Integrating Credit Cards into Your Payments Strategy
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This document discusses strategies for credit unions to maintain successful credit card programs in light of regulatory changes. It recommends segmenting members and tailoring products, rewards programs, and communications to increase activation, usage, and retention. Precision in risk management, targeting the right members, and optimizing revenue throughout the customer lifecycle are keys to success. While national issuers focus narrowly on fewer members, credit unions have an advantage in providing superior products and service to their existing customers.
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Integrating Credit Cards into Your Payments Strategy
- 1. Integrating Credit Cards into Your Payments Strategy Presented by:Stephanie PolenVice President, Client Portfolio Management, FTPS
- 6. Balance transfer fees also reappearing
- 8. Fixed rate products are virtually extinct
- 9. Relationship rewards driven by good payment behaviors or multi-product relationshipsSource: http://www.creditunion.coop/ratedex.php. Averages displayed are straight averages of all institutions within the Informa Research Services database for the selected region as of Monday, January 31, 2011.
- 11. Line management becomes more important
- 12. Strict underwriting standards slowing starting to improve overall credit quality and extend creditFourth Quarter 2010 Data, Federal Reserve Board survey released January 31, 2011, www.paymentsource.com
- 14. Uncertainty in marketplace may continue the tumultuous shift in consumer payment behavior
- 17. Building PIN Debit Volume
- 18. Initiating Programs to Generate Growth - CUs Must Act Now to Prepare for Durbin Amendment, CU Times, January 26, 2011 What Does It Mean for Credit?
- 21. Products designed to help consumers rebuild their credit history
- 23. Purchases of basic goods
- 24. Premium rewards for high-income members
- 25. Multi-tier rewards structures“As consumers’ demand for greater control has evolved, so too has the way they use credit cards, resulting in a shift back to bank cards roots as a tool for cash flow management. No other tool provides the same level of control, choice, and flexibility.” – Tim Murphy, Chief Product Officer, MasterCard, American Banker, January 20, 2011
- 26. The Post-CARD Act Environment National Issuers Narrow Their Focus…
- 27. The Changing Payments Landscape …and your best members are the target! Credit card solicitations rose to 2.73B in 2010 from 1.39B in 2009 www.cardweb.com, Credit Card Solicitations are on the Rise, February 2, 2011 “The proverbial wheels of the credit engine are being greased once again.” –AnujShahani, Director of Competitive Tracking Services for Synovate’s Mail Monitor
- 28. The Credit Union Advantage Brand name was a key factor in the choices of 29% of U.S. online adults who opened a credit card in the prior 12 months. - “How U.S. Consumers Choose a Credit Card Provider.” Forrester Research. November 2009 Credit unions may present fewer options, such as smaller ATM networks, but what they do offer is generally a better deal than at banks. – Suze Orman I haven’t done business with big banks for years, primarily because of the awful customer service you get at most of them. I like local, community banks, and I believe whole-heartedly in credit unions. As a rule, these institutions practice excellent customer service. – Dave Ramsey NOW is the time!
- 30. Maintaining a Successful Card Program Segmentation and Loyalty Portfolio Performance Risk Management
- 33. Changing risk in the portfolio requires actionPortfolio Performance
- 37. Make the card product central to your high quality credit members offering Segmentation and Loyalty
- 41. Internal data analytics can identify less risky credit union membersRisk Management
- 42. Take Action to Drive Results Targeting and Segmentation Rewards Programs Acquisition Strategies Activation Strategies Risk Management Revenue Optimization Usage and Retention Strategies
- 44. Indirect loans
- 45. Share draft or DDA
- 46. Refer to existing relationship as lead in for communicationTargeting and Segmentation Rewards Programs Acquisition Strategies Activation Strategies Risk Management Revenue Optimization Usage and Retention Strategies
- 50. 2.5% response rate – compared to 0.7% industry response
- 51. Highest responding cell had 3 products, including deposit account
- 53. In branch is even more effective
- 54. Lower cost per card
- 55. High touch = stronger relationshipTargeting and Segmentation Rewards Programs Acquisition Strategies Activation Strategies Risk Management Revenue Optimization 30% of consumers earning $75k – $150kcompare the card offers they receive in the mail according to a Mintel online survey Usage and Retention Strategies
- 57. 86% of U.S. customers surveyed visit a branch once per month
- 58. 49% of adults researched new accounts by visiting a branch1
- 59. Most cost effective method of acquiring new accounts
- 60. $25 - $50 in branch vs. $103 - $154 direct mail21. North American Technographics Financial Services Online Survey Q3 2008 2. Visa 2008 Consumer Credit Card Issuer Benchmark Study
- 63. Engage early for long term loyaltyRevenue Optimization Usage and Retention Strategies
- 65. 86.3% used account within 30 days of receiving postcard
- 66. Outbound Call with Offer – called 53 inactive accounts
- 69. Postcard with Offer– sent to 28 inactive accounts
- 70. Obtained 3 more active accounts
- 71. Qualified for bonus point offer within 30 days of receiving postcard94% Activation Rate on New Accounts!
