Credit cards have become part and parcel of our life and almost in all developed and developing economies there are more than one bank issuing credit cards. However even in developed economies every customer that will “qualify” for credit card is not a credit card customer and at the same time customers who have credit cards do not hold one but many more. Attracting new customers and earning loyalty of existing customers has been a challenge for all banks. Working in credit card industry for more than 10 years and someone who owns so many credit cards that one can play poker with them, I thought it will be good to try and understand what attracts me to apply for a new credit card and what is the trigger that pushes me to use credit card for bank A or bank B or bank C. In this article I want to share some of the observations and insights that I found while trying to find these answers.
To start with first thing I did was to find a differentiation factor between each credit card I own or are available in market. It did not take me long to come to conclusion that all credit cards that I have come with same bells and whistle. There is none or almost negligible difference when you compare the 4Ps of credit card
- Product – Almost all banks offer same type of product contact, chip, contact less, VISA, MasterCard and so on
- Pricing – In many countries this is controlled by regulations and there is minimal or no difference between pricing attributes
- Promotion – Promotion or reward offerings are almost the same and as explained later only provides a temporary advantage
- Perception – Gone are the days when holding a American Express Personal Card was status symbol. Credit Card are now a mass market product so creating a perception of being special by holding a credit card is very difficult
Of these 4Ps Product and Promotion are areas where most of the card issuers have been focussing on. However looking just under the skin, I think both of these are not a long term and assured strategy to gain growth in credit card business.
Promotion and rewards seems to be the preferred line of attack, and most of the innovation is focused in this area. Consider an example from Singapore and I am confident that situation will be same in other parts of the world. Few years back DBS bank launched a credit card “POSB Everyday card”. This card gave 7% cash back on grocery purchase made in Carrefour. It was like a revolution and everyone I knew was flashing this blue POSB card. Fast forward few months to current situation, now POSB Every day is just one in the whole gamut of cards offering exactly same amount of cash back on grocery purchase. Being first to offer an innovative reward gives an early advantage however innovation in this area is easy to replicate. Since the rewards offer cannot be patented, the initial cash-in-on is short lived and others in race can easily finish one's advantage.
Looking at other area of Product where innovation is controlled by not just the issuer but also by regulators and acquirers. Changing the way customer make payment from magnetic to chip to contactless to mobile to something we don’t know now is a continuous journey. Innovation in this area in trying to do something outside industry trend can be a very expensive proposition. Dependencies on others make it more difficult to use this as a carrot to attract new customers and earn loyalty from existing customers.
Another thing is that both these innovation focus more on retaining existing customers and does not give enough to acquirer new customers.
So what is required to break this oppressive uniformity in credit cards? What can we offer to existing customers to earn their loyalty and to new customers to attract them to adopt the plastic money?
Talking to any marketing guru, answer to these question lies in doing an extensive market research involving interviews and surveys of different customers segments followed by analysis from the experts. I obviously do not have the resources or bandwidth to perform this. However I did knew 3 people who could help me to look for some answers in this regards they were I, Me and Myself. So to make life simpler I rephrased the above questions to
“What is the deciding factor for me to select credit card issued by bank A over bank B and what is the attracting factor for me to request a new credit card?”
Starting point for my research came from famous song from Passenger “Let her go”…
- Well you only need the light when it’s burning low
- Only miss the sun when it starts to set
- You only know the value of credit card when it is not in pocket..
To solve the mystery of what credit card meant to me (and hopefully for others) I decided to take out the card of the deck from my purse and keep them in a safe location away from my sight and mind.
**To tell the truth moving from 20 to 0 cards was like asking me to stop going to Starbucks so to handle emergency situations I kept 2 cards with me. I still don’t know what made me select 2 out of 20 as that was the exact answer that I was about to explore.
After completing 1 month of this experiment the insight that I got was different from what I had expected. By not using credit cards for one would have expected a drastic loss in cash back credit and air miles (that I could have used to fly around the world). But that was not the case, by not using credit cards I in fact made significant saving in my monthly expenditure. This was a worrying observation.
Please don’t think that I am an insane who is worried because I saved money. On personal front I am very happy, but my professional self is worried by this observation. As I mentioned I have been working in credit card industry for last 10 years so my worry is that if every one of our customer discover this insight then I am out of job.
In current situation I think the complete business case of credit card is to fuel customers towards
- Accelerated spending
- Mindless spending
- Latest and greatest spending
This a concerning factor, with world economies moving towards a recession this cannot be a sustainable model and needs to change else all issuers will be out of business very soon.
Probably we should look at credit card from a different viewpoint and focus not just on promotion and product but also on something else that is missing now. We have to change the impact of credit and by image I am not referring to card face but the way people think about credit cards. We have to look at transforming credit card from not being just a more of making payment into a financial management tool. A payment device which not only makes me do purchase but also helps me manage my expenses and prevent overspend.
Only 2 simple features Control & Track can help renovate credit cards. Giving customer Control of his expenditure and providing him information to Track his spend pattern should not be complex to implement. In-fact procedures required to give these tools to customers might be currently being used internally within banks.
Let us first look at Control, by control I mean allowing customer to take control of his expenditure. To allow setting limits on different type of transactions that one can perform using the credit card. Imagine making an online purchase of movie tickets and receiving a warning message stating that you are going to exceed your monthly spend limit for entertainment and you still have 15 more days before next billing cycle. Such message will make the customer think twice before confirming the purchase. A simple change and step towards avoiding mindless spending by customer. Many people do budgeting at start of the month, what a suitable tool it will be for them to set limits for their credit card based on monthly budget. No worry your credit card will not let you go Out of Control.
Track is a part and parcel of Control, what good is control when you are not able to track what you want to control. Consider a statement which tells me how I have been spending when compared to other people of similar demographic segment as I am. Where do I stand in comparison to others in my country or state? Can we think of issuer telling its customer that you are overspending in entertainment and you should consider reducing your spend or giving recommendation on where to go for next dinner so that you can save some money by using the credit card.
I don’t think any of these is difficult to provide to our customers. We issuers are sitting on a data mine which contains all the required information to help our customers Control & Track spending. If you are thinking that what will bank gain by allowing customers to spend less, a simple answer is loyalty to one card and easier onboarding for new reluctant customers. If I really want to Control & Track my spending I better use only one card else I don’t gain anything.
These are all view from research done by I, Me and Myself so can be different from other experts. As a customer and avid user of credit card this is what will attract me to use a particular credit card and I hope that is what You, We and Ourselves will prefer.
Most banks are focussed on looking at the new technology innovation which is going to change the “card face” of credit card and ignore the soul of credit card. We need to think why majority of people have only one Saving/Checking account but same individual has more than 5 or none credit card.
No comments:
Post a Comment