Timothy Kolk(603) [email protected]
2019ONLINE CARD SCHOOL
Session #3
MAPPING PRODUCTS TOMEMBER EXPECTATIONS
September 2019
TRK ADVISORS
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The Online Card School Purpose
• Provide market and competitive information
• Build critical management skills
• Share proven approaches to growth & profitability
• Develop competitive products you can be proud of
• Help you prove your program’s value to the credit union, your members, and your own sense of living a life fully realized.
CO-OP Financial ServicesStrategic Vision: Your Growth Is Our Growth
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Webinars, Documents & Access
• Live webinars are open to all
• Need to be a CO‐OP or TRK Advisors client to receive Access to this year’s recordings Log‐in to library of past sessions (3 year cycle) Downloads of presentation documents
• To register for access: Go to www.onlinecardschool.com Register via the “Learn More Today” area Enter the CO‐OP promotional code (or leave a related note in the
“Message” input)
• Not a CO‐OP client? Well, let that be a lesson to you!
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2018 Sessions (Recordings On‐Line)
#1 CARD MARKET OVERVIEW
#2 DESIGNING PROGRAM REPORTINGFOR SUCCESS
#3 BUILDING YOUR ANNUAL CARDACTION PLAN (MORE THAN ABUDGET)
#4 LOOKING AHEAD TO 2019: WHAT’S NEXT?
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2019 Sessions
Apr 10 CARD MARKET OVERVIEW
June 30 CALCULATING PROGRAMPROFITABILITY (& USING IT)
Sept 5 MAPPING PRODUCTS TOMEMBER EXPECTATIONS
Oct 17 MATCHING PRICING & PRODUCT VALUE TO RISKLEVELS
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What We Covered in the 1st Session
1. Market has reached record levels• Credit unions overall are doing well. Again.• BUT: half shrank & 80% grew at < market rates
2. Credit losses are creeping up• CU rates now at all‐time high except for recession
3. Prime increases since 2015 (+225bp) have fueled increasing revenues. Move to Signature has fueled revenues. Rewards and promos have fueled expenses.
4. Innovation is creeping, but relentless: data access & delivery, mobile tools and features, contactless a focus…
Q1 UpdateBalances -1% from Dec. (typical)
Balances +8% from yr prior
Q1 UpdateNCL Q1 = 3.1%Banks = 3.8%
Gap = 70bp…closing!
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Q3 UpdateDown 25bp
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What We Covered in the 2nd Session
1. How to calculate card program profitability
2. Data sources by processing environment
3. Building a management report with KPIs & P&L
4. Expanding to product type and other refinements
5. Calculating how much of your total credit union profitability comes from credit card (do this!)
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THIS SESSION:
Data Driven Segmentation & Opportunity Sizing
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Why This is Particularly Timely
• Profitability declining: Prime down, Funding costs up, charge‐offs up, expenses up
• Targeting where marketing resources are spent for the biggest impact is more important than ever
• Planning season is here: you can actually have a fully baked tactical plan from this
• Results beget more resources, to get more results, to….
• As always, card can support the strength of the entire member relationship if you know what each member wants (or the opposite if you get it wrong)
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And Let’s Remember….Growth is Getting Harder to Find
TurnIssuer Balances Purchases Total Active % Act Bal Purch RateJP Morgan Chase 156,632$ 739,484$ 73,751 40,210 55% $3,895 $18,391 4.7CitiBank 108,570 404,930 56,654 38,500 68% $2,820 $10,518 3.7Bank of America 107,408 357,646 42,827 28,555 67% $3,761 $12,525 3.3Capital One 100,210 336,910 90,470 47,700 53% $2,101 $7,063 3.4Wells Fargo 41,239 131,704 17,510 9,870 56% $4,178 $13,344 3.2US Bank 39,582 144,731 22,442 11,323 50% $3,496 $12,782 3.7Barclays 26,391 79,060 10,920 7,680 70% $3,436 $10,294 3.0Synchrony 23,131 54,369 25,874 14,347 55% $1,612 $3,790 2.4USAA 17,388 42,901 5,395 4,260 79% $4,082 $10,071 2.5Navy FCU 16,661 21,714 3,146 2,286 73% $7,288 $9,499 1.3Total, Top 10 637,212$ 2,313,449$ 348,989 204,731 59% $3,112 $11,300 3.62018 Change 3% 10% 2% 2% 0% 1% 7% 3.42017 Change 8% 16% 5% 5% 0% 3% 10%
Top 10 Visa & MasterCard Issuers in the US, 2018Volume ($MM) Accounts (M) Per Active
Does your organization understand this (yet)?11
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In Today’s Discussion
• Review a detailed segmentation case study
• Survey of how large issuers are communicating their card value propositions
• Look at a couple credit unions
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REVIEW OF AN ACTUALSEGMENTATION EXERCISE
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Segmentation, Not One Answer
It’s Simple, Really• Credit cards are a financial tool
• Like any tool, different people use it different ways
• Unfortunately, they aren’t always honest about how they use it (even with themselves)
• It is up to you to figure out how they use it
• Only then can you develop your own ‘set of tools’ to meet those varying expectations.
