As credit card use slows in certain sectors because of tightened budgets and risk avoidance, issuers are beginning to step up efforts to keep customers threatening to leave. But many issuers lack consistent retention strategies, a new study from Celent LLC contends.
When the opportunity arises, most issuers try to talk cardholders out of canceling their card accounts through methods that include offering incentives to stay, according to the research. Celent analyst Zilvinas Bareisis gathered data for the study in April and May from 11 large financial-services providers that included card issuers in Europe and the United States.
About half, or 45%, of study participants had systems to predict which cardholders were at risk of leaving and to prevent them from departing, Bareisis said in a 46-page report Celent released June 14. Issuers’ methods for persuading cardholders to remain varied, and their methods of measuring results were spotty, he added.
“Most issuers do not explicitly quantify (results of their customer-retention efforts) and have only a vague understanding of the value of retention,” Bareisis said.
Customer-retention practices “are undergoing change,” he said, noting the recession that began in 2008 has produced lower credit card use as some consumers’ access to credit shriveled when issuers closed underperforming accounts and cut credit lines, while budget-conscious customers also migrated from credit to debit card use.
Moreover, the Credit Card Accountability, Responsibility and Disclosure Act, which went into effect last year, along with pending changes in debit card interchange rates that go into effect in July as a consequence of the Dodd-Frank Act, have put downward pressure on fees and revenue. That, in turn, is forcing many issuers to become increasingly eager to hold on to existing, profitable credit card customers, Bareisis said.
Issuers deploy a variety of strategies to retain customers threatening to close their accounts, but the most-successful approaches include ongoing reviews of individual cardholders within a portfolio. Such reviews assess their profitability and likelihood of leaving. Issuers then can take appropriate action when customers threaten to leave.
The vast majority, 91%, of study participants deployed some kind of retention strategy, and their success rates ranged from 10% to 15%, Bareisis said. Issuers in the study on average managed to prevent 31% of cardholders from canceling accounts when they deployed retention strategies.
The study did not supply data showing the percentage of all accounts cardholders voluntarily close.
Issuers generally attempted to balance their use of retention incentives against the customer’s profitability and the cost of acquiring a new customer, Bareisis found. The goal is to strike a balance in considering how much it would cost to acquire the same customer, the total cost to retain the customer, such as how much the issuer would need to give up in revenue by lowering the interest rate, he said.
Most participants rely on a system that routinely flags all accounts to indicate whether a customer-service agent should try to retain customers based on their risk profiles and spending histories, should the occasion arise, Bareisis said.
The majority of issuers updated such data monthly, but one participant did so quarterly. “The leading practice is to update (such risk-scoring data) daily or even in real time for a given customer,” Bareisis said.
In general, issuers looked at a customer’s spending history or total relationship with an institution to determine whether efforts to retain the customer were warranted. Certain issuers segmented customers by payment patterns, determining whether they tended to carry a balance or paid their balance in full each month and whether they paid a monthly fee to weigh the value of fighting to keep them.
Other considerations in determining whether to retain a customer included seasonal promotions with retail or travel partners and a customer’s status with a cobrand partner, Bareisis said.
In general, a key guideline for determining whether a customer is worth keeping is whether the issuer would try to acquire the person given today’s credit criteria, he noted.
Seventy-three percent of study participants had specific incentives and offers customer service agents could use to persuade cardholders to remain.
Various strategies included instructing telephone-based customer-service agents to explain a card’s features and benefits, reassuring customers, waiving late-payment fees or annual fees, offering a more-attractive interest rate on specific new purchases or balance transfer, or awarding loyalty points where appropriate, according to the study.
Many issues also tried to motivate customer-service agents to retain customers by offering them financial incentives for preventing account closures. Among those issuers, incentives appeared to make up 5% to 15% of agents’ compensation, Bareisis said.
Although issuer strategies varied, one issue said its agents may earn higher rewards for retaining a customer simply by reassuring them or reiterating a card’s benefits instead of using a more costly promotional tool such as a lower interest rate or waiving fees.
Among issuers that took proactive measures to prevent defection, a few used a system of “desertion alerts” that enabled them to take action. Examples of such risk factors included declining card use or inactivity, Bareisis said.
In addition, some issuers said they contacted customers who were closing accounts or transferring balances to a competitor to attempt to win them back with incentives.
Examples of campaigns to encourage reactivation of dormant accounts included dangling a gift card in exchange for the cardholder hitting a certain threshold of transactions over a 90-day period, according to the study.
The majority of requests to cancel accounts originated from telephone calls made to customer-service centers, but issuers participating in the study said a significant chunk–21% to 29%–of requests to cancel card accounts came through other channels, such as mailed letters or voicemail messages. Most issuers lacked an effective strategy for contacting those customers, the study found.
Bareisis estimates issuers could retain significant numbers of departing customers if they could apply their inbound call-retention strategies to customers announcing their departure via letters or messages.
Most issuers do not make a follow-up contact after the retention effort is resolved, but one issuer conducted in-depth quarterly interviews with customers that closed their accounts.
The data may not apply equally to all, but issuers are re-evaluating their retention strategies to take immediate action when customers threaten to leave. Still, further analysis of retention methods is needed to improve results, Bareisis said.
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