Cardholder Lifecycle Management
Jim Sheahan, VP Card Services, FIS
Agenda
Whats changed? Whats the same? Opportunities Cardholder lifecycle management
Acquisition strategies Activation strategies Usage strategies Retention strategies Risk management Questions and answers
Whats changed?
No area, aside from the mortgage industry, has seen a greater impact from the credit crisis than has the credit card industry.
Whats changed?
Its not just the economy CARD Act Debit card usage recently exceeded credit($ and trans):
Displacing cash and check Picking up small ticket transactions Not stealing much from credit Generation Y: More comfortable with debit Very engaged in social networking and green initiatives Consumers are taking control of their money: They are more aware of the costs of credit Have been reducing debt and spending within their means More engaged in their credit score and how to improve it
Whats changed?
Card offer trends:
More cards offered with annual fees Many offers have higher APRs Lower credit lines Small business: Same as above No protections from CARD Act Most issuers have reduced credit lines(as much as 30%), very few doing opt in Penalty pricing really tough to execute Consumers payment trends Cards first More difficult to price risk fewer cards, lower profitability
Whats the same?
Credit cards can still be a profitable product for financial institution. Its a mature market which means cut-throat competition. Multi product customers tend to perform better across all products. Two-thirds of cardholders surveyed said they would consider switching their primary
credit card if a better feature were offered. (Source: ComScore, September 2008)
Community Financial Institution Opportunities
The current economic situation has created new opportunities for community
financial institution: Increased interchange New customer acquisitions Better positioning against larger institutions Stable balance sheets Increased consumer demand to do business with community financial institutions Loan origination growth This is something that community financial institutions need to capitalize on now In the area of credit cards, this means a focus on Cardholder Lifecycle Management
Cardholder Lifecycle Management
Acquisition
What features are important?
To better understand the state of
credit in the U.S., Forrester surveyed consumers who have recently opened a new credit card account.
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Whats important?
No annual fees 57% overall Brand name I can trust 29% overall An attractive intro offer 26% Cash back rewards 23% Rewards choice 15% Other rewards, discounts, etc important
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Direct Mail
Direct mail solicitations are on the increase.
Increased 47% in Q4 2009 compared to Q3 (source Mintel Comperemedia) Industry stats for direct mail card solicitation programs result in a response rate of <.0033%. Weve experienced response rates up to 2.5%. More than 50% of direct mail solicitations include a reward offering. Whats changed? 36% featured an annual fee in 2009, compared to 20% in 2008. Regulations have impacted acquisition strategies . On variable rate card offers sent during the final three months of 2009, the mean go-to APR
for purchases was 13.9%, versus the average of 11.80% observed a year earlier.
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Loan Origination
Three important factors to consider with loan origination:
Instant decisions Immediate access Identity theft protection Consider new tools FICOs CCI score(Credit Capacity Index). Identification Verification (IDV) assesses whether the presented identity information on the application is accurate. Identification Authentication (IDA) a real-time, interactive solution that verifies consumers are who they say they are
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Loan Origination
The Web is now the
preferred method for loan applications. In a recent Aite survey, 36% of new accounts were processed through the online channel.
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The Small Business Opportunity is Growing Rapidly
$15 Trillion
global opportunity2
$5 Trillion
U.S. opportunity3
27 Million
U.S. small businesses1
5 yr average annual card spend growth4
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+ 20%
Source: 1) US Small Business Administration, 2008,; 2) Boston consulting Group, 2008;3) Dove Consulting, Migrating Small Businesses Invoice Payments from Paper to Plastic 2008and 4) Nilson Report 2002-2008
Small Business Opportunity
Small Business Card Opportunity is Significant and Relatively Untapped
Small Business Commercial Consumption Expenditure (CCE) 2007
Business Card Spend (6.9%)
Opportunities Gain new acquisitions in a mature market
Small business is the largest opportunity left in the credit card space.
Increased interchange
Business card will earn you increased interchange compared to consumer cards.
Visa and MasterCard both have major
Non-Business Card Spend (93.1%)
Source: Visa Commercial Consumption Expenditure Index; Economist Intelligence Unit (EIU) modeling and analysis, June 2008. Results include retail and wholesale intermediate inputs and are estimates only; government sources typically publish actual within two years of estimates. U.S. CCE index data sources include the Bureau of Economic Analysis (BEA) and U.S. Census Bureau, which conducts the Retail and Wholesale Trade Surveys Source for GPC Volumes : Visa Operating Certificates; Amex Earnings Supplement; The Nilson Report #909; Analysis and Calculations by Visa U.S.A. Inc.
focuses on the small business market.
Total = $4.7T
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Small Business
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Small Business
Credit cards are now the most common source of financing for Americas smallbusiness owners. (Source: National Small Business Association survey, 2008) Nearly 50% of small-business owners identified credit cards as a source of financing that their company had used in the previous 12 months more than any other source of financing, including business earnings. Larger banks reeling in credit lines
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Activation
Cardholder Activation
Activation is key.
