Product design in UK Plastic Cards - What can be learnt from Abroad?

Part of the UK Plastic Cards 2008 series, this brief provides insight into some of the most innovative value propositions from card issuers around the world and examines how such products could be adapted by issuers in the UK. The brief examines products that encourage good account management, as well as customer segmentation and products that link payment cards to mortgages.

Report Highlights
Issuers in the US and Asia pacific regions have created products that reward good account management. This has been achieved by designing reward programs around timely repayments in addition to transactional loyalty. In North America, several issuers have card loyalty schemes that help cardholders to pay off their mortgages by using cashback from transactions to make overpayments. While the long term benefits can be very valuable to the cardholder, there are several potential obstacles to overcome in order for an issuer to set up such a program. Card individualization has been taken to new levels by issuers in the US. Cardholders can customize the trade-off between rewards earned, interest rates charged and interest free periods to create their ideal card. However, there are pitfalls for such models, which could explain the withdrawal of the Accucard product from the UK market in 2006.
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Overview 1
Catalyst 1
Summary 1
2
Table of figures 3
Table of tables 4
Product Design in the UK - What can be Learnt from Abroad? 5
Introduction 5
Account management is of increasing importance to issuers 5
One way of encouraging good account management is to reward on time payments 6
In the US, Discover launched the Motiva card, that rewards on time payments 6
In Australia, ANZ Bank has also launched a product that incentivizes the paying off of balances 7
Aside from reward programs, issuers can encourage disciplined account management through other product features 8
In the US, Wal-Mart has introduced a prepaid card to help families budget 9
Issuers can also help cardholders by making it easier to make payments 9
In the US, both Citi and Bank of America have introduced mobile banking services 9
Cards and Payments Team's view on cards that reward good account management 10
Issuers in North America have been innovative in linking card products to long-term financial commitments 11
One issue with this type of reward scheme is the compatibility of the mortgages of other financial services providers 12
In Canada, MBNA and MCAP launched a co-brand card 12
In the US, the largest mortgage lender has launched a credit card product 13
In a related move, in the US American Express has launched a product that allows cardholders to pay their monthly mortgage repayments from their American Express card 13
Cards and Payments Team's view on cards that are linked to mortgage products 14
Customer segmentation is an area in which UK issuers could learn from foreign issuers 15
Issuers in several countries have launched card products that are aimed specifically at men and women 15
In Greece, Citibank has launched a credit card aimed at male card owners 15
In Australia ANZ Bank has launched a website for its female customers 15
In the US, American Express has issued a series of cards based on location 15
Cards and Payments Team view on segmenting customers 16
The next step from customer segmentation is product individualization 16
Some foreign issuers allow cardholders to put a photograph of their choice on the card 17
Spanish and Nordic issuers have been particularly innovative in this area 17
Cards and Payments Team view on customizing card appearance 17
Issuers in the Middle East continue to have impressive personalized loyalty systems, assisted by chip based technology 18
Mashreqbank's WOW! Card rewards repeat purchases rather than transactional loyalty 18
Cards & Payments Team view on the individualization of loyalty products 21
A final way to customize a payment card is to allow cardholders to select their own pricing structure 21
In the US, Capital One's Card Lab allows cardholders to create their ideal card 21
Cards and Payment's Team view on products that allow cardholders to select their own price structures 22
Summary 23
APPENDIX 24
Definitions 24
Average transaction value 24
Balances outstanding 24
Charge card 24
Credit card 24
Interchange 24
Methodology 24
Primary research 24
Secondary research 25
Further reading 25
Ask the analyst 26
Datamonitor consulting 26
Disclaimer 26
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Table 1: Current relevant Datamonitor publications, 2008 25
Table 2: Future relevant Datamonitor publications, 2008 26
Figure 1: The Discover Motiva card rewards on time payments, 2008 6
Figure 2: The ANZ Balance Visa rewards cardholders for paying off their balance, 2008 8
Figure 3: The Wal-Mart prepaid Visa card helps consumers manage limited funds, 2008 9
Figure 4: Credit cards linked to mortgage products can present a powerful proposition to homeowners, 2008 11
Figure 5: The MCAP card helps cardholders to reduce their mortgage terms, 2008 12
Figure 6: The Countrywide Visa can save cardholders more than $11,000 over ten years, 2008 13
Figure 7: La Caixa allows cardholders to personalize cards with their own photographs, 2008 17
Figure 8: Chips allow merchants to encourage repeat business, 2008 19
Figure 9: Chips can bring together a range of offers to make a compelling customer loyalty offering 20
Figure 10: Applicants can select their card features using Capital One's Card Lab, 2008 22
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