We’ve all seen the headlines and the research reports. Electronic payments are eclipsing cash and check as forms of payment. According to Federal Reserve studies, the number of electronic payment transactions totaled 44.5 billion in 2003, exceeding the 36.7 billion paper check payments by more than 20 percent. As the U.S. turns the corner in electronic payments, it brings the promise of innovative payment methods that provide greater convenience and choice for consumers as well as more efficient operations for financial institutions and retailers.
    It also means that the race is on to deliver the leading, preferred payment choices that will stimulate the greatest number of electronic transactions. Consumers are voting with their wallets by selecting the payment method that best suits their need at the time of purchase. Although the lines between the various electronic payment choices are blurring, one theme is consistent; consumers want – indeed are expecting – choice, convenience, speed and security, regardless of the payment method. And the ability to achieve that will influence with whom and how they shop.
    From a financial institution perspective, consumers’ choice of one payment form or another – with a debit and credit relationship – is a moot point. Increasingly, the competition is between the financial institution relationship and the one a consumer may have with a specific retailer, who issues a private label or co-branded credit card.
    According to some recent surveys, consumers choose their debit card over a credit card as the payment card of choice to carry and use. But that doesn’t mean that they’re abandoning their credit cards. Customers don’t think of their credit and debit cards as mutually exclusive. Although the credit card relationship continues to generate a different level of loyalty among consumers, consumers view their credit and debit cards as two pieces of their overall relationship with their bank.
    The key in either case is to build loyal relationships with the most profitable accountholders. Both financial institutions and retail marketers are looking for a silver bullet to achieve this kind of loyalty. Traditionally, both organizations have relied on single-threaded loyalty programs in the form of rewards or coupons to build brand loyalty and drive transaction growth. However, customer loyalty is declining and conventional loyalty strategies fail because they are one-sided and ignore critical drivers. Given the heavy saturation of the credit card marketplace, zero percent interest offers are no longer sufficient enticements for consumers to respond to new credit offers.

Symbiotic Loyalty: the Key to
Building Cardholder Relationships

    Symbiotic Loyalty: the Key to Building Cardholder Relationships To turn the tide, financial institutions and retailers need to shift to symbiotic loyalty, building consumer trust through emotive connections, actively cultivating endorsements, and minimizing costs by knowing when, what and where to invest in loyalty – and when to end unprofitable relationships.
    The key is to look at the entirety of the relationship and leverage what is known about the consumer. Those marketers who can demonstrate that they understand what the consumer wants will be rewarded with a strong and mutually profitable relationship. As the consumer recognizes this, they will see value in it and remain loyal to the financial institution and retailer.
    The ability to offer more exotic rewards has forced card-issuing companies to compete vigorously with each other to stay one step ahead. And, loyalty programs will change radically in coming years. They need to be more dynamic and rooted in customers’ desires and wishes. The choices are basically infinite.

One-to-One Marketing: Customization
and Customer Retention

    The vast amount of data at a household and account level gathered and stored by financial institutions and retailers is a gold mine for developing a rich and valuable snapshot of the customer which can provide the basis for developing an integrated 1:1 marketing strategy. By examining all the communication touchpoints at their disposal, marketers can build stronger relationships with customers to increase retention, drive revenue opportunities and reduce the costs associated with customer care. All the while, making it easier and more comfortable for the consumer to use their payment method for electronic transactions.
    Why 1:1 marketing? Consumers are bombarded daily with direct marketing messages from all media. According to the Direct Marketing Association, the average consumer is hit with more than 3,000 marketing messages every day. Printed material is a large part of that bulk, with an average of 26 pieces of mail every week. Customers want and are demanding customized attention. If the message isn’t perceived as relevant, it’s ignored.
    A good sense of timing, say customer communications experts, helps develop dialogue with customers. That conversation – or at least the sense of it – increases customer satisfaction, and ultimately value. Customer communications efforts that successfully achieve this type of personal touch hinge on harmonizing the right customer information, including the message, sender, channels, and timing.
    Financial institutions and retailers have a tremendous, underutilized vehicle at their disposal – the monthly credit card statement. Often overlooked, the credit card statement can serve as the foundation for a 1:1 marketing strategy to build loyalty, as well as increase retention, usage, and profitability. Direct marketers know that the first obstacle is getting the envelope opened. In the case of the monthly credit card statement, it’s pretty much a guarantee that consumers will open it. However, what they may not pay as much attention to, and may end up quickly pitching in the trash, are the advertising inserts included with the statement. At the same time, a similar fate may also occur to the messages printed — usually in black ink – directly on the statement, in the same place on the statement every month, so that these messages become predictable and eventually invisible.
    The monthly statement is the perfect vehicle, properly composed and produced, to capture and retain the reader’s attention. Targeted messages and offers can ride along for free, eliminating the need for supplemental, expensive direct marketing which is difficult and impractical at a 1:1 level.

New Technology Enhances
1:1 Marketing Capabilities

    The technology exists to allow documents to be customized according to the individual customer’s specifications – everything from preferred language to font sizes (i.e. larger print for older demographics) to channel (print, Web, or email). As the financial institution and retailer learn more about the customer, customization can be increased with targeted offers and promotions that demonstrate value to the customer and gradually make the statement a primary touchpoint of a loyal relationship. The result? Individual cardholders can receive relevant offers based on their specific spending patterns and be communicated with methods that they prefer.
    When integrated, technology solutions such as intelligent decisioning and automated electronic messaging can help financial institutions accelerate the growth of powerful, profitable customer relationships. Consumers can be alerted to sales, offers, or given reminders to pay their bills on time via email, Web alerts or automated text messaging to wireless devices. When packaged together, the result is a robust loyalty and communications strategy that goes a long way toward making the financial institution or retailer’s credit or debit card the preferred card in the consumer’s wallet.
    As this trend of increased 1:1 marketing takes hold with financial institution and retail card issuers, mid-size and smaller merchants may also look to find ways to create loyalty-based programs to remain competitive. ISOs may be called on by their merchant customers to offer an increasing variety of processing options.