Credit Card Retention Strategies

Credit Card Retention

Strategies

Edited and updated by Ray Cain and

William Cain

© 2009 i
Credit Card Retention Strategies

Credit Card Retention Strategies

Edited and Updated by Ray Cain and William Cain, fropm the original work of
Grant Halverston, Credit Card Strategies: Managing the Life Cycle for Profit, 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 specific matter. In the event that consulting or other expert assistance
is required with regard to any specific matter, the services of qualified professionals should be sought.

ii © 2009
Contents
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A Successful Retention Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Section I. Background
Chapter 1: The significance of the credit card business for banks. . . . . . . . . 3
Profitability of credit cards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Fees 8
Importance of payments in the customer relationship . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Appendix – Credit and competing products in the US and UK. . . . . . . . . . . . . . . . . . . . 11
Card usage and payment trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Cash usage trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Credit card debt and charge-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Balancing risks and reward. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Country survey: UK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Debit card trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Credit card trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Payment networks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Appendix – A question of retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Appendix – Strategy: Standard Chartered. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
‘Asia is the engine of our future’. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Chapter 2: The importance of credit card customer retention. . . . . . . . . . . 25

The favourable economics of customer retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Retention as a response to competition and regulation . . . . . . . . . . . . . . . . . . . . . . . . 26
The impact of regulation on card profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Retention as a response to the economic crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Retention as a response to alternative payment systems . . . . . . . . . . . . . . . . . . . . . . . 30
Online payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
PayPal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Bill Me Later. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Alternative payments for underserved markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Point-of-sale payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Mobile POS payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

© 2009 iii
Credit Card Retention Strategies

Section II. Developing a successful retention

strategy
Chapter 3: Understanding customer retention. . . . . . . . . . . . . . . . . . . . . . 45
Defining customer retention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Customer engagement and retention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Economic defection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Chapter 4: Life cycle management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

The market life cycle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
The card life cycle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Chapter 5: Setting the retention strategy. . . . . . . . . . . . . . . . . . . . . . . . . . 61

Chapter 6: Measuring the success of the retention strategy. . . . . . . . . . . . 65

Chapter 7: Understanding your customers . . . . . . . . . . . . . . . . . . . . . . . . . 69

Customer segmentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Data mining and retention prediction tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Fractal Analytics - case study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 successful

retention strategy
Chapter 8: Retention and organisational structure. . . . . . . . . . . . . . . . . . . 85

Chapter 9: Retention and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Using acquisition to enhance retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Using word-of-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 feedback in social media. . . . . . . . . . . . . . . . 98
Using rewards and promotions to enhance retention . . . . . . . . . . . . . . . . . . . . . . . . . 101
Merchant funded rewards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Payment Information 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 payment providers’ incentive programmes . . . . . . . . . . . . . . . . . . . . . . . . 113
Using activation and usage stimulation programmes to enhance retention. . . . . . . . . 115
Product upgrades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Cross-selling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

iv © 2009
 Contents

Chapter 10: Retention, product design and pricing. . . . . . . . . . . . . . . . . . 129

Retention and product design. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Using online customer communities for 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 of ‘mass confusion’. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
Pricing and retention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

Chapter 11: Retention and credit risk management. . . . . . . . . . . . . . . . . 145

Chapter 12: Retention and customer service . . . . . . . . . . . . . . . . . . . . . . 151

Customer service and engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
Bank of America – Customer service on Twitter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Customer service and the mobile channel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
SMS credit card fraud alerts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
MasterCard and MBlox fraud alert system. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Chapter 13: Retention and credit card payments. . . . . . . . . . . . . . . . . . . 163

Customer retention in POS credit card payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Contactless payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Contactless mobile payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Contactless unattended POS payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Transit fare payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
Customer retention for online credit card payments. . . . . . . . . . . . . . . . . . . . . . . . . . 178
Credit cards and bill payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180

© 2009 v
List of figures

Chapter 1: The significance of the credit card business for banks

Figure 1: Return on assets, large US credit card banks, 1987-2007 (%) (Source: Federal
Reserve, reports of 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 for credit card issuers and other consumer lenders in
2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 4: Non-interest revenue as percentage of assets for 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 of credit card customer retention

Figure 6: Marketing needs to align to profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Figure 7: Impact of delinquencies on outstanding credit card debt (Source:
CreditSights) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Figure 8: Screenshot of PayPal home page (Source: PayPal) . . . . . . . . . . . . . . . . . . . . 33
Figure 9: Screenshot of Bill Me Later homepage (Source: Bill Me Later). . . . . . . . . . . . 35

Chapter 3: Understanding customer retention

Figure 10: Correlation between primary card designation and share of spending,
2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Figure 11: Cardholder satisfaction vs. average card spend. . . . . . . . . . . . . . . . . . . . . . 49
Figure 12: Ron Shevlin’s schema for 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: Life cycle management

Figure 14: The credit card market life cycle – Different Markets (Source: McLean
Roche). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Figure 15: Life cycle management – European examples (Source: McLean Roche). . . . 56
Figure 16: Life cycle characteristics of main stages of market development (CIF = Credit
cards in force) (Source: McLean Roche). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Figure 17: Key strategic imperatives in a growth market (Source: McLean Roche) . . . . 57

