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Integrating Credit Cards into Your Overall Payments Strategy | Vantiv

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The economic, regulatory and competitive environment has created consumers that are more conservative and considerably “choosier” in their selection of financial products. Products that address consumer and credit union member needs in innovative ways, and that are delivered to them in ways that are convenient to them will be the success stories in the future. In this presentation from the 2011 NAFCU Strategic Growth Conference, you will learn about strategies that issuers have been using post-CARD Act and potential strategies that could help credit unions compete and win against their bank competitors, especially the mega banks! To be successful in the future, credit unions will need to have an integrated strategy leveraging credit, debit, on-line banking, mobile, and other alternative payment options together, to acquire new member relationships, and generate the most return and create long term member loyalty.

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Integrating Credit Cards into Your Overall Payments Strategy | Vantiv

  1. 1. Integrating Credit Cards into Your Payments Strategy<br />Presented by:Stephanie PolenVice President, Client Portfolio Management, FTPS<br />
  2. 2. Our Focus Today<br />The Changing Payments Landscape<br /><ul><li>Recent regulatory changes</li></ul>The Post-CARD Act Environment<br /><ul><li>Issuer changes</li></ul>Maintaining a Successful Card Program<br /><ul><li>Keys to success
  3. 3. Segmentation and Loyalty
  4. 4. Risk Segmentation
  5. 5. The Credit Union Advantage</li></li></ul><li>The Post-CARD Act Environment<br />Many Issuers Made Significant Changes to Card Programs<br />Increased Fees<br /><ul><li>Annual fees are reappearing, but not as often as anticipated
  6. 6. Balance transfer fees also reappearing
  7. 7. Fees may be positioned to encourage the use of lower cost channels</li></ul> “Against Expectations, Issuers Nix Some Fees After CARD Act”, American Banker, January 5, 2011<br />Evolving Pricing Strategies<br /><ul><li>Majority of issuers moved to variable rate products linked to the Prime Rate
  8. 8. Fixed rate products are virtually extinct
  9. 9. Relationship rewards driven by good payment behaviors or multi-product relationships</li></ul>Source: http://www.creditunion.coop/ratedex.php. Averages displayed are straight averages of all institutions within the Informa Research Services database for the selected region as of Monday, January 31, 2011.<br />
  10. 10. The Post-CARD Act Environment<br />Many Issuers Made Significant Changes to Card Programs<br />Risk Strategies<br /><ul><li>Increased analytics to identify someone’s ability to pay
  11. 11. Line management becomes more important
  12. 12. Strict underwriting standards slowing starting to improve overall credit quality and extend credit</li></ul>Fourth Quarter 2010 Data, Federal Reserve Board survey released January 31, 2011, www.paymentsource.com<br />
  13. 13. The Changing Payments Landscape<br />And Along Comes the Durbin Amendment…<br /><ul><li>Potential impact on financial institutions’ revenue (over/under $10B in revenue)
  14. 14. Uncertainty in marketplace may continue the tumultuous shift in consumer payment behavior
  15. 15. Opportunities for credit unions to capitalize on core member benefits and capture market share</li></ul>Credit Unions Need a Full Payments Perspective to Target Members<br /> In preparation for these potential impacts, many credit unions are:<br /><ul><li>Re-evaluating Debit Rewards programs
  16. 16. Examining Fee Structures
  17. 17. Building PIN Debit Volume
  18. 18. Initiating Programs to Generate Growth</li></ul> - CUs Must Act Now to Prepare for Durbin Amendment, CU Times, January 26, 2011<br />What Does It Mean for Credit?<br />
  19. 19. Evolving Credit Products<br />Growth in debit has not purely been at the expense of credit<br /><ul><li>Only 11.4% of debit volume growth can be attributed to purchases that would have gone to credit in 2009
