Consumers are navigating the vagaries of a brave new world dominated by the coronavirus. Cardholders’ behavior may shift on a dime. That means card portfolios can experience changing returns for financial institutions (FIs).
And for issuers to maximize the return on their credit, debit and prepaid card portfolios, said Ava Kelly, head of global product at i2c in a recent podcast with Karen Webster, it’s best to extend offerings across multiple products, and to fine-tune interactions for each with the help of advanced technologies.
“The most lucrative position to be in is to have multiple relationships with your customers,” she explained, noting that FIs should strive to come to market with different value propositions, which in turn can appeal to various segments of the population.
“That allows you to be able to serve that customer across a full product line,” Kelly told Webster, noting the need to serve a customer’s banking needs holistically.
But among the most pressing questions for these issuers, beyond simply offering a broad range of products: How do they get to top of wallet?
After all, top-of-wallet status is what really makes a given payment product more lucrative, said Kelly – and getting there boils down to an ability to execute.
For example, having tools that monitor cardholder behavior and automatically trigger actions that drive faster card activation helps get revenue through the door sooner.
In drilling down into particular products, Kelly said that “obviously, credit cards are products that have several levers from a revenue perspective, including interest, fee and interchange income, so it is a valuable part of the product lineup.”
Maximizing portfolios means maximizing relationships across a full product line strategy to engage consumers, she noted, enabling FIs to achieve top-of-wallet status and to offer products with multiple revenue drivers, like credit.
The first thing to look at, said Kelly, is what can accelerate issuers’ speed to revenue. It’s important for firms to examine how long it takes to get to market with new products in order to attract new customers or extend their relationships with existing customers. “Is that taking you months or is it taking you days?" she asked.
Not surprisingly, speed matters.
As Kelly told Webster, “If you're not getting to market, somebody else is. That void is always going to be filled.”
These days, she said, instant issuance onto mobile devices or into online environments has proved valuable for issuers, as it helps get consumers spending right away without waiting to receive plastic cards.
Event-triggered capabilities are valuable in driving portfolio optimization across revenue and expense management, maintained Kelly.
Issuers can set data rules and parameters in the system, and when a cardholder’s profile or behavior meets the defined criteria, it triggers a pre-determined set of actions that will automatically be executed. This can include communications to recognize customer milestones, adjust fees, provide offers or send alerts for risk management activities related to delinquencies and fraud.
FIs can also gain some control over costs by examining whether they have to manage credit and debit programs over multiple systems or regions, and whether their end-to-end lifecycle management exists in one place. In dealing with multiple vendors, FIs often operate less efficiently.
Bringing a Better Experience
“One of the biggest shifts we have seen in cardholder behavior is the decoupling of bank relationships,” said Kelly. Consumers are open to new, non-traditional players that are offering a better experience, so everyone is up for grabs.
To get cardholders engaged, said Kelly, FIs need to bring a better experience that is relevant and personalized.
This starts with the ability to test and learn different value propositions tailored to different segments. Next is the ability to react to their specific profile or spend patterns, where FIs can provide relevant digital coupon offers or recognize important milestones in the relationship.
Customers also expect communication and services in their channel of choice, whether that is mobile, web or SMS. They also want the control to set alerts or have spend and budgeting tools so they can tailor their interactions with financial services providers, said Kelly.
The environment is always changing – such as now, amid a global pandemic, which will certainly have an economic impact. FIs need the flexibility to adjust to the situation and “meet their customer in a way that is relevant to their situation,” noted Kelly.
That could include opting to waive fees for a month or delay a minimum payment. Whatever actions issuers want to take, they need to be ready to pivot in unpredictable times.
Recalculating Risk: The Quartiles
If card programs are not generating sufficient revenue, how do portfolio managers recalculate risk tolerance and take a more proactive portfolio posture to drive cardholder behavior?
FIs have been testing and learning around these types of strategies for years, and program managers generally know what to do – but the big challenge lies in execution, said Kelly.
The key drivers that allow FIs to execute at a stronger level include accessing actionable data insights, determining which customer segments to action and then having the ability to execute.
Customer data can be divided into four quartiles of performance, according to Kelly. The top quartile is comprised of top performers – those ideal customers where the FI has top-of-wallet status. The second quartile represents strong performers, which is also tied to strong performance. The third quartile houses average customers, with room for improvement in terms of risk or revenue opportunities. That last quadrant? Well, those individuals are just not engaged or not worth pursuing.
“So now, with insight into who to act on, it comes back to the capability to execute,” said Kelly.
Whenever FIs can set parameters to automate execution in real time, it becomes easier to optimize portfolio management for both revenue generation and risk management. Maximizing returns on portfolio performance requires thinking about how FIs can service the full spectrum of their customers’ needs in order to rebuild relationships that have become decoupled.
Equally important is the need to address issues that impact speed to revenue or the ability to automate execution to gain top-of-wallet status and optimize P&L drivers. Data insights should also be leveraged to identify the specific segments to be actioned so execution strategies can drive maximum impact.
Ultimately, if FIs bring a better experience that is relevant, personalized and consumer-centric, customers will be engaged – and an FI’s portfolio will reflect the value of these relationships, said Kelly.