- 73. Focus on best membersUsage and Retention Strategies
- 75. Include 90 days inactive & never active to optimize results
- 76. Incentive:
- 77. Sweepstakes
- 78. Balance Transfer
- 80. Postcard
- 81. Statement Insert
- 82. Outbound Call
- 83. Segmentation:
- 84. Never Active
- 86. Programs need to adapt to the changing consumer behaviorUsage and Retention Strategies
- 88. 5% Cash Back - JPMorgan Chase and Discover Financial Services, Citi Dividends
- 90. Average increase in spending of $68 a month in a 1% cash rewards program
- 91. Mintel Comperemedia, American Banker, December 22,2010
- 93. More mailings focused on this behavior- Mintel Comperemedia, American Banker, December 22,2010
- 95. Extend credit lines for high credit quality membersTargeting and Segmentation Rewards Programs Acquisition Strategies Activation Strategies Risk Management Revenue Optimization Usage and Retention Strategies
- 96. Track Credit Quality New Score Previous Score Original Score
- 98. Review highly utilized products and cardholders for line increase opportunities
- 101. Precision in all aspects of your card program from risk through marketing drives effectiveness
Editor's Notes
- Many national issuers consider credit cards as part of an overall customer relationship and a key component of household profitability.
- IN THE NEWS: - CUs Must Act Now to Prepare for Durbin Amendment , CU Times, January 26, 2011Re-evaluate Debit Rewards Programs. If interchange revenues fall, you may want to look at your current rewards program structure to determine if it is cost-effective to continue it as is or whether an overhaul is required. Many credit unions are looking at migrating to merchant-funded reward programs that cost the credit union little but provide great value to cardholders. Examine Fee Structure. Credit unions should consider the current fee structure of their checking accounts, including monthly and annual fees, per check, electronic transactions and fees for paper statement delivery. Large national issuers are already proposing new fee structures, such as the elimination of free checking. Build PIN Debit Volume. Credit unions should identify which type of debit transaction provides the most value. With signature and PIN debit interchange converging, PIN debit may provide more net value taking into consideration cost to process, fraud and interchange income.Initiate Programs to Drive Growth. Continuing to grow your portfolio through penetration, activation and usage campaigns is vital to profitability. Before these changes take effect, CUs should be active in getting more cards into the market, focus on campaigns to activate both new and inactive cards and increase usage on active cards. An active debit card portfolio can soften the effects of reduced interchange.
- Record delinquencies, debit and prepay cards, recessionary stress and new regulations are damaging credit card profitability. Issuers are reevaluating every aspect of their card operation, business model and strategies, in order to hold onto portfolio profitability. The key to success is precision. By replacing the blunt instrument of conventional methods with sharper predictions and decision strategies, card issuers can adjust successfully to profound market changes—many of which will not go away even when the economy improves."Issuers that do not adapt to the new realities will fall behind more innovative issuers. Those that begin strategic adaptive efforts while the industry is still in crisis will position their business on firmer ground in anticipation of the eventual economic recovery."—Brian Riley, TowerGroup: After Boom and Bust: Navigating the Credit Card Industry into the Next Economic Cycle FICO has developed a program for Reengineering Card Profitability that can help issuers prosper in this new era of card management. The Reengineering Card Profitability program can help lenders in three critical ways:1. Managing Portfolio Performance relative to new market dynamics 2. Rebuild portfolio strength 3. Segmentation helps reduce losses