  20. 20. MasterCard Research, Reported in American Banker, January 20, 2011</li></ul>Credit products and positioning need a “face lift” <br /><ul><li>Shift from a focus on penalty fees to positive image
  21. 21. Products designed to help consumers rebuild their credit history
  22. 22. Changing rewards programs
  23. 23. Purchases of basic goods
  24. 24. Premium rewards for high-income members
  25. 25. Multi-tier rewards structures</li></ul>“As consumers’ demand for greater control has evolved, so too has the way they use credit cards, resulting in a shift back to bank cards roots as a tool for cash flow management. No other tool provides the same level of control, choice, and flexibility.”<br /> – Tim Murphy, Chief Product Officer, MasterCard, American Banker, January 20, 2011<br />
  26. 26. The Post-CARD Act Environment<br />National Issuers Narrow Their Focus…<br />
  27. 27. The Changing Payments Landscape<br />…and your best members are the target!<br />Credit card solicitations rose to 2.73B in 2010 from 1.39B in 2009<br />www.cardweb.com, Credit Card Solicitations are on the Rise, February 2, 2011<br /> “The proverbial wheels of the credit engine are being greased once again.” <br /> –AnujShahani, Director of Competitive Tracking Services for Synovate’s Mail Monitor<br />
  28. 28. The Credit Union Advantage<br />Brand name was a key factor in the choices of 29% of U.S. online adults who opened a credit card in the prior 12 months.<br />- “How U.S. Consumers Choose a Credit Card Provider.” Forrester Research. November 2009<br />Credit unions may present fewer options, such as smaller ATM networks, but what they do offer is generally a better deal than at banks. – Suze Orman<br />I haven’t done business with big banks for years, primarily because of the awful customer service you get at most of them. I like local, community banks, and I believe whole-heartedly in credit unions. As a rule, these institutions practice excellent customer service. – Dave Ramsey<br />NOW is the time!<br />
  29. 29. The Key to Success: PRECISION<br />Precision Leads to Profitability<br /><ul><li> Development of underwriting and risk standards that fit the needs of your </li></ul> members – giving credit when credit worthy<br /><ul><li> Segment your members to provide the specific set of product attributes </li></ul> they are interested in – driving behavior and engagement<br /><ul><li> Ongoing management of the product – balancing servicing and collections</li></ul>“Issuers that do not adapt to the new realities will fall behind more innovative issuers. Those that begin strategic adaptive efforts while the industry is still in crisis will position their business on firmer ground in anticipation of the eventual economic recovery."—Brian Riley, TowerGroup: After Boom and Bust: Navigating the Credit Card Industry into the Next Economic Cycle<br />
  30. 30. Maintaining a Successful Card Program<br />Segmentation and Loyalty<br />Portfolio Performance<br />Risk Management<br />
  31. 31. Maintaining a Successful Card Program<br />Manage Portfolio Performance to Maintain Margins<br />Review portfolio strength<br /><ul><li>Understand how the mix of performance, segmentation and strategies impact the program
  32. 32. Work with peer group credit unions to understand program variences and how others may be improving performance</li></ul>Don’t be afraid of change<br /><ul><li>Periodic reviews of cardmembers is critical to your program success – if a cardmember’s risk profile has changed, don’t hesitate to make the necessary adjustments
  33. 33. Changing risk in the portfolio requires action</li></ul>Portfolio Performance<br />
  34. 34. Maintaining a Successful Card Program<br />Segmentation and Loyalty are Critical<br />Actionable segmentation and targeting strategies<br /><ul><li>Line management is critical in today’s environment
