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Credit Card Retention Strategies 

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© 2009 i

Credit Card Retention

Strategies

Edited and updated by Ray Cain and

 William Cain

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Credit C ard retention S trategieS

ii © 2009

Credit Card Retention Strategies

Edited and Updated by Ray Cain and William Cain, ropm the original work o Grant Halverston, Credit Card Strategies: Managing the Lie Cycle or Proft , pub-lished in 2006

© 2009 VRL KnowledgeBank Ltd

 No part of this report may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means,

electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright holder.

This report is designed to provide accurate information on the general subject matter covered. This report is provided

with the understanding that the author and publisher shall have no liability for any errors, inaccuracies or omissions of 

this report and, by this report, the author and publisher are not engaged in rendering consulting advice or other profes-

sional services to the recipient with regard to any specic matter. In the event that consulting or other expert assistance

is required with regard to any specic matter, the services of qualied professionals should be sought.

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© 2009 iii

Contents

Executive Summary 1

 A Successul Retention Strateg 2

Section I Background

Chapter 1: The signifcance o the credit card business or banks 3

Proftabilit o credit cards 3

Interest income 5

Non-interest income 7

Fees 8

Importance o paments in the customer relationship 9

 Appendix – Credit and competing products in the US and UK 11

Card usage and pament trends 11

Cash usage trends 12

Credit card debt and charge-os 12

Balancing risks and reward 13

Countr surve: UK 14

Debit card trends 15

Credit card trends 16Pament networks 18

 Appendix – A question o retention 19

 Appendix – Strateg: Standard Chartered 21

‘Asia is the engine o our uture’ 21

Chapter 2: The importance o credit card customer retention 25

 The avourable economics o customer retention 25

Retention as a response to competition and regulation 26

 The impact o regulation on card proftabilit 27

Retention as a response to the economic crisis 28

Retention as a response to alternative pament sstems 30

Online paments 30PaPal 32

Bill Me Later 34

 Alternative paments or underser ved markets 36

Point-o-sale paments 38

Mobile POS paments 42

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Credit C ard retention S trategieS

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Section II Developing a successul retention

strategy 

Chapter 3: Understanding customer retention 45

Defning customer retention 45

Customer engagement and retention 48

Economic deection 52

Chapter 4: Lie cycle management 55

 The market lie ccle 55

 The card lie ccle 58

Chapter 5: Setting the retention strategy 61

Chapter 6: Measuring the success o the retention strategy 65

Chapter 7: Understanding your customers 69

Customer segmentation 69

Data mining and retention prediction tools 75

Fractal Analtics - case stud 78

Listening to customers 78

 JP Morgan Chase’s Facebook marketing initiative 80

 The Visa Business Network on Facebook 82

 American Express – Open Forum 83

Section III Implementing a successul

retention strategy 

Chapter 8: Retention and organisational structure 85

Chapter 9: Retention and marketing 89

Using acquisition to enhance retention 89

Using word-o-mouth marketing to enhance retention 91

Using branding and PR to enhance retention 93

Best practices in engaging customers with social media 95

Best practices in dealing with negative customer eedback in social media 98

Using rewards and promotions to enhance retention 101

Merchant unded rewards 102Pament Inormation Value Added Services (PIVAS) 103

 Visa Account-Level Processing 104

Marketing partnerships between acquiring banks and merchants 104

Welcome Real-time’s Spiced™ 106

Chockstone´s SingleSwipe™ 110

 Alternative POS networks´ incentive programmes 112

 Alternative online pament providers’ incentive programmes 113

Using activation and usage stimulation programmes to enhance retention 115

Product upgrades 126

Cross-selling 127

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ContentS

© 2009 v 

Chapter 10: Retention, product design and pricing 129

Retention and product design 129

Using onl ine customer communities or market research 130

 American Express Labs 133

Personalisation and customisation 134

MasterCard Card Customisation Services™ 135

Caisse d’Epargne Visa card 136

Garanti Bank’s Flexi Card 136

Capital One – Card Lab 138

 The problem o ‘mass conusion’ 140

Pricing and retention 140

Chapter 11: Retention and credit risk management 145

Chapter 12: Retention and customer ser vice 151

Customer service and engagement 152

Bank o America – Customer service on Twitter 155

Customer service and the mobile channel 158SMS credit card raud alerts 159

MasterCard and MBlox raud alert sstem 161

Chapter 13: Retention and credit card payments 163

Customer retention in POS credit card paments 165

Contactless paments 165

C o n t a c t l e s s m o b i l e p a m e n t s 169

Contactless unattended POS paments 172

 Transit are paments 175

Customer retention or online credit card paments 178

Credit cards and bill paments 180

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List o fgures

Chapter 1: The signifcance o the credit card business or banks

Figure 1: Return on assets, large US credit card banks, 1987-2007 (%) (Source: FederalReserve, reports o Condition and Income 1986-2007) 4

Figure 2: Average credit card, car loan, and personal loan interest rates, US,

1976-2006 6

Figure 3: Net interest margin or credit card issuers and other consumer lenders in

