Lenders and Other Consumer Lenders, US
Figure 2: Debit Cards in the UK
Figure 3: Credit Cards in the UK
Figure 4: Charge Card Volumes in the UK
Figure 5: Marketing Needs to Align to Profit
Figure 6: Screenshot of PayPal Home Page (Source: PayPal)
Figure 7: Screenshot of Bill Me Later Homepage (Source: Bill Me Later)
Figure 8: Correlation Between Primary Card Designation and Share of Spending, 2007
Figure 9: Cardholder Satisfaction vs Average Card Spend
Figure 10: Ron Shevlins Schema for Measuring Engagement to help Marketers Understand Their Customers
Figure 11: Relationship Between Bank Customer Engagement and Purchase Intent
Figure 12: The Credit Card Market Life Cycle Different Markets
Figure 13: Life-Cycle Management European Examples
Figure 14: Life-Cycle Characteristics of Main Stages of Market Development
Figure 15: Key Strategic Imperatives in a Growth Market
Figure 16: Steps in Setting a Retention Strategy
Figure 17: Example of a Detailed Timetable of Risk Management and Collections Rollout
Figure 18: Example of a Strategic Assessment of Current Position of Retention Skills Relative to Desired Future Position
Figure 19: Segmentation Model of Revolvers and Transactors
Figure 20: Segmentation Comparison: Revolvers vs Transactors
Figure 21: Understanding Customer Segment Profitability
Figure 22: Screenshot of the Chase +1 Facebook Page
Figure 23: Screenshot of the Visa Business Network Facebook Login Page
Figure 24: Screenshot of American Express Open Forum
Figure 25: Cards Organization Structure
Figure 26: Consumer Credit Operations
Figure 27: Relationship Between Customer Spend and Attrition
Figure 28: The Wells Fargo Wachovia Blog
Figure 29: Promotion for Citibank Cardholders at a Singapore Restaurant
Figure 30: Promotion for HSBC Cardholders at a Singapore Gas Station
Figure 31: Promotion for American Express Cardholders in the UK
Figure 32: PayPals Fanclub
Figure 33: Selected Results from Welcome Real-Times Card Payment Promotions Solution
Figure 34: Example of Coupon from Chockstones SingleSwipe Solution
Figure 35: Checkout by Amazon Cart Up-Sell Steps
Figure 36: Screenshot of the Winning Entry in the Caisse dEpargne Visa Card Design Contest
Figure 37: Screenshot of Flexi Site
Figure 38: Screenshot of Capital One Card Lab Homepage
Figure 39: Screenshot of the Bank of America Twitter page
Figure 40: Oyster Contactless RFID Card
Figure 41: The Octopus Card
Figure 42: Suica Card
Figure 43: Oyster Card
Figure 44: Barclays Contactless Card

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