  35. 35. Unused lines limit your ability to maximize revenue</li></ul>Member loyalty leads to increase margins<br /><ul><li>Propensity models help identify those most like to make a positive contribution to the card program
  36. 36. Increase activation efforts or eliminate dormant accounts</li></ul>Card Acquisition among qualified members is important<br /><ul><li>Easy cross-sell when you approve a member for any valid loan product – mortgage, home equity, auto loan
  37. 37. Make the card product central to your high quality credit members offering </li></ul>Segmentation and Loyalty<br />
  38. 38. Maintaining a Successful Card Program<br />Balancing Servicing and Risk<br />Optimize value, not minimize risk<br /><ul><li>Analyze Net Present Value of potential cardmembers
  39. 39. Active line management of riskier, but more lucrative members</li></ul>Next generation targeting<br /><ul><li>More than score based only review
  40. 40. Use internal credit behaviors to determine less “risky” behavior</li></ul>Member level management<br /><ul><li>Review internal credit quality over time
  41. 41. Internal data analytics can identify less risky credit union members</li></ul>Risk Management<br />
  42. 42. Take Action to Drive Results<br />Targeting and Segmentation<br />Rewards<br />Programs<br />Acquisition Strategies<br />Activation Strategies<br />Risk Management<br />Revenue<br />Optimization<br />Usage and Retention Strategies<br />
  43. 43. Targeting and Segmentation<br /><ul><li>Review your member database for potential cardholders
  44. 44. Indirect loans
  45. 45. Share draft or DDA
  46. 46. Refer to existing relationship as lead in for communication</li></ul>Targeting and Segmentation<br />Rewards<br />Programs<br />Acquisition Strategies<br />Activation Strategies<br />Risk Management<br />Revenue<br />Optimization<br />Usage and Retention Strategies<br />
  47. 47. Segmentation = Strong Results<br />Case Study<br /><ul><li>7 Segments, 1 Control
  48. 48. 60,000 pieces mailed
  49. 49. Mentioned existing relationship
  50. 50. 2.5% response rate – compared to 0.7% industry response
  51. 51. Highest responding cell had 3 products, including deposit account
  52. 52. Focus on relationship and product benefits</li></li></ul><li>Acquisition Strategies<br /><ul><li>Direct Mail is still an effective channel
  53. 53. In branch is even more effective
  54. 54. Lower cost per card
  55. 55. High touch = stronger relationship</li></ul>Targeting and Segmentation<br />Rewards<br />Programs<br />Acquisition Strategies<br />Activation Strategies<br />Risk Management<br />Revenue<br />Optimization<br /> 30% of consumers earning $75k – $150kcompare the card offers they receive in the mail according to a Mintel online survey<br />Usage and Retention Strategies<br />
  56. 56. In Branch Promotion<br />Branches Provide the Personal Touch<br /><ul><li>Preferred location to open new accounts
  57. 57. 86% of U.S. customers surveyed visit a branch once per month
  58. 58. 49% of adults researched new accounts by visiting a branch1
  59. 59. Most cost effective method of acquiring new accounts
  60. 60. $25 - $50 in branch vs. $103 - $154 direct mail2</li></ul>1. North American Technographics Financial Services Online Survey Q3 2008<br />2. Visa 2008 Consumer Credit Card Issuer Benchmark Study<br />
  61. 61. In Branch Promotion<br />
  62. 62. Activation Strategies<br />Targeting and Segmentation<br />Rewards<br />Programs<br />Acquisition Strategies<br />Activation Strategies<br />Risk Management<br /><ul><li>First 30, 60, 90 day touch points are critical
  63. 63. Engage early for long term loyalty</li></ul>Revenue<br />Optimization<br />Usage and Retention Strategies<br />
  64. 64. Engage Early<br />“Waterfall” Activation Campaign<br /> Case Study<br />New account rolling campaign (6 months)<br /><ul><li>Educational Postcard – sent to 387 new accounts
  65. 65. 86.3% used account within 30 days of receiving postcard
  66. 66. Outbound Call with Offer – called 53 inactive accounts
  67. 67. 47.2% used account within 30 days of receiving call
