Following is an excerpt from the white paper “Credit Card Portfolio Best Practices for the Modern World.” The full version is available for download at themembersgroup.com.
Many tried-and-true methods for attracting new cardholders, upping transaction activity or increasing interchange income appear to be successful on the surface while actually creating larger problems down the road. The real results can go undetected when no one is assigned the duty of monitoring the long-term consequences.
Take balance transfer promotions, for example. These programs absolutely work to attract new cardholders, but at what cost? What type of cardholder is brought into the fold? More than one issuer has come into contact with a contingency of “balance hoppers” after promoting 0-percent balance transfer offers.
Financial institutions (FIs) are much better off promoting a low rate than no rate. Not only does this avoid doing business with consumers unlikely to be loyal to one issuer; it also earns enough income to sustain the program long enough to build a relationship with the new cardholder.
Aside from upping the rate on balance transfer programs, card managers may want to address the perception that transferring balances is too complex and too time-consuming to be worthwhile. This can be accomplished by upgrading to systems like TMG’s balance transfer tool inside Springboard, a proprietary cardholder service system. Tools like this make transferring balances as quick as a phone call or a visit to an online banking site.
Rewards are another effective program tool that may benefit from a refresh. And the added effort will be well worth your team’s time. That’s because rewards cards generate up to three more transactions per month as compared to non-rewards cards. In TMG’s experience, those transactions are typically $10 to $15 higher on average than transactions on cards without rewards.
Merchant-funded rewards are one way community-based FIs are adding robust loyalty programs at very low cost to the portfolio. With the cost of incentives falling on the merchants, it’s a clear win for card-issuing FIs looking to up their walletshare. What’s more, merchants only pay when customers are already in their stores – an investment that makes perfect business sense.
Earlier we addressed the value today’s consumer places on customization, and rewards are no different. Credit unions and community banks are in a unique position to better understand what their customers want. Ask them what they most value and how they expect to be rewarded for doing business with your FI (because increasingly, consumers no longer view rewards as a perk). With a great majority of today’s card offers presenting some type of reward option, cardholders have become accustomed to looking for the perks first, rates second.
The most successful promotions are those based on defined user groups. It is becoming increasingly important for card issuers to segregate their portfolio, identifying which accounts are transactors, revolvers, pay-downs and inactives. This allows card managers to better target their campaigns and to have a better shot at building long-term loyalty.