Card carriers and activation stickers offer an excellent marketing opportunity Welcome kits can range from a simple letter and terms of agreement to an expensive,
multi-component package Personal Identification Number (PIN) mailers are often driven by form and function rather than effective communication Card benefits reminder mailings reinforce the buying decision and stimulate usage
Most popular reasons for non-activation: Its just my backup card. I threw it in a drawer somewhere. The rate is too high. The credit line is too small. I got a better rate on another card.
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Increase Activations
A compelling, rewards-based activation and retention program that will help you
rebuild relationships and increase revenues Provides cardholders the needed incentive to begin and maintain use of their credit cards Weve experienced an average activation rate of 50% Cost of activation recovered within 90 days after program completion just from interchange Increased retention and broadened account relationships (40% of activated accounts continue to use their credit card a year later)
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Usage
Increase Usage
Credit cards are responsible for more than $2.5 trillion in transactions a year and are
accepted at more than 24 million locations in more than 200 countries and territories. (Source: American Bankers Association, March 2009) The key to increased usage is to connect with cardholders and provide: Adequate credit limits Reinforce card security and protections Offer incentives and rewards Promote your product enhancements
There is a myth that debit is displacing credit. Debit is growing significantly, but not at the expense of credit; its at the expense of cash and check.
- Chris McWilton, MasterCard president of U.S. markets
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Rewards Will Increase Usage
Visa says rewards cards now make up more than half of all credit cards and about
80% of money spent on a credit card. (Source: Aite Group, January 2008) Consumers say rewards are the second-most important reason for choosing to apply for a specific card, behind no annual fees and ahead of low interest rates.
(Source: Aite Group survey, January 2008)
More than one-third of consumers choose which card to use in order to maximize
card rewards. (Source: ComScore, September 2008) What to look for in a rewards program Self-funded program with comprehensive cost analysis review Consider points, merchant funded and cash back programs Consistent cardholder experience A program that qualifies for increased interchange
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Multi Product Rewards
Relationship Rewards
Definition
Relationship Rewards is a program that rewards cardholders for the total value of their
relationship beyond just a single product.
Program Features
Enhanced profitability of cardholders by driving increased usage of products and services Improved retention rates Competitive advantage in the marketplace
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Promote your Enhancements
Increase usage by promoting the availability of card enhancements
Credit is the primary payment method for all travel
Promote your travel insurance
Promote your balance transfer program
After the holidays Back-to-school
Communication and awareness are often overlooked.
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Retention
Retaining Good Cardholders
Manage customer inquiries and complaints effectively
Select, train and empower staff Resolve issues promptly Encourage customers to call with feedback; show you care Champion the customer not the card account sync strategies Educate customers on credit scores Implement loyalty and best customer programs Use rewards in the form of rebates, reduced rates, waived fees, value-added coupons, etc. Communicate card benefits Use distinctive card design that reflects cardholder status Actively manage credit lines and possible product upgrades Formalize an account recovery process Slow attrition with offers of price incentives, fee waivers, etc. Train staff in listening skills and communication tactics to convey key messages Send reinstatement letters supported by outbound telemarketing
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Online Account Access
71% of survey respondents said they have logged into their credit card account via
the Internet. (Source: ComScore, December 2009) Your online presence should: Provide 24/7/365 Decrease calls to your customer service representatives Increase cross-sell opportunities Ensure that your cardholders understand all the features and benefits you offer Provide access to personal financial management tools Make it easy for your users with single sign on [Link] and [Link] are the online tools provided by FIS Complimentary marketing materials to help you promote to your cardholders Visit [Link]/mycardstatement or [Link]/ezcardinfo to access
Flash demo Branch poster and table tent Web banner, statement insert and a splash page
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Financial Management Tools
According to a 2010 Aite survey,
nearly 70% of financial institutions will put significant emphasis on offering personal financial management tools to their customers. Providing financial management tools can: Increase account balances with
their primary financial institution Increase cross-sell product purchases and loyalty
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Risk Management
Fraud is Top of Mind
Card fraud is the
No. 1 fear of Americans in the midst of the global financial crisis. Concern about fraud supersedes that of terrorism, computer and health viruses and personal safety.
(Source: Unisys Security Index: United States, March 2009)
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Risk Management
Aite Group estimates that the total cost of card fraud in the U. S. $8.6 billion per year. Use encryption technologies when communicating sensitive information. Key components to help control fraud risk exposure:
Fraud detection Fraud analytics Chargeback services Cardholder interaction Education and client support
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Summary
The landscape has changed Focus on the entire relationship Deposits are key Community and regional banks can gain ground Small business opportunities Focus on all phases of the lifecycle
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Thank You
Jim Sheahan [Link]@[Link]