For Credit Card: 20% creativity and 80% execution.14
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50%? 25%? 25%?
Understand: Different Purposes for Card
High Risk Low Risk
Convenience Users(Transactors)
What are your #s?
First View: Types of Cardholders
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Credit Union Success
All Consumers
Credit Users(Revolvers)
Declines
Depends GOOD Struggle
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The Institution
• $1B+ CU with 200,000 members and 30,000 card accounts
• Overall performance strong
• Looking to to best serve their members
• Card portfolio > $100 million
• Card profits are strong: 5% ROA
• Very fact‐based organization: opinions after facts
• Have internal evaluation and prioritization process
Case Study/Walkthrough
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First Step: Define & Gather Data
• Internal Card File: data on 30k cardholders₋ Open date, line, rate, balance, purchase $, cash $ volumes, balance transfer $, interest paid, fees paid, delinquency history, payment rate, status, DQ, other products,…
• Internal Member File: data on 200k members (incl. above)₋ Member date, member duration, other loans, depository balances, debit transaction velocity, Raddon segmentation, Internal profitability measures, Acxiom segmentation, Occupation, …
• Experian Data: On all members₋ Credit score₋ Income and Debt‐to‐Income estimators₋ Credit Card Use (TAPS & Trendview)
Case Study/Walkthrough
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TRK ADVISORS
$0
$50
$100
$150
$200
$250
$300
$350
390 440 490 540 590 640 690 740 790 840
Millions
Spend by Score Range: All Members
Bellco Spend Other Spend
First Step: Get the Team Interested
Credit Union
$0
$20
$40
$60
$80
$100
$120
390 440 490 540 590 640 690 740 790 840Millions
Balances by Score Range: All Members
Bellco Balances Other BalancesCredit Union
Case Study/Walkthrough
Showing how members needs are not being met can be pretty motivating!
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0%
5%
10%
15%
20%
25%
30%
390
410
430
450
470
490
510
530
550
570
590
610
630
650
670
690
710
730
750
770
790
810
830
Penetration Rates by Score Band
Pen %
Case Study/Walkthrough
And who knows what else…
Every situation has to follow it’s own findings.19
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Total Member Base200,000
Has Credit Union Card30,000
No Credit Union Card170,000
Too Risky?40,000
$200MM in Spend$100MM in Bal.
Risk OK100,000
No Other Cards7,000
Has Other Cards93,000
Credit User40,000
Convenience User
53,000
High Use35,000
$1.2B Spend$200MM in Bal.
Low Use18,000
$50MM Spend$40MM Bal.
High Use22,000
$700MM Spend$600MM Bal.
Low Use18,000
$60MM Spend$100MM Bal.
Continued on next pageNote: 30,000 fall out due to no score or other issue
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Total Member Base200,000
Has Credit Union Card30,000
Inactive10,000
Long Time6,000
Recent4,000
Active20,000
Revolver12,000
Transactor8,000
No Other Cards1,500
Has Other Cards4,500
Low Use1,500
$6MM Spend$5MM Bal
High Use3,000
$100MM Spend$80MM Bal
No Other Cards1,000
Has Other Cards3,000
Low Use1,500
$5MM Spend$3MM Bal
High Use1,500
$50MM Spend$40MM Bal
High Bal.9,000
$80MM Spend$60MM Bal
Low Balance3,000
$20MM Spend$16MM Bal
High Spend2,000
$20MM Spend$3MM Bal
Low Spend6,000
$60MM Spend$8MM Bal
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Now You Know
• Which members are likely to have balances elsewhere
• Which members have spend elsewhere
• If you product set’s performance is particularly strong or weak in certain market segments
• What risk segments you are doing well with, and which you are not (and if the results are ok with you)
• Who in this mix is a likely revolver, transactor, rate surfer, etc.
• External labels may not match what you see in actual behavior!
Once This is Done…
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This information can greatly focus efforts, improve results, and ensure strong marketing program ROI.
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HOW ARE LARGE ISSUERSPOSITIONING THEIR
PRODUCTS?
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TRK ADVISORS 24TRK ADVISORS
Large Issuer Positioning Tells a Story
Capital One Travel Card• Clean, not a lot of reading
• Notice the order of things
• Earn rate: Allow for self‐segmentation
• Bonus points is 2nd item listed
• Then another special feature (consistent with self‐segmentation)
• Flattering description of who qualifies (travel is ‘aspirational’)
• The rate, leading with Promo Rate on no fee card (value conscious)
TRK ADVISORS 25TRK ADVISORS
Large Issuer Positioning Tells a StoryCapital One Cash Back
• Clean text
• Cash back value up front
• Promotional value second
• Guidance on who qualifies (segmentation of a type)
• Promo rate next
• And then Go To Rate
TRK ADVISORS 26TRK ADVISORS
Large Issuer Positioning Tells a StoryChase Cash Back Card
Was $150 last time
Was listed 3rd last time
APRs +100bp since last time. BT fee lower now.
