Product innovations in the downturn: lessons for UK issuers

The outlook for the UK card market is going to be highly challenging in 2009 and 2010, calling for a new approach to product design. This report provides six strategies that issuers should follow to take full advantage of the opportunities available and highlights the most innovative product propositions that UK issuers can look to in order to maximise their growth in this challenging environment.

Report Highlights
As the economic climate worsens during 2009 and into 2010, many cardholders will find it difficult to maintain repayments on their card balances. Offering instalment repayment options on large ticket transactions is widely available in Europe and Asia, and can provide a solution to this issue.

Encouraging good account management by cardholders is becoming increasingly important. There are a growing number of initiatives that are aimed at addressing this issue, suggesting there is considerable scope to closely align card value propositions with the 'right' kind of behaviour from customers.

Multiple cardholding remains a very important feature of the UK market, and creates a situation where card issuing banks can look to 'win back' customers. The primary advantage of this strategy is that issuers already have a relationship with these customers and are able to better assess the risk of lending to such customers than new business.
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Table of Contents 2
Table of figures 3
Table of tables 4
Product Innovation in the Downturn: Lessons for UK Issuers 5
Datamonitor has identified six strategies for issuers to maximize their performance in the downturn 5
There are two focus areas for issuers trying to improve the profitability of their business 5
Within this there are six potential strategies that can help issuers to address their pain points 5
The Datamonitor Financial Services Megatrends Framework is an excellent tool for identifying potential strategies 6
The Megatrends Framework can be used as a key tool in shaping product strategies 7
Reducing cost through rationalizing out unprofitable customers is delicate but nevertheless important 7
American Express offered to pay customers to leave in order to close a number of unwanted accounts 7
Imposing fees for inactive accounts is also an option 8
Winning back existing customers can be achieved by linking benefits to a full suite of banking services 8
Citibank offers an extensive reward program that offers benefits across a range of banking products 8
This is an interesting proposition, as it places the focus for value on the banking relationship rather than individual products 10
Offering a strong card-based reward program is also an option here, and issuers should look at the Banesto Diez en Una card 11
Targeting new customers with good credit histories will require an outstanding offering and one with strong rewards 12
Bank of America's Accelerated Cash Rewards card offers cashback at 1.25% 13
Explicitly offering more attractive terms to better credit risks is a strategy employed by Capital One in the US 13
The Capital One Card Lab takes this a stage further by allowing consumers to customize their products 14
Cards with an installment option present opportunities in dealing with potential risks 16
Cardholders who may fall into difficulties should be encouraged to structure their balances 16
Offering installment repayment options may also allow issuers to reduce their risk exposure 17
Standard Chartered introduced a credit card in Singapore that automatically splits larger purchases into monthly installments 18
Creating incentives for repaying borrowing can help issuers to manage potential credit risks 19
ANZ Bank has launched a product that rewards cardholders for repaying balances 19
The interesting feature of this product is that it effectively rewards both card activity and repayment 19
The product aligns the interests of the cardholder with the issuer in a time of economic uncertainty 20
Discover has a similar proposition that rewards payments made on time 20
In the US, Discover launched the Motiva card, which rewards on-time payments 21
The product is likely to result in cardholders with multiple products prioritizing payments to Discover 22
Discover is also proactively communicating with its customers to set structured repayment plans for balances and to allow for accurate spend monitoring 22
Alongside this, the Spend Analyzer tool allows cardholders to get a clear view of their spending habits 23
However, initiatives such as these are not the only way to improve cardholder behavior 25
Winning back transactions from debit is a key strategy and can be achieved by linking rewards to other financial products 25
Fidelity offers a credit card linked to a full suite of savings reward programs for all walks of life 25
Appendix 28
The financial services Megatrends Framework 28
Datamonitor has identified 10 Megatrends in consumer behavior 28
Megatrends are tools for capturing the drivers of consumer behavior 28
A Megatrends Framework is a vital tool for analyzing and structuring consumer attitudes and behaviors 28
A trend framework is used for generating and selecting ideas 29
A Megatrends Framework is vital for financial services 29
Customer retention as well as customer acquisition must be considered 29
There are inherent obstacles in financial services that limit innovation in customer targeting 29
Greater customer understanding can help overcome the obstacles found with targeting and communicating to customers 29
The six behavior trends identify the benefits that consumers wish to gain from a product or service 31
Authenticity 31
Comfort 31
Connectivity 31
Convenience 32
Individualism 32
Wellbeing 32
The four complexities are areas within which traditional assumptions or measures of behavior no longer apply 33
Demographic complexity 33
Financial intelligence complexity 33
Lifestage complexity 33
Wealth complexity 33
Definitions 34
Average transaction value 34
Balances outstanding 34
Charge card 34
Credit card 34
Debit card (pay now) 34
Methodology 35
Primary research 35
Secondary research 35
Further reading 36
Ask the analyst 37
Datamonitor consulting 37
Disclaimer 37
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Table 1: Capital One's classification of credit ratings in the US, 2009 14
Table 2: Current relevant publications, 2008-09 36
Table 3: Future relevant publications, 2009 37
Figure 1: Issuer strategy evolves around two pillars and six potential areas to target 6
Figure 2: Citi's ThankYou Network reward program is linked to credit cards and other retail banking products, 2009 9
Figure 3: Citi's website for its ThankYou Network reward program offers a range of redemption options 10
Figure 4: The Banesto Tarjeta Diez en Una product offers a permanent 5% discount at 10 major retailers 12
Figure 5: Bank of America Accelerated Cash Rewards offers 1.25% on all purchases, 2009 13
Figure 6: Capital One Card Lab portal, 2009 15
Figure 7: BMO offers reduced interest loan consolidation offer for loans and credit card balances, 2009 17
Figure 8: Swedbank offers three distinctive card products including installment, revolving and charge cards, 2009 18
Figure 9: ANZ Balance Visa offers reward points for paying back cardholder's balance, 2009 20
Figure 10: Discover Motiva card designed to reward customers for paying back on time, 2009 21
Figure 11: Discover's Paydown Planner tool helps cardholders to pay back the money owned, 2009 23
Figure 12: The Spend Analyzer is easy to use and useful tool for cardholders managing their finances, 2009 24
Figure 13: Fidelity credit card range is linked to innovative savings reward programs, 2009 27
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