Chapter 5: Setting the retention strategy

Figure 18: Steps in setting a retention strategy (Source: McLean Roche). . . . . . . . . . . 62
 Contents

Figure 19: Example of a detailed timetable of risk management and collections rollout
(Source: McLean Roche) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Figure 20: Example of a strategic assessment of current position of retention skills
relative to desired future position (Source: McLean Roche). . . . . . . . . . . . . . . . . . . 63

Chapter 7: Understanding your customers

Figure 21: Segmentation model of revolvers and transactors (Source: McLean Roche).70
Figure 22: Segmentation comparison: revolvers versus transactors (Source: McLean
Roche). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Figure 23: Understanding customer segment profitability (Source: McLean Roche). . . . 75
Figure 24: Screenshot of Chase +1 Facebook page (Source: Facebook). . . . . . . . . . . . 80
Figure 25: Screenshot of Visa Business Network Facebook login page (Source:
Facebook) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Figure 26: Screenshot of American Express Open Forum (Source: American Express). . 83

Chapter 8: Retention and organisational structure

Figure 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 for Citibank cardholders at Singapore restaurant (Source:
Aneace´s blog) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Figure 32: Promotion for HSBC cardholders at Singapore gas station (Source: Aneace´s
blog). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Figure 33: Examples of Welcome Real-Time frequent shopper coupons (Source: Welcome
Real-Time). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Figure 34: Examples of Welcome Real-Time competitive shopper coupons (Source:
Welcome Real-Time). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Figure 35: Examples of Welcome Real-Time smart sampling offers (Source:
Welcome Real-Time). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Figure 36: Examples of Welcome Real-Time game programme coupons (Source:
Welcome Real-Time). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Figure 37: Examples of Welcome Real-Time VIP service vouchers (Source:
Welcome Real-Time). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Figure 38: Selected results from Welcome Real-Time´s card payment promotions
solution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Figure 39: Example of coupon from Chockstone´s SingleSwipe solution (Source:
Chockstone). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Figure 40: Checkout by Amazon Cart up-sell steps (Source: Amazon). . . . . . . . . . . . . 115

Chapter 10: Retention, product design and pricing

Figure 41: Screenshot of American Express Labs homepage (Source: American
Express). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Figure 42: Screenshot of winning entry in Caisse d’Epargne Visa card design contest
(Source: Caisse d’Epargne). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Figure 43: Two examples of possible Flexi Card combinations (Source: Garanti Bank).138
Figure 44: Screenshot of Capital One Card Lab homepage (Source: CapitalOne) . . . . 138

Chapter 12: Retention and customer service

Figure 45: Screenshot of Bank of America Twitter page (Source: Bank of America). . . 158

© 2009 vii
Credit Card Retention Strategies

Chapter 13: Retention and credit card payments

Figure 46: Octopus cards (Source: southbound.ph). . . . . . . . . . . . . . . . . . . . . . . . . . 176
Figure 47: Suica Card (Source: Various travel blogs). . . . . . . . . . . . . . . . . . . . . . . . . 176
Figure 48: Oyster Card (Source: Transport for London). . . . . . . . . . . . . . . . . . . . . . . . 177

List of tables

Chapter 1: The significance of the credit card business for banks

Table 1: Bank credit card profitability, historical Visa, MasterCard and Discover – net
pre-tax return on assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table 2: US credit card balance growth 1999-2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Table 3: Product Innovation: Bank savings loyalty programmes (all figures USD):
Source RBI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Chapter 4: Life cycle management

Table 4: Account life cycle management (Source: VRL KnowledgeBank). . . . . . . . . . . . 59

Chapter 6: Measuring the success of the retention strategy

Table 5: Example – prime versus sub-prime portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . 65
Table 6: US card issuer account benchmarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Chapter 7: Understanding your customers

Table 7: Major differences – prime and sub-prime segments. . . . . . . . . . . . . . . . . . . . . 71
Table 8: Examples of possible segmentation (Source: VRL KnowledgeBank). . . . . . . . . 72
Table 9: Possible segmentation strategies, example 2 (Source: VRL KnowledgeBank). . 73
Table 10: External view of a European market (* signifies total number of 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: Successful product upgrade timings (Source: VRL KnowledgeBank) . . . . . . 127
Table 15: Successful cross-selling strategies (Source: VRL KnowledgeBank). . . . . . . . 128

Chapter 10: Retention, product design and pricing

Table 16: Comparison of online panels and online communities (Source:
Communispace). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Table 17: Example of basic segment product features (Source: VRL KnowledgeBank).142
Table 18: Pricing and enhancements (Source: VRL KnowledgeBank) . . . . . . . . . . . . . 143
Table 19: Interest in and willingness to pay for mobile overdraft alerts, mobile users
in five Asia-Pacific markets, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

viii © 2009
Executive Summary

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! Further more, 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 dec-
ade. 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 indica-
tive 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 glo-
bal 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.

© 2009 1
Credit Card Retention Strategies

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 market-

ing tactic. The successful retention strategies have involved developing an organi-
sational 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, collec-
tions, credit, operations, activation and attrition.

One of the first steps in this strategy development is to understand existing cus-
tomers. Do these customers feel loyal to the credit card brand? Will they recom-
mend 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 segmenta-
tion 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 short-
er product life cycles.

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

2 © 2009
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