Increased fees and rate hikes have fueled public perception of credit card companies as the enemy. And that's on top of a growing tide of anger against interchange rates from the merchant community. With the provisions of the Credit Card Accountability, Responsibility and Disclosure Act expected to take effect in 2010, the whipsawed industry is bracing for their impact.
Card issuers have an opportunity to repeat old habits or forge a new path with both merchants and consumers.
Though there may not be one silver bullet, there are a few new strategies that can mitigate the fallout and once again position issuers for sustainable growth.
In response to the economic and financial crises, issuers have adopted desperate, short-term tactics including raising rates and increasing fees to survive the recession rather than focusing on the long term. Credit card companies need to step back and realign themselves with their most important constituent — their customers.
As we begin to emerge from economic turmoil, it's time to pick our heads up and survey the landscape. What we see is a very different corporate, consumer and financial environment. In particular, three new trends have emerged as truths — what some have called the "new normal." First, consumers are — and will continue to be — more frugal. Second, the trend from credit to debit has accelerated, and lastly, merchants must increase purchasing volume.
These trends can exacerbate the problems issuers already face — or they can serve as an opportunity for them to rethink the business model. Now's the perfect time to take a new look at fees, loyalty strategies, marketing and distribution, payments, technology, risk management and merchant operations to position the business for lasting growth and success.
For example, there's a chance for issuers to increase their value by rethinking the meaning of loyalty and added-value programs aimed to incite customers to use their cards in an oversaturated marketplace. With hundreds of millions of rewards cards flooding today's marketplace, and the underlying economics in flux, program differentiation and innovation are more important than ever as issuers fight to get to that elusive top-of-wallet position.
The vast majority of purchases are still made in the real world, not the virtual one. Here, innovative loyalty strategies can increase value propositions for both the customer and the merchant. A point of sale program allows customers to redeem points to make purchases — and allows card issuers, in partnership with merchants, to deliver personalized offers. This provides the issuers with a unique opportunity to increase brand loyalty for their cards at a lower cost while also gathering valuable information about their customers.
POS loyalty programs help strengthen relationships and address unmet needs for:
- Customers to redeem points to make purchases at the point of sale and receive promotions based on how they shop.
- Issuers to deliver personalized offers at the point of sale, providing a unique opportunity to increase brand loyalty for their cards at a lower cost while also gathering valuable information about their customers.
- Merchants to allow customers to select any payment card to enroll and participate in a program. This ensures selected issuers' cards are more attractive to the customers while improving the retailers' perceptions of the value that card issuers bring to the transaction.
These point of service loyalty programs have been widely used in Europe and Asia for years — and with great success. For example, Alpha Bank, the second-largest commercial bank in Greece, wanted to accomplish three things through a new loyalty program: consolidate multiple loyalty programs; differentiate their offering; and connect with merchants and customers.
Through a targeted point of service loyalty program — delivered through merchant partners and other participating merchants — Alpha Bank, in 2007, was able to: increase card spending by 19%; decrease attrition by 27%; deliver significant benefits to participating merchants; and leverage one solution for multiple markets. Alpha Bank is now rolling out the program in other countries where it does business.
Now that our company recently brought this technology to the United States, there is an extraordinary opportunity for domestic issuers to broaden their customer bases and boost transactions with existing customers — increasing both revenue and market share — and transform merchants from potential adversaries into allies and advocates.
This crisis has given credit card companies an opportunity to revamp an outdated business model and position their industry to flourish in a very different reality. A willingness to re-evaluate their value proposition and optimize their loyalty strategy will help prepare the credit card industry to emerge stronger, more efficient and in the good graces of their two most important stakeholders — their retail customers and their merchant partners.