Wednesday, November 4, 2009
Following the recent global downturn and the implications for consumer lending, credit card offerings have come under the spotlight like never before.
In the United States, for example, new credit card regulations due in February 2010 are expected to eat into credit card issuers' revenue streams. This has led to whirlwind changes as issuers adapt and test new ways to bring in revenue. According to Mintel Comperemedia’s quarterly trends survey in the US, nearly 16 per cent of offers surveyed charged a balance transfer fee of 4 or 5 per cent, compared with a typical 3 per cent previously. It also noted a shift to offer a variable rather than fixed rate.
Meanwhile, in the UK, the Government now wants to call time on much-criticised practices such as lenders raising credit limits without being asked by customers; taking a tiny minimum monthly repayment; and then applying it so that the most expensive debt is paid off last. Some experts are predicting a backlash from lenders that will mean higher interest rates, less choice and the return of the annual card fee. Even now, 7.2 per cent of credit cards levy an annual fee, up from 4.1 per cent in October 2007, according to analyst house Defaqto.
Faced with the rising costs of acquiring new customers and the financial implications of looming regulations, card issuers need to put strategies in place for regaining lost income and retaining customers. Maintaining loyal, long-term and active customers has never been so important. In the past, many lenders have simply chased after customer numbers, often competing solely on price, rather than service. As a result, they have found themselves with a high number of inactive customers contributing little revenue through low transaction volumes, as those customers move on to take up yet another “best buy” offer.
In response to the evolving environment, we should expect to see greater and more precise customer segmentation from financial institutions using targeted and tailored offers and the ability to react quickly to changing market conditions with products that differentiate on more than just price. It’s a challenging time for the card industry, but nurturing a loyal and well-serviced customer base will pay dividends.
Business Solutions Consultant