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Product innovations in the downturn: lessons for UK issuers

Datamonitor
April 1, 2009
9 Pages - SKU: DFMN2217575

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Countries covered: United Kingdom

Introduction

The outlook for the UK card market is going to be highly challenging in 2009 and 2010, calling for a new approach to product design. This report provides six strategies that issuers should follow to take full advantage of the opportunities available and highlights the most innovative product propositions that UK issuers can look to in order to maximise their growth in this challenging environment.

Scope

Part of the UK Plastic Cards series, this brief provides insight into the strategies that UK issuers should follow in the recession
The first theme focuses on strategies for effective customer acquisition and retention in this challenging environment
The second major theme is using innovative value propositions to create incentives for the 'right' kind of customer behaviour
Analysis of the most innovative product value propositions internationally provides real-world examples of how these strategies can be employed

Highlights

As the economic climate worsens during 2009 and into 2010, many cardholders will find it difficult to maintain repayments on their card balances. Offering instalment repayment options on large ticket transactions is widely available in Europe and Asia, and can provide a solution to this issue.

Encouraging good account management by cardholders is becoming increasingly important. There are a growing number of initiatives that are aimed at addressing this issue, suggesting there is considerable scope to closely align card value propositions with the 'right' kind of behaviour from customers.

Multiple cardholding remains a very important feature of the UK market, and creates a situation where card issuing banks can look to 'win back' customers. The primary advantage of this strategy is that issuers already have a relationship with these customers and are able to better assess the risk of lending to such customers than new business.

Reasons to Purchase

Understand the six key product strategies for issuers to employ in this recessionary environment
Learn how best to achieve these aims from examining innovative product ideas from other markets
Use these ideas to address the pain points in your business

Overview: Catalyst; Summary; Table of Contents; Table of figures; Table of tables; Product Innovation in the Downturn: Lessons for UK Issuers; Datamonitor has identified six strategies for issuers to maximize their performance in the downturn; There are two focus areas for issuers trying to improve the profitability of their business; Within this there are six potential strategies that can help issuers to address their pain points; The Datamonitor Financial Services Megatrends Framework is an excellent tool for identifying potential strategies; The Megatrends Framework can be used as a key tool in shaping product strategies; Reducing cost through rationalizing out unprofitable customers is delicate but nevertheless important; American Express offered to pay customers to leave in order to close a number of unwanted accounts; Imposing fees for inactive accounts is also an option; Winning back existing customers can be achieved by linking benefits to a full suite of banking services; Citibank offers an extensive reward program that offers benefits across a range of banking products; This is an interesting proposition, as it places the focus for value on the banking relationship rather than individual products; Offering a strong card-based reward program is also an option here, and issuers should look at the Banesto Diez en Una card; Targeting new customers with good credit histories will require an outstanding offering and one with strong rewards; Bank of America's Accelerated Cash Rewards card offers cashback at 1.25%; Explicitly offering more attractive terms to better credit risks is a strategy employed by Capital One in the US; The Capital One Card Lab takes this a stage further by allowing consumers to customize their products; Cards with an installment option present opportunities in dealing with potential risks; Cardholders who may fall into difficulties should be encouraged to structure their balances; Offering installment repayment options may also allow issuers to reduce their risk exposure; Standard Chartered introduced a credit card in Singapore that automatically splits larger purchases into monthly installments; Creating incentives for repaying borrowing can help issuers to manage potential credit risks; ANZ Bank has launched a product that rewards cardholders for repaying balances; The interesting feature of this product is that it effectively rewards both card activity and repayment; The product aligns the interests of the cardholder with the issuer in a time of economic uncertainty; Discover has a similar proposition that rewards payments made on time; In the US, Discover launched the Motiva card, which rewards on-time payments; The product is likely to result in cardholders with multiple products prioritizing payments to Discover; Discover is also proactively communicating with its customers to set structured repayment plans for balances and to allow for accurate spend monitoring; Alongside this, the Spend Analyzer tool allows cardholders to get a clear view of their spending habits; However, initiatives such as these are not the only way to improve cardholder behavior; Winning back transactions from debit is a key strategy and can be achieved by linking rewards to other financial products; Fidelity offers a credit card linked to a full suite of savings reward programs for all walks of life; Appendix; The financial services Megatrends Framework; Datamonitor has identified 10 Megatrends in consumer behavior; Megatrends are tools for capturing the drivers of consumer behavior; A Megatrends Framework is a vital tool for analyzing and structuring consumer attitudes and behaviors; A trend framework is used for generating and selecting ideas; A Megatrends Framework is vital for financial services; Customer retention as well as customer acquisition must be considered; There are inherent obstacles in financial services that limit innovation in customer targeting; Greater customer understanding can help overcome the obstacles found with targeting and communicating to customers; The six behavior trends identify the benefits that consumers wish to gain from a product or service; Authenticity; Comfort; Connectivity; Convenience; Individualism; Wellbeing; The four complexities are areas within which traditional assumptions or measures of behavior no longer apply; Demographic complexity; Financial intelligence complexity; Lifestage complexity; Wealth complexity; Definitions; Average transaction value; Balances outstanding; Charge card; Credit card; Debit card (pay now); Methodology; Primary research; Secondary research; Further reading; Ask the analyst; Datamonitor consulting; Disclaimer
List of Tables: Table 1: Capital One's classification of credit ratings in the US, 2009; Table 2: Current relevant publications, 2008-09; Table 3: Future relevant publications, 2009
List of Figures: Figure 1: Issuer strategy evolves around two pillars and six potential areas to target; Figure 2: Citi's ThankYou Network reward program is linked to credit cards and other retail banking products, 2009; Figure 3: Citi's website for its ThankYou Network reward program offers a range of redemption options; Figure 4: The Banesto Tarjeta Diez en Una product offers a permanent 5% discount at 10 major retailers; Figure 5: Bank of America Accelerated Cash Rewards offers 1.25% on all purchases, 2009; Figure 6: Capital One Card Lab portal, 2009; Figure 7: BMO offers reduced interest loan consolidation offer for loans and credit card balances, 2009; Figure 8: Swedbank offers three distinctive card products including installment, revolving and charge cards, 2009; Figure 9: ANZ Balance Visa offers reward points for paying back cardholder's balance, 2009; Figure 10: Discover Motiva card designed to reward customers for paying back on time, 2009; Figure 11: Discover's Paydown Planner tool helps cardholders to pay back the money owned, 2009; Figure 12: The Spend Analyzer is easy to use and useful tool for cardholders managing their finances, 2009; Figure 13: Fidelity credit card range is linked to innovative savings reward programs, 2009

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Product innovations in the downturn: lessons for UK issuers

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