As credit card use slows in certain sectors because of tightened budgets and risk avoidance, many issuers may find they lack consistent retention strategies, according to a study from Celent.
When the opportunity arises, most issuers try to talk cardholders out of canceling their card accounts through various methods, including incentives to stay, according to the research. Celent analyst Zilvinas Bareisis gathered data for the study in April and May from 11 large financial services providers that included card issuers in Europe and the U.S.
Forty-five percent of study participants had systems to predict which cardholders were at risk of leaving and to prevent them from departing, Bareisis said in the report, which was published June 14. Issuers' methods for persuading cardholders to remain varied, and their methods of measuring results were spotty, he added.
"Most issuers do not explicitly quantify [results of their customer-retention efforts] and have only a vague understanding of the value of retention," Bareisis said.
Customer-retention practices "are undergoing change," he said, noting the recession that began in 2008 has produced lower credit card use as some consumers' access to credit shriveled when issuers closed underperforming accounts and cut credit lines, while budget-conscious customers also migrated from credit to debit card use.
Moreover, the Credit Card Accountability, Responsibility and Disclosure Act, which went into effect last year, along with pending changes in debit card interchange rates that go into effect in July as a consequence of the Dodd-Frank Act, have put downward pressure on fees and revenue. That, in turn, is forcing many issuers to become increasingly eager to hold on to existing, profitable credit card customers, Bareisis said.
Issuers use a variety of strategies to retain customers threatening to close their accounts, but the most successful approaches include ongoing reviews of individual cardholders within a portfolio. Such reviews assess their profitability and likelihood of leaving.
Issuers then can take appropriate action when customers threaten to leave.
The vast majority of study participants, 91%, deployed some kind of retention strategy, and their success rates ranged from 10% to 15%, Bareisis said. Issuers in the study on average managed to prevent 31% of cardholders from canceling accounts using retention strategies.
The study did not supply data showing the percentage of all accounts cardholders voluntarily close.
Issuers generally attempted to balance their use of retention incentives against the customer's profitability and the cost of acquiring a new customer, Bareisis found. The goal is to strike a balance in considering how much it would cost to acquire the same customer, the total cost to retain the customer, such as how much revenue the issuer would need to give up by lowering the interest rate, he said.
Most participants rely on a system that routinely flags all accounts to indicate whether a customer service agent should try to retain customers based on their risk profiles and spending histories, should the occasion arise, Bareisis said.
The majority of issuers updated such data monthly, but one participant did so quarterly. "The leading practice is to update [such risk-scoring data] daily or even in real time for a given customer," Bareisis said.
In general, issuers looked at a customer's spending history or total relationship with an institution to determine whether efforts to retain the customer were warranted.
Certain issuers segmented customers by payment patterns, determining whether they tended to carry a balance or paid their balance in full each month and whether they paid a monthly fee to weigh the value of fighting to keep them.
Other considerations in determining whether to retain a customer included seasonal promotions with retail or travel partners and a customer's status with a cobrand partner, Bareisis said.
In general, a key guideline for determining if a customer is worth keeping is whether the issuer would try to acquire the person given today's credit criteria, he noted.
Seventy-three percent of study participants had specific incentives and offers customer service agents could use to persuade cardholders to remain.