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Product innovations in the downturn: lessons for UK issuers

Published by: Datamonitor

Published: Apr. 1, 2009 - 9 Pages


Table of Contents


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

Abstract

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


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