It’s a Card Crazy World
Recent research1 indicates that 40 percent of consumers preferred to use credit cards as their main form of payment, while 35 percent selected debit cards, and only 11 percent specified a preference for using cash. According to a Federal Reserve report for 2016, debit cards were used to make transactions totaling $2.6 trillion during the same period while credit card purchase value exceeded $3.2 trillion in value. Furthermore, the growth of both credit and debit card purchase value is expected to exceed 7 percent year over year.
Card use continues to grow but usage rates remain low creating the opportunity for financial institutions to unlock the value of their card portfolios.
Remarkably, many financial institutions will miss the opportunity to benefit from these trends because their debit and credit cards are largely underutilized by the consumers that hold them. In the United States alone, 500 million credit cards2 and 700 million debit cards3 are in circulation. Yet, with usage rates at approximately 60 percent, there is plenty of potential value being untapped by issuers. Unlocking the unrealized value in card portfolios can help banks and credit unions not only generate additional revenue, but can also allow them to deliver more value to customers and members – all while building loyalty and increasing opportunities to cross-sell products.
If It Was Easy, Everyone Would Do It
Ensuring that a financial institution is unlocking the rich value of its debit and credit card portfolios is not a simple matter. Increasing the penetration, activation, and usage (PAU) of credit and debit cards requires considerable subject matter expertise that ranges from understanding the card use habits of consumers, to marketing strategies that can leverage those usage patterns.
For example, consider the fact that consumers use credit cards differently from debit cards. The TSYS study and Federal Reserve report referenced above noted that debit cards were the preferred method of payment for smaller, everyday transactions at supermarkets, gas stations, and convenience stores, while credit was the choice for more expensive purchases, including those at department stores and restaurants, as well as for travel reservations. In addition, there is a clear preference for card type according to age, with people ages 25 to 44 preferring credit cards, while the 18-24 and 45-54 age groups favor debit.
Card brands and various associations offer programs designed to address this challenge, and these programs can be useful for providing a general outline of the strategies and tactics involved. However, financial institutions often find that utilizing consultants that have specific expertise in tailoring a program to fit a bank or a credit union’s unique profile is necessary to get the desired results. A few of the areas where this type of expertise delivers value are in performing portfolio analytics, evaluating industry trends, determining the programs most likely to increase transactions, and defining the path to increasing both cardholder satisfaction as well as profitability.
What a PAU Program Entails
The elements that compose an effective PAU program and the areas related to each must be considered when building such a program.
- Card offerings can be a key driver for attracting and retaining new customers and members. An institution’s card offerings and key value propositions should be promoted prominently on the bank or credit union’s website.
- The institution’s staff should be educated on how to present the features and benefits of a card offering. These “front line” employees can be very effective in this area especially when the proper incentives are in place to promote and sell card offerings during consumer interactions.
- Marketing message and channel can be an important determining factor to the type of customer you acquire.
- Activation is the first step toward regular use and is the primary objective in customer or member lifecycle marketing. This requires engaging the customer through proper early month on book (EMOB) programs and having ongoing, tailored communication that reinforces value.
- Strategically segmenting the card portfolio can identify specific target groups for activation. Activation campaigns are typically directed toward segments of inactive accounts; time, effort, and expense should be proportional to the likelihood of success and potential return.
- Ongoing usage is the driving force behind card program growth and profitability, as well as customer or member loyalty. Regular and recurring usage is the behavior that establishes a card as “top of wallet”, making consumers less likely to respond to other offers or switch spend to another card.
- Rewards are the biggest factor driving ongoing usage. Research from various surveys indicates that consumers view their rewards program as the primary reason for carrying their [credit] cards; 80 percent of them use their rewards card most frequently.
- Mobile wallets and preloaded online payment data are becoming increasingly important to ensuring engagement. Additionally, usage programs could include spend and get programs, balance transfers, surprise and delight, pricing changes, product upgrades, card reissues, credit line increases, rewards, and benefit reminders.
- Dormant accounts are those that have either stopped using their cards, never used their cards, or are in some degree of substantial pay down.
- Dormant accounts can be an attractive target for growth because re-engaging these accounts are often less costly than trying to book new accounts. Furthermore, these accounts may have other bank relationships at risk.
- It’s important to also consider retention strategies in your PAU efforts. Similar to Dormant accounts, retaining these accounts are often less costly than trying to book new accounts.
- Retention strategies should consider the full relationship, profitability, potential, and costs to acquire/reacquire.
- Strategies should be both reactive and proactive. Proactive retention efforts can help to address problems before the customer tells you about it by closing the account and requiring a reactive approach.
What We Offer
SRM has been instrumental in helping financial institutions increase the value of their card portfolios by decreasing costs, enhancing revenues, and improving penetration, activation, and use within card portfolios. Our PAU programs begin with an assessment of the portfolio’s current state in comparison to industry averages and trends. From there, a card portfolio strategy, with buy-in from senior staff and relevant C-level members, is developed. A variety of tactics to support the key elements and areas that must compose a PAU program are identified and incorporated into a program plan. The program plan is then measured and, as needed, adjusted throughout implementation to achieve the stated goal.
Billions of Ways We Can Help You
SRM (Strategic Resource Management) has been selected by more than 700 financial institutions to advise in areas
such as payments, digital banking, core processing, and operational efficiencies. The company has unlocked billions
of dollars in value and improved the competitive advantage of its clients with a reputation for industry-leading subject matter expertise, a proprietary benchmark database, and proven negotiating skills. Visit www.srmcorp.com for more information and follow the company @SRMCorp.