For any business, whether large or small, having a well-planned and carefully executed business plan allows the business to succeed by edging out the competition and ensuring the business is visible to the right audience. No industry has this figured out quite like credit card companies.
With so many options in the market, leading credit card companies go the extra mile to ensure they attract the highest number of users. They also employ leading credit card strategies that will ensure they remain relevant in their niche, successfully collect their debts and stay profitable while attracting a new client base every time.
If you are a credit card company looking to edge out your competition, here are strategies used by leading companies that can benefit your business.
Types of Strategies in Credit Card Companies
Credit card companies ensure they stay in business by always finding ways to attract new customers. Every successful credit card company has a marketing strategy in place. This strategy is designed to attract new clients while ensuring the old ones remain interested. Any credit card company’s marketing strategy aims to convince its target market to register for a card.
Apart from traditional advertising methods like TV and newspaper ads, credit card companies can also offer special incentives to new leads like low-interest rates, free balance transfers, and frequent-flyer miles. The idea of an incentive is to entice the potential client to register for a card by giving them for doing so. It is also possible to attract new clients by offering pre-approved credit offers to email list clients to entice them to fill out an attacked card application.
As with any other business, the main goal of running a credit card company is to make money. For this reason, every credit card company has to have a profit-building strategy. Credit card companies make most of their money from interest rates and fees. However, these are not the only tools a credit card company can use to make a profit.
Apart from charging card uses, credit card companies also charge merchant services for every transaction done using their card. Depending on the credit card company, this fee can be as little as 2% of the transaction to as much as 5%. While they may not seem like much from one transaction, these fees quickly add up to a substantial profit.
Another strategy that credit card companies use to make profits is selling credit monitoring services and selling credit insurance. These are products helpful to consumers and thus provide a stress-free way of making a profit.
Customer Retention Strategies
Customer retention is an important aspect of running a successful credit card company. According to statistics, a band spends an average of $250 to acquire a new client and will take a year or two to make a profit from this client. For a financial institution to ensure they get to enjoy the profit, they need to invest in a customer retention strategy. Using your negotiation skills and managing to retain customers is an easy way of mitigating the risk of loss.
Customer retention practices are not new to anyone who has used a credit card. Most credit card companies have a dedicated ‘customer saving team’ whose work is to change a customer’s mind whenever they attempt to cancel a credit card.
When a client attempts to cancel a credit card, they are redirected to a member of this team who seeks to understand why the client wants to cancel the card. They have a list of solutions they can offer to ensure you stay on as a client. For instance, if a client wants to cancel a card because they find the interest rates too high, a credit card company can lower the interest rate to a percentage the client will be happy with.
Having a customer retention strategy ensures a credit card Company keeps as many accounts open as possible.
Debt Collection Strategies
While a credit card company may work hard to attract and keep clients, sometimes some cardholders fail to settle their bills on time. One of the easiest ways for a credit card company to fail is not having a foolproof debt collection strategy.
Credit card companies make use of different debt collection strategies to ensure they collect from their creditors to limit losses. Some strategies include reaching out to defaulting clients through phone, mail, or email. If these methods do not work, credit card companies transfer the accounts in arrears to collection agencies who use more stringent measures to make the client pay what they owe.
Sometimes, credit card companies may be forced to sue defaulting clients to recover unpaid balances. However, this is only a measure taken to compel defaulters with huge credit card debts to settle. This method is unlikely to be used for debtors owing $1000 or less.
Tips Used by Credit Card Companies to Boost Credit Card ROI
As mentioned earlier, the main goal of running a credit card issuing company is to make a profit. Some of the tips used by leading credit card companies to boost profits include:
Engaging With New Cardholders Often and Early
Leading credit card companies know that the first 45 days after a new client signs up are very critical for the company. This is the perfect time to establish a good relationship with the cardholder. Most companies use an “early-month” onboarding program to reinforce the card’s value proposition and encourage use. This will help develop a user’s spending habits needed for a new client to become a top-of-wallet client.
Emailing is the most common medium to reach new clients for this onboarding exercise.
Prioritizing Existing Clients Based on Their Incremental Spend Potential
Credit card companies use lifetime value models created using credit bureau and transaction data to qualify a client’s potential for incremental spending. It is also possible to use RFM (Recency, frequency monetary) scoring methods to rank clients based on their spending habits. This helps to determine an accurate cut-off point for the target audience. Generally, cardholders in the bottom 25% and top 25% hold the highest potential for incremental spending.
With these target numbers, credit card companies use targeted incremental spending marketing to encourage clients to increase their credit card use. With more spending, a credit card company is able to collect more in interest rates, which culminates in higher profit margins.
Aligning Offers to Encourage a Behavior
When a credit card company finds clients with the potential for incremental spending, it needs to find ways to unlock this potential. The most effective method to do this is by using promotional offers.
Some of the promotional tactics employed include:
- Use to get offers: these are ideal for clients with low transaction percentages. This promotional method aims to encourage them to use their cards for repeated high-volume buys to benefit. For instance, some companies offer 0% interest to clients to use their cards to purchase different products a given number of times.
- Spend to get offers: these are ideal for clients who make low-ticket purchases frequently and clients who split their spending across different cards. The goal of this method is to get the largest share of the spending wallet. For instance, credit card companies can have a ‘spend $3000 in a month to get 25% statement credit’ offer to encourage more billing on a specific card.
If you run a credit card company, you need to use different strategies to make money, retain clients and attract new ones. Implementing the strategies in this article are a sure way of taking your credit card company to the next level.
Author’s Bio and Headshot
Lianna Arakelyan is a content writer and digital marketing expert at MuchNeeded.com, with a knack for social media marketing strategy and implementation. She is extreme in her work with a deep goal of always being updated on online and offline marketing, technology and science news around the world.