Guest comment: Digital could sharpen proactive credit card retention

November 29, 2011

As online banking becomes commonplace, how can banks use digital marketing to keep customer loyalty? Justin Schamotta at Choose looks the the pros and cons of proactive customer retention campaigns online.

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Credit card customers have more reason than most to stray from home; it’s relatively easy to do since it doesn’t disrupt pay or essential bill payments and competition between providers, in the form of credit card rewards and introductory periods, is fierce.
Over the last six months we’ve seen credit card providers focus in on their churn problem: marketing to existing customers as if they were trying to get their business for the first time.
Proactive retention works…
Recent figures suggest that that’s because proactive retention – cash rewards or special rates to encourage existing customers to spend on their credit cards – works.
A study of ten of the UK’s biggest credit card issuers by research and consultancy firm Celent showed that consumer retention rates ranged between just 10% and 50%.
The most successful at holding their struggling customers down were the 45% of companies engaged in proactive retention.
“The majority of credit card issuers have grown to appreciate the importance of customer retention,” says Zilvinas Bareisis, Senior Analyst with Celent’s Banking Group.
“As a result, customer retention area is in transition with many respondents either actively changing their practices or recognising the opportunity to improve.”
… but it can backfire
Unfortunately, no matter the initial benefit, there is one big downside: retention tactics can come across as irresponsible lending. Angry customers become primed to leave the brand in any case; other consumers become less likely to sign up in the first place.
For example, Nationwide ‘enraged’ its cardholders in June this year when it sent out promotional letters that were ostensibly meant to reward them.
Halifax did the same thing a few weeks back with a money transfer offer for credit cardholders, which it described as an alternative to taking out a loan.
Whatever the truth of these claims of irresponsibility – and some studies have shown that we vastly overestimate the amount of unmanageable debt which is caused by consumers simply overspending because credit is available – there is clearly a brand conservation issue here. No provider wants to look like a sleazy sub-prime lender.
How NFC could help
However, we’re standing on the edge of a new frontier in credit card marketing: Near Field Communication (NFC).
Much has been made of the ways that paying by smartphone will allow retailers to offer consumers more discounts and encourage them to stay loyal.
The same, with a cautious approach, could be true of credit card providers.
This is not least because NFC will allow providers to proactively seek retentions more meaningfully – focusing in on the customers who would be most likely to benefit and least likely to have problems at a particular point in time as well as allowing them to monitor the progress of their spending more easily.
There’s the potential for this to be an uphill struggle: financial providers were late online and the Global Reviews Credit Card benchmark survey found that the average UK credit card provider‘s website has a customer satisfaction score of just 48%.
The fact that card providers such as Barclaycard are at the forefront of developing NFC, however, should be a strong incentive. So should the fact that, according to a study by Norwich & Peterborough Building Society, 38% count online banking as their most popular online activity and it’s in the top five across all age groups.
This is a guest post from Choose. The site covers rights issues, research and debate into the consumer credit card and more broadly personal finance markets.