2005 6

Figure 4: Non-interest revenue as percentage o assets or credit card lenders and other 

consumer lenders, US 7

Figure 5: Figure 4 POS to ATM transaction ratios in selected countries, 2003 10

Chapter 2: The importance o credit card customer retentionFigure 6: Marketing needs to align to proft 26

Figure 7: Impact o delinquencies on outstanding credit card debt (Source:

CreditSights) 29

Figure 8: Screenshot o PaPal home page (Source: PaPal) 33

Figure 9: Screenshot o Bill Me Later homepage (Source: Bill Me Later) 35

Chapter 3: Understanding customer retentionFigure 10: Correlation between primar card designation and share o spending,

2007 47

Figure 11: Cardholder satisaction vs average card spend 49

Figure 12: Ron Shevlin’s schema or measuring engagement to help marketers

understand their customers (Source: Ron Shevlin) 51

Figure 13: Relationship between bank customer engagement and purchase intent

(Source: Ron Shevlin) 52

Chapter 4: Lie cycle managementFigure 14: The credit card market lie ccle – Dierent Markets (Source: McLean

Roche) 56

Figure 15: Lie ccle management – European examples (Source: McLean Roche) 56

Figure 16: Lie ccle characteristics o main stages o market development (CIF = Credit

cards in orce) (Source: McLean Roche) 57

Figure 17: Ke strategic imperatives in a growth market (Source: McLean Roche) 57

Chapter 5: Setting the retention strategy Figure 18: Steps in setting a retention strateg (Source: McLean Roche) 62

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ContentS

© 2009 vii

Figure 19: Example o a detailed timetable o risk management and collections rollout

(Source: McLean Roche) 62

Figure 20: Example o a strategic assessment o current position o retention skills

relative to desired uture position (Source: McLean Roche) 63

Chapter 7: Understanding your customersFigure 21: Segmentation model o revolvers and transactors (Source: McLean Roche) 70

Figure 22: Segmentation comparison: revolvers versus transactors (Source: McLean

Roche) 74

Figure 23: Understanding customer segment proftabilit (Source: McLean Roche) 75

Figure 24: Screenshot o Chase +1 Facebook page (Source: Facebook) 80

Figure 25: Screenshot o V isa Business Network Facebook login page (Source:

Facebook) 82

Figure 26: Screenshot o American Express Open Forum (Source: American Express) 83

Chapter 8: Retention and organisational structureFigure 27: Cards organisation structure (Source: VRL KnowledgeBank) 86

Figure 28: Consumer credit operations (Source: VRL KnowledgeBank) 86

Chapter 9: Retention and marketing Figure 29: Relationship between customer spend and attrition (Source: McLean

Roche) 90

Figure 30: The Wells Fargo – Wachovia blog (Source: Wells Fargo) 95

Figure 31: Promotion or Citibank cardholders at Singapore restaurant (Source:

 Aneace´s blog) 105

Figure 32: Promotion or HSBC cardholders at Singapore gas station (Source: Aneace´s

blog) 105

Figure 33: Examples o Welcome Real-Time requent shopper coupons (Source: Welcome

Real-Time) 107

Figure 34: Examples o Welcome Real-Time competitive shopper coupons (Source:Welcome Real-Time) 107

Figure 35: Examples o Welcome Real-Time smart sampling oers (Source:

Welcome Real-Time) 108

Figure 36: Examples o Welcome Real-Time game programme coupons (Source:

Welcome Real-Time) 109

Figure 37: Examples o Welcome Real-Time VIP service vouchers (Source:

Welcome Real-Time) 109

Figure 38: Selected results rom Welcome Real-Time´s card pament promotions

solution 110

Figure 39: Example o coupon rom Chockstone´s SingleSwipe solution (Source:

Chockstone) 111

Figure 40: Checkout b Amazon Cart up-sell steps (Source: Amazon) 115

Chapter 10: Retention, product design and pricing Figure 41: Screenshot o American Express Labs homepage (Source: American

Express) 133

Figure 42: Screenshot o winning entr in Caisse d’Epargne Visa card design contest

(Source: Caisse d’Epargne) 136

Figure 43: Two examples o possible Flexi Card combinations (Source: Garanti Bank) 138

Figure 44: Screenshot o Capital One Card Lab homepage (Source: CapitalOne) 138

Chapter 12: Retention and customer serviceFigure 45: Screenshot o Bank o America Twitter page (Source: Bank o America) 158

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Credit C ard retention S trategieS

  viii © 2009

List o tables

Chapter 1: The signifcance o the credit card business or banks

 Table 1: Bank credit card proftabilit, historical Visa, MasterCard and Discover – netpre-tax return on assets 3

 Table 2: US credit card balance growth 1999-2008 5

 Table 3: Product Innovation: Bank savings loalt programmes (all fgures USD):

Source RBI 20

Chapter 4: Lie cycle management Table 4: Account lie ccle management (Source: VRL KnowledgeBank) 59

