In 2010, the federal government passed the Durbin amendment (named for U.S. Senator Dick Durbin, D-Ill.), which essentially caps debit interchange fees. It not only limits the profitability of debit card programs but also causes many issuers to cut back or eliminate rewards programs in their debit portfolios.
Fast forward to 2016, and credit card portfolios now face a similar risk as regulators consider limitations on those interchange fees as well. As a top revenue source for banks and credit unions, credit cards—and the rewards programs that go with them—have been priority products for some time.
Given: Issuers can’t control potential regulatory changes that may reduce interchange fees. But they can control other aspects of their debit and credit portfolios, including operational efficiency, marketing productivity and consumer loyalty. By managing these three key profit levers, card portfolio managers can maximize success and maintain the ability to change as market and regulatory circumstances demand. Here’s how success and smart decisions look in those areas.
Marketing Productivity: Make it personal, build on brands
To make the most of your marketing efforts, you must maximize output from the most targeted resources possible.
Personalize your rewards programs. By 2018, Gartner predicts organizations that excel in personalization will outsell companies that don’t by 20 percent. Delivering rewards programs that target the masses may not be sustainable, especially if interchange limitations take hold. But it’s also impersonal and inefficient. Each consumer wants something that works just for them—not everyone—and issuers need to minimize acquisition costs. Issuers already have access to loads of customer and prospect data, but few use it to customize their card marketing programs.
By integrating variable data with on-demand card production, credit unions and banks can finally capitalize on these existing assets—a.k.a. “big data”—to dynamically incorporate a customer’s preferences, credit history, geography or spending habits into individual cards, carriers and offers. The good news? It creates true targeted, personalized campaigns that connect with customers at a one-to-one level. In the process, marketing spend becomes streamlined and focused, and success rates go up.
Build on other brands. Leveraging co-branded, partnered affinity programs give banks and credit unions a chance to deepen relationships with both account holders and businesses. Card use and loyalty increase when cardholders customize their card with something they hold a deep affinity for, such as their favorite sports team or the university they attended. Co-branded programs can also be more cost-effective if bank and partner brands share the program costs.
Operational Efficiency: Roll with demand; target and speed are what you need
For decades, card issuers have committed to huge, long-term demand forecasts—but then have to sit on expensive inventory and eventually destroy it if cards expire, disclosures change or cards go unused. EMV cards make this proposition even more inefficient and inexpensive. So stop guessing at program demand and ordering cards you don’t need, and start to design and fulfill your marketing programs and offers as demand arises.
Leverage design flexibility. Don’t lock yourself into a card production model that makes you dust off the same old card design for every marketing campaign or face cost-prohibitive set-up fees for each new design. Leverage on-demand card production to create multiple card campaigns that truly target cardholders. Increased design flexibility delivers personalized cards that stay at the top of cardholders’ wallets and get used.
Get cards into cardholder’s hands more quickly. Traditional card production models have program set up and manufacturing lead times as long as ten weeks. Now, think like a customer: That’s nine weeks too late, equating to significant revenue loss for providers. Instant issuance seems like an easy solution, but issuers face hefty equipment costs and significant training resources. And those often frustrate both branch employees and the consumers they serve. But banks and credit unions that leverage an on-demand card production model can issue cards only as needed, spreading the cost of the EMV transition over time and saving on hefty storage and inventory costs. What’s more, it eliminates the risk of card spoilage and destruction cost. To top it off, once banks and credit unions integrate the on-demand model they can easily delivers cards to cardholders in just two to seven days. Now, think like a consumer again: That’s just in time.
Consumer Loyalty: It’s in the cards
In highly competitive marketplace, issuers must stay relevant to attract and retain cardholders. Take advantage of existing card lifecycle events to keep cardholders engaged with your card.
Replace lost or stolen cards, increase engagement. When a card is lost or stolen, don’t just reissue the same card and generic carrier with no added incentive to leverage card benefits. Look at it is an opportunity: By replacing the card quickly—and taking the opportunity to create a custom marketing message—you can both drive cardholder loyalty and derive benefit from the sunk cost of reissuing an EMV card.
Revitalize inactive cards. Inactive cards are about as profitable as the hefty inventory costs required by traditional production models. Increase card productivity by considering custom promotions for cards that have been inactive for several months. This can include an incentive for using the card, or providing the cardholder with personalized card options if they’ve misplaced the original card.
Summing up: Manage market conditions through flexibility
Regulatory changes will always pose a potential threat to the profitability of card programs. Issuers need as much flexibility and control as possible to navigate whatever changes come their way. Implementing strategies that increase control, reduce risk and improve customer response will bolster the bottom line. Targeted rewards programs, co-branded affinity programs and choosing the right card production model are all strategies banks and credit unions can implement—and implement today—to increase brand loyalty and drive more revenue.
Render Dahiya is CEO of Arroweye Solutions.