  68. 68. 9.4% qualified for bonus point offer
  69. 69. Postcard with Offer– sent to 28 inactive accounts
  70. 70. Obtained 3 more active accounts
  71. 71. Qualified for bonus point offer within 30 days of receiving postcard</li></ul>94% Activation Rate on New Accounts!<br />
  72. 72. Usage and Retention Strategies<br />Targeting and Segmentation<br />Rewards<br />Programs<br />Acquisition Strategies<br />Activation Strategies<br />Risk Management<br />Revenue<br />Optimization<br /><ul><li>Provide clear, customized offers to encourage ongoing and increased activity
  73. 73. Focus on best members</li></ul>Usage and Retention Strategies<br />
  74. 74. Targeted Messaging<br /><ul><li>Target Audience:
  75. 75. Include 90 days inactive & never active to optimize results
  76. 76. Incentive:
  77. 77. Sweepstakes
  78. 78. Balance Transfer
  79. 79. Bonus Points or</li></ul> Account Credit<br /><ul><li>Delivery Channel:
  80. 80. Postcard
  81. 81. Statement Insert
  82. 82. Outbound Call
  83. 83. Segmentation:
  84. 84. Never Active
  85. 85. Moderately Active </li></li></ul><li>Rewards Programs<br />Targeting and Segmentation<br />Rewards<br />Programs<br />Acquisition Strategies<br />Activation Strategies<br />Risk Management<br />Revenue<br />Optimization<br /><ul><li>Rewards are still an important part of the credit card product
  86. 86. Programs need to adapt to the changing consumer behavior</li></ul>Usage and Retention Strategies<br />
  87. 87. Revisiting Rewards<br />Rewards Remain Important to Card Acquisition<br /><ul><li>80% of offers are for rewards cards, compared to 60% two years ago</li></ul>Cash Back Offers Remain Strong<br /><ul><li>41% of programs feature cash back. Examples:
  88. 88. 5% Cash Back - JPMorgan Chase and Discover Financial Services, Citi Dividends
  89. 89. 1% Cash Bank – Bank of America, Bank Americard</li></ul>Cash Back Drives Behavior<br /><ul><li>11% of those who had not used their cards in the previous three months made purchases of at least $50
  90. 90. Average increase in spending of $68 a month in a 1% cash rewards program
  91. 91. Mintel Comperemedia, American Banker, December 22,2010
  92. 92. Federal Reserve Bank of Chicago, “Why Do Banks Reward their Customers to Use their Credit Cards?”, December 20, 2010</li></li></ul><li>Rewarding Everyday Purchases<br /><ul><li>As spending patterns change, cardholders are looking to be rewarded for everyday behavior, not big purchases
  93. 93. More mailings focused on this behavior</li></ul>- Mintel Comperemedia, American Banker, December 22,2010<br />
  94. 94. Risk Management<br /><ul><li>Regular review of member credit quality is important
  95. 95. Extend credit lines for high credit quality members</li></ul>Targeting and Segmentation<br />Rewards<br />Programs<br />Acquisition Strategies<br />Activation Strategies<br />Risk Management<br />Revenue<br />Optimization<br />Usage and Retention Strategies<br />
  96. 96. Track Credit Quality<br />New Score<br />Previous Score<br />Original Score<br />
  97. 97. Manage Line Utilization<br /><ul><li> Compare product performance
  98. 98. Review highly utilized products and cardholders for line increase opportunities
  99. 99. Balance risk with marketing and member satisfaction!</li></li></ul><li>Take Action to Drive Results<br />Targeting and Segmentation<br />Rewards<br />Programs<br />Acquisition Strategies<br />Activation Strategies<br />Risk Management<br />Revenue<br />Optimization<br />Usage and Retention Strategies<br />
  100. 100. Summary<br /><ul><li>Industry changes require us to modify our product – whether it is regulated or not!
  101. 101. Precision in all aspects of your card program from risk through marketing drives effectiveness
  102. 102. Maximize every opportunity in the member lifecycle to deepen the relationship </li></li></ul><li>Contact Information<br />Thank you!<br />Stephanie Polen<br />Vice President, Client Portfolio Management<br />812-647-9573<br />Stephanie.polen@cmcone.com<br />

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