Credit card issuers failing to promote recurring-payments options appear to be missing a significant opportunity to establish a fixed source of revenue and a means to reduce charge-offs.
If issuers boosted promotions to customers touting the benefits of recurring payments, enrollment in such programs likely would increase, Auriemma Consulting Group Inc. reveals in its most recent Cardbeat study report.
Auriemma surveyed 400 U.S. credit card users online in November for its research. It found that 47% of respondents were unaware of such offers.
Consumers generally use recurring payments to transfer funds automatically from a credit card or bank account to pay bills and loans, Auriemma states.
Enrollment in recurring-payments programs for cardholders increased to 19% of the 400 respondents in November from 14% in April 2009, when Auriemma conducted a similar survey.
However, only 33% of those enrolled say their card issuer approached them with an enrollment offer, while 47% indicated they contacted the card issuer to enroll, according to the study report.
That data indicate “there is low hanging fruit” in terms of customers interested in recurring payments, the report suggests. Though many cardholders initiate the contact to learn about or enroll in a recurring payments, “it seems those percentages should be flipped,” with the card issuer making contact more often, the report contends.
As a payment vehicle, a recurring-payments program represents “a very desirable option,” Scott Strumello, associate analyst for Auriemma Consulting Group, tells PaymentsSource.
But card issuers should invest the necessary time and money to clearly explain the benefits of recurring payments to their customers, Strumello says.
“It’s a complex story to tell customers, and it would not be easy to do with a colorful little insert included in your bank account or credit card statement,” he adds.
Much like other promotions, a reward incentive for enrolling in a recurring-payments program likely would produce desired results for the issuer, the report suggests. About 70% of the respondents indicated a reward offer would encourage them to sign up.
Cardholders indicating their issuer offered enrollment in a recurring-payments program to pay off a student loan jumped to 56% in November from 40% in April 2009, mostly because college graduates continue to have difficulty finding jobs, the report contends.
More students apparently took advantage of the payment offers, as those enrolled increased to 29% of respondents in November from 3% in 2009, the report notes.
Still, the most prevalent recurring payments are for car loans or for paying monthly telephone bills, as 62% of respondents noted their card issuer offered those programs. Fifty-nine percent of respondents indicated their issuer offered recurring payments for mortgages or home-equity loans.
Though the study results indicate improved awareness could drive more enrollment in recurring payments, another factor could influence responses, Strumello contends. The tainted image of using a credit card to pay off debt undermines recurring payments programs, he notes.
“Consumers want to avoid using credit cards unless it is to borrow money for long-term financing. Otherwise, they pay with a debit card,” Strumello says.
Though many consumers find recurring payments convenient, Strumello has not reached an opinion about their value.
“It’s really a personal choice, based on how an individual manages personal financing,” he says.
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