For many banks, the affluent sector
has become more important than ever over the past 12 months. A
shift towards retail funding and away from the traditional
wholesale funding model has meant that many banks are increasingly
looking for new ways to court their most lucrative customers, as
John Hill


A recent report issued by European
financial researcher Finalta and the European Financial Management
and Marketing Association (EFMA), entitled Affluent Segment in
Europe – February 2010, highlights many of the issues currently
facing the premium banking market, including the erosion of
consumer confidence and a significant shift in consumer

Strategically, the affluent segment is more
vital than ever. For 76 percent of banks, this segment is more, or
significantly more, important than 12 months ago.

According to the report, business priorities
for the segment have changed. In 2008, increasing sales
productivity was the top priority for European banks.

In 2009, customer satisfaction overtook it as
affluent customer satisfaction fell by an average of 2.6 percent in
Western Europe, wiping out two years worth of industry gains. The
main causes of this fall were reputation damage, poor product
performance and the quality of financial advice.

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George Greer, head of consumer credit and
charge products in Europe at MasterCard, thinks the definition of
the affluent sector is changing.

“The premium segment is not just one
indigenous segment – it is a huge diversity of segments. The
affluent sector in the past has always been seen as being very
one-dimensional, based on your affluence or your wealth,” he

“There is certainly still a strong element of
this, but affluence has come to be based a lot more on income as
well as wealth – also from a card perspective, the potential to be
a high transactor.

“If you base it on those two aspects – income
and propensity to use the card – it actually changes the focus
quite a bit. For example there are many people on high incomes who
actually don’t transact a great deal with their plastic.

“Conversely we can also find people who are on
a middle income who put everything on their plastic. That’s the
basis of the affluent target segment for us, and it’s because of
this complication that sometimes the definition can cause

Despite challenges, opportunities

According to the EFMA/Finalta
report, in 2009, affluent segment income fell by an average of 10
percent for European retail banks. A decrease in customer
investment activity, thin or even negative margins on deposits and
a slump in mortgage lending were the main contributors.

Despite this, Greer explains why the affluent
segment is still an attractive proposition.

“The affluent segment consumers are usually
high transactors and are less likely to default. They are a less
risky proposition and essentially a flight to safety for many
banks. So issuers at the moment are focusing on the affluent
because they are safe,” he says.

“There’s also a huge opportunity within the
affluent sector for banks to package and to cross-sell, which is
something that has not been fully utilised to date. In fact, bank
packages and financial services on the whole have left the affluent
sector slightly underserved.

“When it comes to growth in the affluent
sector, we are going through a temporary blip, so it really depends
what timeline you take. On a medium-term timeline of five years, or
a longer-term timeline of ten years, it is only going to go one way
– and that is up.

“What we’ve seen up until recently is a
30-year to 40-year period of continuous prosperity in Europe and
some huge fundamental changes in terms of the rise of the BRIC
[Brazil, Russia, India, China] economies, as well as the rise of
Asia as a whole. That again can only be good for the affluent
segment because they are best-placed to benefit from globalisation
and the emerging wealth in the emerging markets.”

Statistics by EFMA show that to reduce costs,
banks are re-examining their portfolios and cutting out some
accountholders. On average, 30 percent of affluent customers do not
meet their banks’ qualifying criteria.

To better align distribution costs with
customer income, banks are therefore implementing much stricter
processes to downgrade non-qualifying customers to the mass market

Despite this, Greer explains how one of the
greatest opportunities for the affluent card segment is the
promotion of standard cardholders into premium schemes.

“We see a huge opportunity when we have
standard cardholders who are high spenders to promote them into
premium schemes. I think that these are the so-called low hanging
fruit within the affluent sector,” he says.

“On the other hand, if you don’t have a spend
history, then the next task is identifying potential high earners
who don’t have a premium card. Surprisingly, the majority of high
earners only have a standard card. In recent research, and this of
course varies by market, we have seen that 60 percent of the
premium target segment do not have a premium card product.

“So there is a huge segment of the premium
population who, for one reason or another, have not been attracted
by a premium product. It is these cardholders that present one of
the biggest opportunities for affluent cards in Europe.”

Redefining customer

In part to address costs, but also
to offer a distinct proposition for certain customers, remote
relationship managers are increasingly common. Some 26 percent of
Western European banks had such a model in place in 2009 with a
further 13 percent in development.

