As Wachovia Corp. looks to expand its consumer base, its cards division plans to join the larger issuers by developing an in-house rewards program to replace the Visa Inc. platform the banking company now uses.
Steven G. Boehm, the president of the Charlotte company's card services division, said last week that the Visa platform "really was not performing to our satisfaction." The $783 billion-asset Wachovia, which had once relied on MBNA Corp. to issue its cards, began issuing its own credit cards in July 2006 after the rival Bank of America Corp. bought MBNA.
Mike Stephens, a managing director at Advantage Consulting Group, said it made sense for Wachovia to bring its rewards business in-house "to protect and grow their retail enterprise." Such a rewards program is "necessary as a baseline" for any big issuer. "It's the cost of competing," he said.
Wachovia's move also makes sense as a long-term competitive strategy, according to Aaron McPherson, the financial services practice director at the Financial Insights Inc. unit of International Data Group Inc. "Other big issuers have internal rewards platforms that are more sophisticated than what you would get with Visa rewards," he said, mentioning Citigroup Inc., JPMorgan Chase & Co., and B of A as examples. Though he called Visa's rewards program "a good stopgap" while Wachovia built its credit card line, "they needed their own rewards program." (Visa, which recently renewed its branding partnership with Wachovia, declined to comment for this article.)
Building its own rewards platform should also distinguish Wachovia from smaller issuers. "Once you get below the top tier of issuers, there are literally hundreds of issuers out there who don't have the scale to develop and manage" their own rewards programs, said Ken Paterson, director of the credit advisory service at Mercator Advisory Group Inc. But risks exist, he added. "These rewards programs tend to be large and complex and potentially expensive. Every issuer needs to decide if they can put together a large rewards program themselves or if they are better going to a third party."
Though building up an in-house rewards program is "a lot of work," according to Scott Strumello, an associate at Auriemma Consulting Group Inc., it is an increasingly popular way for card-issuing institutions to augment consumer satisfaction. "I see a lot of financial institutions that are looking at rewards programs as part of a broader customer relationship management" effort, he said.
Mr. Boehm said Wachovia's platform should debut "in time for the next holiday shopping season." It will have "different veneers" for customer segments like small-business and consumer, he said.
In addition to letting cardholders redeem points for products, he said, Wachovia will introduce an auction format that would let cardholders bid their points for exclusive items that "you couldn't put in a catalog because there is only one item."
Mr. McPherson called the auction format "unusual" but not unheard of. "That's a great example of something you couldn't do with Visa," he said. "One of the key problems that you have with rewards programs is that, unless the customer is a high spender, it takes a long time to accumulate" enough points to buy a desired reward, he said. An auction "makes the rewards programs more accessible."