Wasn’t even listed last time
Also a new message
TRK ADVISORS 27TRK ADVISORS
Large Issuer Positioning Tells a StoryChase No Rewards Card
Up one spot
Up one spot
Down two spots
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Large Issuer Positioning Tells a StoryDiscover
Travel & Cash Back
Almost no changes
Used to be a woman in a bathing suit
Now says ‘never expire’
Increased the ‘match’ example
Added ‘redeem for cash’
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Credit Union Pages: The Bad• Top 50 CU portfolio
• The one that shrank the most in 2018
• No cash back
• No points bonus
• No intro rate
• FIXED RATES! (is that working?)
• Words. Words. Words.
• Tabs have even more words.
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Credit Union Pages: The Bad$20 million portfolio, Shrank 9% in one year!
• GREAT rates
• No promos: rates or rewards
• No idea of Rewards value
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Credit Union Pages: The Bad$20 million portfolio, Shrank 7% in one year!
Interesting idea: Tell them what they don’t get
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Credit Union Pages: The Good
• Randolph Brooks CU
• Large portfolio: $500MM
• +24% in 2018
• Two cards: Cash Back & Rewards
• Leads with the main point for each
• Promo rates
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Credit Union Pages: The Good
• Sharon Credit Union
• $5MM portfolio, +14%
• Intro rate promotion
• Cards to a specific purposes
• Promo points, even if modest
• Bold on rate for Low Rate product
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WHAT’S A CREDITUNION TO DO?
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No Need to Reinvent the Wheel
• Your member segmentation work creates an understanding of different behavior patters
• Different segments respond to different value elements
• Copy the approach of the big banks. LESS IS MORE
• Rewards: Value, no fee, ease of use, cash + other options
• Rate: Intro Rate & Go To Rate
• Separate them!
• No one picks a card based on warrantee insurance and the like. Stop ranking it like everything else.
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Reward Cards: How to Fail
• Have a weak value proposition (do you use it?)
• Make redemptions tricky to understand/use
• Don’t make value clear in first 10 seconds
• Send people to a demo web site, point out it’s a third party, make it only semi‐functional (or worse)
• Weak staff training
• Allow CFO to think of rewards as an expense, not an investment (P&L anyone?)
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Perfect marketing of an uncompetitive product is a waste. If necessary, fix this product first.
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Low‐Rate (no reward) Cards!!!
• The large issuers are not good at this segment
• Mainly because most consumers don’t want them
• But many credit unions have significant amounts of rate‐conscious members
• While rewards are driving much of the market growth and new account volume, do not forsake this segment!
• Protect who you have (but make sure they know you have rewards if they change)
• Value = strong credit lines, promotions to gather balances, and fair rates & fees. These are your messages.
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This segment is the earnings‐producing engine of many credit union portfolios.
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Then You Get to Have Fun
Matching Proposition to SegmentSegment Examples Proposition (examples)Revolver/Credit User Rate (Intro, BT, Special period); Refund of interest; Points on BTsTransactors Annual bonus, 2x for holidays, 5000 after 20 purchases…Inactives Points, No fee BT with great rate (depends on use elsewhere)Valued demographic 25‐50% point bonus above base level every quarterAffinity College gear, special access, points auctions…Millennial Low threshold rewards; Budgeting/info tools; Local merchantsCredit builder Interest refund with prompt payment; Product graduationNew members Great BT rate and duration if you “Cut up other cards”Mature Promo gift cards for Dunkin Donuts/Starbucks/EtcEmployees Best rate and rewards; pay incentives in reward points
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Please don’t do the fun stuff first. That’s how Marketing gets a bad reputation.
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What Happens If You Don’t?
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• New account volumes are slowing even for the high performers. Are yours?
• Total accounts and active were only up 2% last year. That was average! How did you do?
• Balances were up 3% last year. Are yours?
• Purchases for the top 10 are up 28% over the last two years. This may be the most important #.
Card can be 25% or more of all credit union net income. Did you prove that? Did you stress that? Planning season is here…
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2019 Online Card School
April 10 CARD MARKET OVERVIEW
June 20 CALCULATING PROGRAMPROFITABILITY (& USING IT)
Sept 5 MAPPING PRODUCTS TOMEMBERSHIP EXPECTATIONS
Oct 17 MATCHING PRICING & PRODUCT VALUE TO RISKLEVELS
CO‐OP Clients 3 Year LibraryAll Slides
All Recordings
Live Sessions Open to All
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THANK YOU
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