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Credit Card Retention Strategies

By: Ray Cain & Will Cain
Published: 15 June 2009

Credit Card Retention Strategies

In the wake of the global economic slowdown, retaining your existing customers is more vital than ever.

Credit cards will remain a constant in your financial portfolio but the combination of changes to consumer habits, regulatory changes, new product launches and the growing trend of reduced consumption, make today’s market ever more difficult to operate profitably in.

 

 

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This research report will help you make the most of your credit card retention strategies to improve the cardholder relationship – in turn promoting customer satisfaction, loyalty and profitability.

What does this report cover?

  • The significance of the credit card business for bank
  • Competition and regulation
  • The effect of the economic crisis
  • Alternative payment systems
  • Developing a successful retention strategy
  • Implementing a successful retention strategy

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 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.

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 STRATEGY

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 attrition?

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 developed.

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 life cycles.

The successful rollout will also focus the organisation’s efforts on customer loyalty, satisfaction and profitability.

 

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 strategy

Chapter 3: Understanding customer retention  

Chapter 4: Life cycle management

Chapter 5: Setting the retention strategy  

Chapter 6: Measuring the success of the retention strategy

Chapter 7: Understanding  your customers   

 

Section III. Implementing a successful  retention strategy

Chapter 8: Retention and organisational structure

Chapter 9: Retention and marketing  

Chapter 10: Retention, product design and pricing

Chapter 11: Retention and credit risk management  

Chapter 12: Retention and customer service

 

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