Why have credit cards been the most attractive line of business
available to retail banks and other providers of consumer financial
services around the world?
The answer is the bottom line: typically
returning three to four times the cost of equity in markets like
the UK and the US! Furthermore, growth rates – even in the US, the
world’s most mature cards market – have typically been ahead of
nominal GDP. The revenue coming principally from revolving credit
extended to cardholders. Other revenue comes from commission fees
paid by retailers and fees charged to cardholders.
The search for innovative card products has
been a major focus of 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 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 have recently
stepped up their retention efforts by making it harder for
consumers to compare credit card offers online and more expensive
to transfer balances to other providers. Since November 2008,
issuers have cut back their cooperation with comparison sites and
raised fees for balance transfers. While such actions are stop gap
measures, and not necessarily indicative of mature retention
strategies, they do attest to the increasing importance being
placed on card retention in today’s economic climate.
This new edition of this report will explore
customer retention in the credit card industry – both in general
and in light of present conditions, and discuss best practice in
developing and implementing a successful retention strategy for
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.
Credit and debit cards are still used for four
out of five payments online, but that share is steadily declining.
It is predicted 30 percent of online payments will be made by
alternative providers by 2012.
Estimates vary regarding the amount this will
cost card issuers. Celent estimates the figure to be as high as
$345 million in interchange alone in 2008 across the industry. That
will increase to $1.7 billion by 2013, the consultancy predicts.
The need to ensure customers stay engaged with card products means
developing a coherent retention strategy and offer convenient and
relevant services is a must in the current environment.
A SUCCESSFUL RETENTION
A successful retention strategy will take a
holistic view of the cardholder relation- ship and seek to identify
key actions that will improve the relationship, expressed in terms
of brand advocacy, loyalty and profits.
A retention strategy will have limited success
if it is positioned solely as a marketing tactic. The successful
retention strategies have involved developing an organisational
vision. This vision needs to encompass an agreed set of goals in
dealing with the threat from debit and the online space. Successful
retention strategies require actions at all levels. This includes
acquisition, customer service, collections, credit, operations,
activation and attrition.
One of the first steps in this strategy
development is to understand existing customers. Do these customers
feel loyal to the credit card brand? Will they recommend the credit
card to others? What are the factors behind reduced use and
Segmentation and profitability measures allow
the organisation to apply a value to each customer relationship.
One of many myths about customer segmentation is that highly
profitable customers are the most satisfied and the most loyal;
these same customers will not brand switch or reduce their use of
the credit card. These, and many other options, need to be
challenged if a successful retention strategy is to be
A successful retention strategy will provide
credit card issuers with one of the most powerful strategies to
fend off increased competition and react to the shorter product
The successful rollout will also focus the
organisation’s efforts on customer loyalty, satisfaction and
Section I. Background
Chapter 1: The significance
of the credit card business for banks
Chapter 2: The importance
of credit card customer retention .
Section II. Developing a successful retention
Chapter 3: Understanding
Chapter 4: Life cycle
Chapter 5: Setting the
Chapter 6: Measuring the
success of the retention strategy
Chapter 7: Understanding
Section III. Implementing a successful retention
Chapter 8: Retention and
Chapter 9: Retention and
Chapter 10: Retention,
product design and pricing
Chapter 11: Retention and
credit risk management
Chapter 12: Retention and
To order a copy of this report:
contact us by email
- call us on +44 (0) 20 7563 5638
VRL publishes around 30 in-depth reports every year. Containing
proprietary data, in-depth analysis and considered intelligence,
VRL reports review the most pressing issues and trends impacting on
the world of finance and cover a broad range of topics. These
reports are compiled by associate editors, who are specialists in
their field and contain original, previously unpublished content,
based on fact and expert opinion. VRL reports provide the
analytical intelligence needed to make informed business decisions
in a concise and cost-effective manner, and often negate the need
to incur costly external consultancy services.
In a recent customer survey on reports, conducted by VRL, 92% of
respondents stated that VRL reports give access to information that
is otherwise difficult or time-consuming to acquire. 93% said it
gave them a good overview or summary of market developments.
Overall 83% rated quality of information as excellent or very good
and content and scope of coverage was rated at 94% and 82%