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Banking

THE CO-BRAND CREDIT CARD MARKET – SINK OR SWIM

CREDIT CARD MARKET

By Chris Vinnicombe, VP Financial Services at Acxiom

The co-brand credit card market is the result of the partnerships between many of the world’s largest credit card issuers and consumer goods businesses like airlines, hotels, and retailers. By leveraging existing technology investments in digital, data, and analytics, the co-brand credit card market has attracted affluent consumers over the years. Indeed, it has remained a powerful component of retail loyalty programmes and strategies that generate revenue not only for the issuer, but for retail partners as well.

 

The market today

Historically, rewards have been critical to retaining and attracting consumers. However, businesses are increasingly finding that this benefit alone is not enough. In today’s world of data, one-size-fits-all loyalty programmes show little customer intimacy, since they don’t pay attention to individual attitudes, behaviours, and expectations.

Co-branded credit cards have faced competitor pressure to sweeten the rewards pot to draw customer traffic and differentiate their card programmes. Above that when consumers around the world are used to relevant adverts, offers and suggestions, the market increasingly seems out of touch when the offers don’t hit the mark.

It is now time for credit card companies to take a hard look at their proposition to determine which offerings consumers still value and to create benefits that are digital first, easy to use and truly relevant to how they live.

 

Increasing cardholder engagement

Today, engagement has become a significant part of this challenge. Cardholder engagement is critical in the market since it measures who has an active relationship with their card, rather than those where it sits unused at the bottom of a draw.

One of the issues is that many cardholders feel they are of little interest to the card issuer after starting the relationship. When offerings remain the same and don’t reflect consumer lifestyle changes, it leads to a decline in spend and balance activity.

For example, if a person is consistently purchasing long-haul, luxury summer holidays on their card and receiving a reward of discounts on Christmas staycations it just won’t be claimed. Ultimately, if the user isn’t likely to claim a reward it defeats the whole point of user offerings in the first place and will lead to a decay in the relationship over time.

To change this dynamic, card issuers need to focus on becoming far more customer-centric, addressing pain points, fulfilling desires and engaging with the consumer as an individual. Whether they are frequent travellers, trend setters, have an affinity to luxury products, cash back collectors, etc. Keeping up with interests and offering tailored rewards will create a more personalised experiences for customers and increase loyalty.

 

Customer experience – reach for the skies

A key example of this is the airline sector. Co-branded credit cards play an important role for airlines and their card issuers, each of which benefit from credit card engagement and purchasing behaviour. The cards also play an integral role in frequent flyer programmes, helping drive flyer loyalty.

Nowadays, airline customer interactions can come through many channels like customer service centres, online travel agencies, websites, and more which can create a complex ecosystem of customer data. The co-brand card partners see significant transaction data that identifies travel activity and purchasing patterns that are strong triggers for airline marketing programmes. All these interactions generate crucial information on passenger needs and preferences that enable up-sell/cross-sell, pricing and preferred experiences (i.e. early boarding or flight update notifications).

 

Better together

For the co-brand credit card market to work, partners need to work together seamlessly. Sharing customer information is vital to the interwoven marketing capabilities needed to be successful.

It all starts with the data foundation. A shared space for data to be safe provides a privacy-compliant environment that allows marketers and partners to connect different types of data while protecting and governing its use. This is the bread and butter for people-based marketing that enables partners to engage consumers across today’s highly fragmented landscape of channels and devices.

These data safe havens provide the ability to ingest customer records from partners, as well as core campaign and engagement logs used where businesses can measure and analyse success. This data can also be enhanced by third-party sources (demographic data, propensity models) to enrich the view of the consumer and create new insights to support new audience creation for marketing programmes.

However, organising, managing, and deriving insights from large sets of consumer data is complicated. To overcome this, companies should rely on connectivity solutions that integrate data to provide a single view of the customer. These identity resolution services resolve first-, second-, and third-party data, exposure and transaction data to represent real people in a privacy-compliant way.

Having this omnichannel view of the consumer can then be utilised to support consumer targeting, personalisation, and measurement bettering the offering to the user and maintaining relevance in the customer’s wallet.

Ultimately, data is helping the co-brand credit card market to stay relevant to consumers today. It is no longer enough to offer one-size-fits-all rewards to card users as competition in the industry hots up. Increasing customer loyalty and engagement is name of the game and using data from across both partners is helping firms to be more competitive, responsive and personalised than ever to drive new business uptake while keeping existing customers coming back for more.

 

Banking

SEIZING THE OPEN BANKING OPPORTUNITY

Nick Maynard is a Lead Analyst at Juniper Research

 

Open Banking has made significant progress in 2020, having recently launched across much of Europe and now starting to emerge in other markets too. And there are two primary reasons why Open Banking is disrupting the banking industry so much:

  • Banks have begun to discover the real competitive advantage of a more open approach to banking. Offering a superior Open Banking experience to customers can be a compelling differentiator from other competitors as part of a wider digital app experience. Open Banking also creates a level playing field in markets where regulatory intervention has led to Open Banking deployment. As all banks are required to deploy APIs in this scenario, the situation is the same and does not put any one particular bank at a disadvantage.
  • Legislation – for example, in October 2015, the European Parliament adopted PSD2 (the revised Payment Services Directive). By early 2020, major banks in the EU had adopted Open APIs. There have however been many cases of late deployments of APIs and problems with the availability of APIs.

 

Nick Maynard

The Disruption Factor

Open Banking is a major disruptive factor for banks. The reason for this being that it opens up account data to both AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Providers), which can attempt to carve out a role in the banking area.

