Mining for Profits
Mathis, Bill, Independent Banker
Leverage your card program for sales, service and loyal customers
A well-executed payment card portfolio can be an important part of an independent community bank's growth strategy. On a rudimentary level, a portfolio can be a profit center. More importantly, however, community banks can use a card portfolio to capitalize on their greatest asset-customer intimacy.
A properly deployed payment card program can not only solidify this relationship, but also create new opportunities for cross selling other products and services. According to a study conducted by the Bank Administration Institute, 72 percent of retail banking executives list improvements to cross sell, retention and service as their number one driver for revenue. And successful card portfolios help banks do just that: Increase cross-sell opportunities, enhance customer retention and improve customer service.
Today's card portfolio can be quite diverse and very powerful. The Internet, of course, has had a lot to do with it. While e-commerce is still in its infancy, it's already a big baby. Forrester Research, for example, says that consumers in the United States are expected to spend upwards of $65 billion in 2001.
Why is this important? Because the payments industry was one of the first beneficiaries of e-commerce, 95 percent of the transactions executed on the Web are completed via payment cards, compared with about 33 percent in non-Internet transactions. This is in part due to the high level of public trust in the card-issuing institutions and the potency of global branding campaigns.
In addition to online retail purchases, there's also huge potential in consumer-- to-government payments, such as tax bills. Just three years ago, the Internal Revenue Service started accepting cards as a payment form for federal taxes. Additionally, many state and municipal governments are following suit. Then, of course, there's the reverse, with government-to-consumer payments, when the government actually sends tax refunds, pensions and other benefits directly to a payment card.
Once upon a time, community banks had just one type of payment card to offer their customers-a credit card that supports only one type of transaction-consumer-to-business payments. Now, with debit cards and stored-value cards, banks can offer a card that allows consumers to pay before, during or after a purchase is made.
This growing diversity of consumer payment options has translated into more ways for community banks to participate in the burgeoning payments business and, at the same time, has created more opportunities for them to deepen customer relationships.
Stored-value cards, sometimes called pre-paid cards, are already becoming quite popular with the parents of teenagers. They enable the teenagers to have the convenience and security of a cashless payment device, while their parents no longer have to worry about their kids mishandling credit. And it doesn't take much imagination to see that a large pool of stored-value card customers may also be more receptive to student-loan pitches.
In short, a diversified card portfolio can help independent banks cross sell other products and services.
The Power of Segmentation While enhanced payment card portfolios are important tools for helping independent banks enjoy stronger customer relationships and more revenue opportunities, there are also ways for the tools themselves to become more effective profit centers. The answer is segmentation.
Segmentation, a form of data mining, is a strategy that considers people's income profiles, lifestyles, interests and their buying habits. When good segmentation information is combined with strong promotional campaigns, card usage, customer retention and overall program profitability can rise substantially. …