When integrated with internet and mobile
propositions, such an approach can deliver a compelling proposition
for the 15 percent to 20 percent of affluent customers who rarely
visit the branch. Although less widely used, Central and Eastern
European banks are also starting to look at non-branch-based
relationship models.

While there is the possibility of moving the
banking relationship out of the branch completely, Greer thinks one
of the more important issues concerning the market is how some
segments are currently underserved, including over-50s and

“Women in general are underserved in the
premium space, yet they make many of the choices and decisions in
affluent households on expenditures. This is not just in terms of
everyday living costs, but also items like travel, holidays,
renovations and so on. The problem is they just don’t have many
product propositions that are targeted specifically at them,” Greer
told CI.

“As well as women, there is a massive
opportunity for the 50-plus segment. We are now seeing demographics
whereby people over 50 are living longer, they are healthier, they
are wealthier, they are adopting the internet, embracing technology
and they want to start to use the time between retirement and old
age constructively and purposefully. The 50-plus segment is
emerging as a huge opportunity.”

As 2010 unfolds, the greatest challenge for
affluent segment heads is meeting short-term revenue needs while
maintaining a long-term focus on segment development.

The global economic crisis arrived just as
many banks were implementing longer-term strategies for the
affluent segment, for example shifting from upfront fees to more
sustainable, recurring revenue models. The urgent need for revenues
threatens to unwind some of the progress made.

For a long time the American Express model,
involving a small number of well-defined premium card types, has
been the norm. With the increasing availability of vast amounts of
consumer information, Greer thinks there are enormous opportunities
around the possibility of tailoring programmes to specific

Evolution of the affluent

“Looking purely at a bank balance is
actually too simplistic in today’s society,” Greer says. “From what
we’ve seen and research we’ve done, if you have a basic gold or
platinum card of whatever type, it simply says how much money you
have in the bank – it is just an extension of your bank

George Green“Conversely, from what we have heard from our
research, many customers were saying they would rather have a
product that speaks to their passion in life, and caters to their
interests – something that is specific to them, and that is what
traditional premium products have not done.

“You can take most standard premium products
and you know what is going to be on there. It is going to be travel
insurance, some medical insurance, concierge services, priority
passes or lounge access and possibly a rewards programme as well.
Given the size of the premium segment, and its huge diversity –
after all it is basically a microcosm of society in general – the
segment cannot be being fully served.”

Greer continued: “What this means is that
there are severe limitations in the choices available to the
affluent segment, and that they are just not being served with the
products that meet their specific needs.

“One of the reasons why we have such a high
degree of affluent consumers that don’t actually carry an affluent
product is because the affluent product has been, for such a long
time, a one-size-fits-all proposition – and the affluent segment is
not a uniform one by any means. In fact it is one of the most
literate, intelligent, savvy segments in existence. It’s the most
difficult segment to service from a product proposition perspective
and I think the opportunity is to find product propositions that
meet the specific needs of the whole affluent segment.”

Prepaid cards seem to be the current hot
proposition all across the geographical cards market and the
affluent sector is no exception. Greer thinks that the
possibilities for gaining the loyalty of new customers while they
are still children is huge.

“I think we are starting to touch upon it.
Affluent extends beyond credit and charge, it extends to debit and
prepaid. How we are starting to see the inclusion of prepaid is
that if a bank has affluent products, consumer credit or charge
products and they have a relationship with an affluent consumer who
has that product, it makes sense that if that consumer had a
family, the ability to offer prepaid products to the children of
affluent consumers is where there is a natural synergy in the
affluent space,” Greer told CI.

“But that’s only because this is an emerging
segment and we are only now starting to look at where prepaid will
really come into its own and where the optimisation is. The initial
area I see is that it’s a prepaid card for the children, so that
wherever the children are, that is their allowance.

“There are several benefits to giving prepaid
cards to the children of affluent families. For the actual children
themselves, it helps them to understand how to manage money and
plastic in a very controlled fashion. Secondly, it gives the child
a sort of safety line in case anything happens to them, For the
bank, it gives them a chance to introduce their brand to the next
generation of affluent consumers, so it’s a very early engagement,
but a positive one.”