NACHA Payments Conference 2006: Loyalty Is in the Cards

Cards continues to be a rapidly changing market, explained TowerGroup's Dennis Moroney to those at a session on customer loyalty. Between consolidation in the industry and the increasing number of cards in the market, banks and issuers have to determine new ways to wow their clientele.

"In the '90s, awareness around retention grew because it was not as easy to find new customers as in the past," Moroney said. "It became a more competitive world and consumers have gotten more savvy in managing their finances."

Although response rates to card ad campaigns have declined and there are higher attrition rates of consumers going from card to card, "consumers in the U.S. still have an appetite for debt," he noted. Therefore, opportunities abound for those smart enough to find the right retention strategy.

"Product designs have changed," said Moroney. "In the last 10 years, we've seen more use of analytics for better customer segmentation. There are also new technologies, like chip cards and proximity payments."

These are all well and good, he said. However, the most important thing is to put the customer first. "Gauge success based on lifetime customer value, not a quick hit," he suggested.

Banks are starting to realize the need to ramp up their efforts in these areas. U.S. card IT spending has continued to grow. However, according to Moroney, the allocation of these funds has changed from the processing side to the portfolio management area. He talked of the creation of a communication-based information network. "This is technology that enables the industry to organize its portfolio thinking and strategy so they can deepen their relationships with their customers, cross-sell and retain them."

Some new concepts in the card space, he said, include organizing customers around a community-based information network, such as a blog. He also pointed to the increasing specialization of rewards programs associated with prestige, brand products and even geographic location.

"The credit card market is mature but it will continue to grow," he forecasted. However, issuers will have to be aware of shrinking margins, as areas such as the small ticket item/micropayments continue to grow in popularity among card users.