Transaction data helps payment cards reach “top of wallet” status

In card issuing, as in hiking, there is often more than one way to the top.

But there are signposted trails for good reason.

Cardholders, like hikers, generally set out on their customer journey from a base point and then follow a trail. At any point on the hike, one of two things happens: the cardholder either continues to follow the trail as planned, or they veer off.

Card issuers refer to the start of the climb as ”early month on book” (EMOB), which covers a cardholder’s first 90 days. The term ”customer retention” then refers to the inherent challenges on the way up and how to prevent any veering off.

If a card is to reach “top of wallet” status, the cardholder needs to keep transacting by staying on trail. But card issuers have often struggled to balance both their EMOB and customer retention strategies. Sometimes, they are not aware of any veering until it is too late and the profitability of the card portfolio is already eroded.

Awareness of the value of EMOB and the challenge of customer retention is nothing new. Frequent engagement with new cardholders over the first 90 days can make their long-term value up to three-times greater, according to a McKinsey analysis from 2016.

Yet eight years on, the question remains: How to engage and retain cardholders to keep them transacting?

The answer comes from the transaction data itself.

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EMOB: Starting the ascent

In theory, card issuers have access to a wealth of transaction data that goes right down to the level of the primary account number (PAN) associated with each individual card. But the sheer scope of data can be overwhelming despite being limited to data within an issuer’s own walls.

The abundance of data may be handled with the right tools to conduct detailed analyses of spending patterns once transactions are being made. The concomitant scarcity of data may be addressed by the incorporation of anonymized and aggregated payment network data that extends beyond transactions associated with individual issuers.

Equipped accordingly, a spend analysis can then look at purchase behavior across card type, merchant category, time and location to ask questions in areas like the following:

• Engagement variation: Do cardholders who spend across a variety of retail categories engage more than cardholders who stay within specific categories?
• Spending events: Do cardholders who qualified for a certain level of promotional offer when opening an account engage more than cardholders who did not qualify at the same level?
• Retail categories: Do cardholders who purchase certain items appreciate promotions in a less-frequent retail category more or less than other cardholders?

The answers should enable card issuers to best prepare cardholders for their customer journeys that follow.

Customer retention: Staying on trail

An old business axiom states that attracting a new customer costs more than retaining an existing customer. Easy account switching is now flipping that axiom on its head for card issuers.

The factors that make it easy to sign up to one issuer also make it equally easy to switch to another.  What results is silent attrition. The silence reflects the lull in activity despite no formal account closure. The best way to stem the attrition is by early prevention to quickly reorient any wanderers.

Still, issuers cannot realistically sustain highly competitive, sometimes loss-leading, EMOB promotional offers forever. A deeper understanding of cardholder behavior over time allows issuers to efficiently tailor more personalized promotions for greater impact to exactly the right cardholders.

The factors that make it easy to sign up to one issuer also make it equally easy to switch to another

Once a cardholder has demonstrated their purchasing behavior over the EMOB period, customer segmentation can assign them to various groups based on common purchasing traits. These groupings can then accommodate more tailored questions than were possible during the EMOB period. For example:

• Engagement variation: What tailored messaging will most appeal to a cardholder to remind them of the benefits associated with their card?
• Spending events: What tailored promotion will appeal to a cardholder based on their response, or lack of response, to an earlier less-tailored promotion?
• Merchant categories: Which tailored offers in specific merchant categories will best encourage a cardholder to make recurring payments that will increase habitual card use?

The answers should enable card issuers to keep cardholders on trail throughout their customer journeys and guide them to the top.

Conclusion: Reaching the top (and staying there)

For all their data-informed analytical insight, the recommendations for EMOB and customer retention are not guaranteed to be effective. They are at best well-founded hypotheses to apply strategically.

A test & learn (T&L) approach to business experimentation can take those hypotheses and measure their impact to ensure they perform as intended to prevent veering and to help a card reach the top of a wallet.

This fine-tuning should further avoid the need for last-ditch “win back” appeals to cardholders who are deliberately going off trail rather than merely straying. It can also ensure that cardholders who reach the top do not just come right back down again.

Contact us to learn how purchase journey analyzer, a component of Test & Learn®, can unlock the value of transaction data to keep cardholders on trail and their cards top of wallet.