  • AISPs: These new vendors are able to access transaction data and balance information, as well as related information. This has, in particular, led to the rise of vendors such as Emma, Yolt and Connected Money. These vendors combine information from multiple sources, adding value to the user.
  • PISPs: In this case, the vendors are able to leverage Open Banking API connections to initiate payments directly from the bank accounts in question. This means that these players are able to bypass traditional payment methods, such as cards. Vendors such as American Express and PayPal have already launched solutions that have taken full advantage of this action.

 

PSD2 Changes

Generally, the implementation of the new PSD2 European regulation for electronic payment services effectively reduces the entry barriers for new digital players. It also opens up banks to the potential for competition, enabled by their own APIs. This allows these players to compete with existing services in fields currently offered by the banks. In the case of AISPs, it is possible that third-party applications could displace the role of the apps from incumbent players, which would dilute the bank’s relationship with their users.

As with any fundamental change to markets in the banking area, there is the potential to bring a number of both opportunities and challenges to consider with Open Banking.

Open Banking Opportunities & Challenges to Consider

Source: Juniper Research

Banks and other parties that are looking to become involved in the Open Banking ecosystem must weigh these opportunities and challenges carefully. Open Banking certainly needs a more collaborative approach than traditional banking models, which will require significant effort to make them successful.

 

The Forecast for Open Banking

The total number of Open Banking users is set to double between 2019 and 2021, reaching 40 million in 2021 from 18 million in 2019. The ongoing Coronavirus pandemic is increasing the need for consumers to have the clarity of combining their accounts and gaining insight on their financial health, and also boosting momentum in the adoption of Open Banking.

This extraordinary growth is being driven by Europe, where the regulator-led approach to Open Banking has created a standardised market, with low barriers to entry. This contrasts with markets like the US, where a lack of central regulatory intervention is limiting growth potential.

 

Open Banking – Delivering Opportunities and Threats

It is worth noting that Open Banking can be both a threat and an opportunity for traditional banks. While Open Banking exposes user information and access to potential competitors, this threat has the potential to affect all players in the market equally. Consequently, established banks must create innovative Open Banking services that will provide benefits for the user, while also attracting customers from less innovative competitors.

Payments will be critical to the emerging Open Banking ecosystem; accounting for over $9 billion in transaction value in 2024. However, payments in this ecosystem are at a particularly early stage. While eCommerce is dominated by card networks, there is the potential that this role will be eroded over time by ‘direct from account’ payments. Consequently, card networks should look to offer Open Banking-enabled payment services, in order to offset the risk of future disruption.

Open Banking Users in 2021 (m), Split by 8 Key Regions: 40 Million

Source: Juniper Research

 

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Banking

2021: THE NEW-NORMAL LIFECYCLE FOR BANKING

Laura Crozier, Global Director of Industry Solutions, Financial Services at Software AG

 

It would be impossible to talk about predictions for the banking industry in 2021 without mentioning the cataclysmic impact that 2020 and the pandemic has had on people, businesses and countries.

Unlike with the global financial crisis, banks have been able to step up as “good guys” this time around, rebuilding their reputations as well as accelerating digital transformation. One of the main outcomes is increasingly smart, efficient online payments.

In 2020, the banking industry innovated like never before. This is the new normal. Overall, customers and society will be the beneficiaries from the changing industry. Here are my predictions:

 

Reputations are reborn

Banks across the globe pulled out the stops to integrate and adapt systems and processes to help customers during the pandemic. They offered accommodations in loans, assisted governments with the distribution of financial relief, and supported consumers by upping contactless spending limits and virtual deposits.

In 2021, banks will risk losing that rosy glow as economic circumstances drive them to deal with non-performing loans, mortgage foreclosures, layoffs etc. But, beyond their role in society as providers of capital and liquidity, banks will invest to sustain their reputations as trusted and good corporate citizens and use their power to persuade their customers and providers to adopt higher environmental and ethical standards. This will be in the areas of bank carbon-neutrality, sustainable financing, serving the unbanked, diversity and gender equality (as the number of women running a major global bank will double from one (Jane Fraser at Citi) to two). It’s a start.

 

Coming of age in the way of working

Back in Q1, when bank employees cranked up their laptops on their dining room tables, banks that were strategically undertaking business transformation accelerated their efforts. Those that were tactical, or on the fence, now understand with painful clarity that this work must be undertaken strategically.

Cracks in process and the way of working and their resulting risks can be crippling. Especially from a back-office perspective, it is not enough to rely on “organisational memory” and collegial proximity for work to get done right. Advanced banks pushed the boundaries of remote work, and the proof of concept was successful. So, they’re doubling down on developing digital twins and moving to the cloud. They’re adopting the hybrid office/WFH approach to reduce health risks and reduce cost permanently. The watercooler will never be the same.

 

The death of cash

Ok, maybe the rumours of the death of cash are a bit exaggerated since there will always be the need for cash (and, to some extent checks; the USA, for example, cannot seem to live without them). But the pandemic has permanently changed the way that consumers and small businesses bank, and the demotion of cash has been accelerated by a decade by the pandemic. For example, the Norwegian central bank said that cash payments in that country have plummeted to just 4% of transactions since March.

Implications? It will be critical to continue evolving payments to be smart, safe and flexible to compete in new world, in both retail and commercial banking. Also, the permanent change in the mix of channels will see banks’ face-to-face engagement with customers fade. Branches aren’t going to go away entirely, but they will be reserved for high value activities – by appointment only. To compensate, the personal touch has to be delivered digitally and intelligently.

The role of the bank as a “financial wellness partner” is being born. Banks will use customers’ data, not just to personalise and differentiate banking experiences, but to make recommendations for products and services beyond traditional banking from across their ecosystem to serve their customers well. Just as customers own their cash (physical or digital), in the future they will demand that they own their data (and can share it with whom they choose). Then retail and commercial clients will share their data in return for value.

 

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