Credit Card Companies Need to Understand Retention - Report

Credit card organizations need to develop their understanding of retention and loyalty theory before trying to develop a retention strategy, according to a new research report being offered by Research and Markets.

An effective, robust retention strategy, that is capable of managing all customer relationships, is an essential part of managing a credit card business. The crucial starting point is the bottom line: well-managed credit card businesses are almost unbelievably profitable – typically returning three to four times the cost of equity in markets such as the UK and the US. Furthermore, growth rates – even in the US, the world’s most mature cards market – are well ahead of nominal GDP. The revenue comes principally from revolving credit extended to cardholders. Other revenue comes from commission fees paid by retailers, interchange and fees charged to cardholders. Global estimates put the profit pool for credit cards at US$26 billion in 2006, with pre-tax return on assets (ROA) at 4.1% and a 14% share of total consumer lending – including mortgages. This figure is expected to double to US$54 billion (29%) in the next 10 years; however, margins are under attack from a variety of directions.

Retention should no longer be a tactical response within a marketing plan. It must be an organisation-wide response -including the key areas of customer service, marketing, credit and risk, service quality and all facets of operations and IT.

Key findings of this report:

• Credit card organisations need to develop their understanding of retention and loyalty theory before trying to develop a retention strategy.

• A successful retention strategy will take a holistic view of the cardholder relationship and seek to identify key actions that will improve the relationship, expressed as customer satisfaction, loyalty and profits.

• An important challenge in developing a successful retention strategy is gaining organisational commitment. This also requires an understanding that retention management will take time to develop.

• The retention strategy should not be seen as simply an activation and attrition programme. Successful retention strategies require actions at all levels. This includes acquisition, customer service, collections, credit, activation and attrition.

• A retention strategy will have limited success if it is positioned as a marketing tactic. The successful retention strategies have involved developing an organisational vision. This vision needs to encompass a set of goals to which all components of the credit card organisation agree – including segmentation, profit and loyalty.

Major industry trends:

• Annual growth for credit cards is forecast (globally) to exceed 10% per annum by 2010.

• The rise of global bank issuers will increase.

• The US trends will continue to dominate.

• Key skills required to run a successful credit card operation will need to be developed.

• The increase in regulation will challenge the global brands.

• Markets will continue to evolve with more developing mature status.

• Consumer finance – both bank and non-bank – is an increasing focus for industry players.

• Technology and direct distribution is playing an increased role in the development of products and services.

• Consumer lending has increased but not at the expense of mortgages.

• Consumer write-offs have largely remained low in line with growth and the economic cycle.

• Regulations including privacy and lending requirements have become major initiatives in many markets.

• Personal loans and car lending have not kept pace with credit card lending.

• Developed credit card markets – such as the US, UK and Canada – have different issues than non credit card markets such as Germany, Spain, Italy and other EU markets.

For more information visit on the report entitled “Credit Card Retention Strategies: Managing the Life Cycle for Profit” , visit http://www.researchandmarkets.com/reports/c40713.