Chapter 6: Measuring the success o the retention strategy  Table 5: Example – prime versus sub-prime por tolio 65

 Table 6: US card issuer account benchmarks 66

Chapter 7: Understanding your customers Table 7: Major dierences – prime and sub-prime segments 71

 Table 8: Examples o possible segmentation (Source: VRL KnowledgeBank) 72

 Table 9: Possible segmentation strategies, example 2 (Source: VRL KnowledgeBank) 73

 Table 10: External view o a European market (* signifes total number o cards issued)

(Source: McLean Roche) 74

Chapter 9: Retention and marketing  Table 11: Activation and usage-stimulation programmes 116

 Table 12: Retention tactics in usage stimulation programmes 121

 Table 13: Communication strategies (Source: VRL KnowledgeBank) 125

 Table 14: Successul product upgrade timings (Source: VRL KnowledgeBank) 127

 Table 15: Successul cross-selling strategies (Source: VRL KnowledgeBank) 128

Chapter 10: Retention, product design and pricing  Table 16: Comparison o online panels and online communities (Source:

Communispace) 132

 Table 17: Example o basic segment product eatures (Source: VRL KnowledgeBank) 142

 Table 18: Pricing and enhancements (Source: VRL KnowledgeBank) 143

 Table 19: Interest in and willingness to pa or mobile overdrat alerts, mobile users

in fve Asia-Pacifc markets, 2007 161

Chapter 13: Retention and credit card paymentsFigure 46: Octopus cards (Source: southboundph) 176

Figure 47: Suica Card (Source: Various travel blogs) 176

Figure 48: Oster Card (Source: Transport or London) 177

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© 2009 1

Executive Summary 

Why have credit cards been the most attractive line o business available to retailbanks and other providers o consumer nancial services around the world?

Te answer is the bottom line: typically returning three to our times the costo equity in markets like the UK and the US! Further more, growth rates – evenin the US, the world’s most mature cards market – have typically been ahead o nominal GDP. Te revenue coming principally rom revolving credit extendedto cardholders. Other revenue comes rom commission ees paid by retailers andees charged to cardholders.

Te search or innovative card products has been a major ocus o the past dec-ade. However, the importance o customer retention or credit card issuers hasgrown in the wake o the global economic slowdown. Te switch towards debit

and cash spending in mature markets, the emergence o a range o new paymentchannels, increase legislation and the continuing trend or customers to reduceconsumption all present signicant obstacles to the credit card industry.

Credit card issuers in the US have recently stepped up their retention eforts by making it harder or consumers to compare credit card ofers online and moreexpensive to transer balances to other providers. Since November 2008, issuershave cut back their cooperation with comparison sites and raised ees or balancetransers. While such actions are stop gap measures, and not necessarily indica-tive o mature retention strategies, they do attest to the increasing importancebeing placed on card retention in today’s economic climate.

Tis new edition o this report will explore customer retention in the credit cardindustry – both in general and in light o present conditions, and discuss bestpractice in developing and implementing a successul retention strategy or glo-bal issuers.

Te report also looks at the areas which pose the biggest threat to customerspending on credit and debit cards, notably online payments rivals like PayPaland Bill Me Later.

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Credit C ard retention S trategieS

2 © 2009

Credit and debit cards are still used or our out o ve payments online, but thatshare is steadily declining. It is predicted 30 percent o online payments will bemade by alternative providers by 2012.

Estimates vary regarding the amount this will cost card issuers. Celent estimatesthe gure to be as high as $345 million in interchange alone in 2008 across theindustry. Tat will increase to $1.7 billion by 2013, the consultancy predicts. Teneed to ensure customers stay engaged with card products means developing acoherent retention strategy and ofer convenient and relevant services is a mustin the current environment.

 A SUCCESSFUL RETENTION STRATEGy 

A successul retention strategy will take a holistic view o the cardholder relation-

ship and seek to identiy key actions that will improve the relationship, expressedin terms o brand advocacy, loyalty and prots.

A retention strategy will have limited success i it is positioned solely as a market-ing tactic. Te successul retention strategies have involved developing an organi-sational vision. Tis vision needs to encompass an agreed set o goals in dealingwith the threat rom debit and the online space. Successul retention strategiesrequire actions at all levels. Tis includes acquisition, customer service, collec-tions, credit, operations, activation and attrition.

One o the rst steps in this strategy development is to understand existing cus-

tomers. Do these customers eel loyal to the credit card brand? Will they recom-mend the credit card to others? What are the actors behind reduced use andattrition?

Segmentation and protability measures allow the organisation to apply a valueto each customer relationship. One o many myths about customer segmenta-tion is that highly protable customers are the most satised and the most loyal;these same customers will not brand switch or reduce their use o the credit card.Tese, and many other options, need to be challenged i a successul retentionstrategy is to be developed.

A successul retention strategy will provide credit card issuers with one o themost powerul strategies to end of increased competition and react to the short-er product lie cycles.

Te successul rollout will also ocus the organisation’s eforts on customer loy-alty, satisaction and protability.

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