Whether purchasing merchandise or services or paying recurring monthly bills, school tuition or taxes, consumers have embraced plastic payment cards to complete an ever increasing variety of transactions. Last year for the first time, card-based payments surpassed cash and checks as consumers' preferred payment method for in-store purchases. And yet, of the estimated $8 trillion in personal expenditures made in 2003, card transactions account for less than a quarter, or 24 percent, of today's purchasing volume, according to industry analyst estimates.
Accordingly, financial institutions seeking a greater ROI on their card programs, whether credit, debit or prepaid, must continually develop and implement a broad range of usage and cross-sell strategies that motivate consumers to select and reach for their cards when contemplating payments of any kind.
Today's business intelligence products help financial institutions do just that, namely, gain wallet share by steering consumers to choose payment-card products instead of cash or checks. Business intelligence products enable financial institutions to maximize existing account relationships, identify prospective new card customers, and then market customized products to customers with payment preferences.
Used properly and strategically, these business-intelligence tools increase a payment-card product's relevance to the issuing financial institution's customer base and across its product lines; or as the Bank Administration Institute noted, they help financial institutions "look through the eyes of their customers" to align products and services with the attitudes and motivations driving those customers' payment decisions.
Business intelligence starts with understanding customer payment characteristics. That may be accomplished by answering a few basic questions, including:
* Do your customers use credit and debit cards for daily purchases and bills?
* Does their spending increase seasonally or following promotional offers? If so, during which seasons or with what type of incentive (cash-back, redeemable points or coupons)?
* How often do they use specific payment channels-when, where and how (face-to-face, on-line, by phone)?
* Are they active users across a wide range of merchants or merchant categories or frequent patrons of single-category retailers?
* Are their retail products (checking or asset account, home equity or small business line) aligned with and supported by card-based products?
An effective business-intelligence tool should enable financial institutions to monitor transaction data in the aggregate, evaluate customer spending and, most importantly, develop marketing programs tailored to and based on the needs and preferences of the account base.
Users of business-intelligence products can gain a competitive advantage by leveraging data that provides insight into account or portfolio-level payment activity, against specific merchants or merchant categories, and by geographic areas. Even the smallest financial institution can implement focused marketing programs to increase the value of its card programs to customers, stimulate card usage, drive revenue and meet portfolio profitability targets. Furthermore, data can be compared against industry benchmarks, enabling institution-to-industry evaluations.
Examples of business-intelligence-driven products abound, most notably in reward-based card programs, cash-back incentives, and affinity or co-branded promotional offers. Consider how one regional financial institution used its information assets to generate card activation and usage results during a recent marketing initiative:
Situation: Through business intelligence, the institution first identified underperforming debit-cardholder groups from a transaction frequency and purchase location standpoint.
Strategy: Having classified the underperformers, the firm developed a cash-rebate offer targeting a cardholder segment-namely, low signature point-of-sale actives-to motivate changes in payment behavior.
Result: The institution realized a 12 percent response rate from the initial mailing over a two-month period, with most of the former infrequent to non-card users exceeding the minimum three purchase transactions required to receive the $5 cash-back rebate.
Upon completion of a usage or activation-incentive campaign, an institution can just as easily use business intelligence to review the historical performance of a given promotion, evaluate the marketing approach, and determine whether future adjustments might be necessary.
Situation: A Midwestern debit card issuer participated in a promotion sponsored by MasterCard and a major hotel chain. The issuer mailed several hundred thousand statement inserts, but chose not to leverage other accessible marketing channels, testing the assumption that only sub-optimal results occur on travel and entertainment expenses (T&E) promotions targeted to debit- card users.
Learning: After analyzing debit-card usage data, the firm realized an unexpected usage spike of 24 percent during the promotional drive.
Even after the incentive period concluded, it sustained significantly higher-than-average debit card use-30 percent-at the hotel chain.
Cardholders of the FI's debit MasterCard now seemed inclined to use their card as the preferred payment form for purchases at the hotel brand.
Opportunity: The FI unearthed compelling incentives to expand future marketing communication activities, up the reward ante, and pursue additional offers directed to its T&E spenders-all with an eye on making its debit card the top-of-wallet choice for the promoted hotel brand and potentially all future T&E expenditures.
Whether the goal is loyalty and retention, usage or cross-relationship selling, effective use of transactional data from business-intelligence tools is critical for any institution seeking to increase ROI across all business lines.
William Hernandez is an svp at MasterCard International.
