In light of current economic
circumstances, the importance of customer retention has never been
more in focus. A new report from VRL, publisher of Cards
International, explores customer retention in the credit card
industry and outlines the factors issuers need to consider when
implementing a successful retention strategy.


The importance of customer retention for
credit card issuers has grown in the wake of the economic crisis. A
new VRL report, ‘Credit Card Retention Strategies’, explores
customer retention in the credit card industry, both in general and
in light of present conditions, and discusses best practices in
developing and implementing a successful retention strategy.

Importance of payments

In addition to being a direct source
of income, credit cards can enhance the customer relationship in a
number of important ways. The favourable economics of customer
retention are generally cited to include factors such as:

• Customer spending tends to accelerate over

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• Longer-term customers are more efficient
users of the products and services they buy and have lower
operational costs.

• Long-term satisfied customers provide more

• Longer-term customers are less
price-sensitive than newer customers.

In the credit card business there is no doubt
that longer-term customers are more profitable. In fact, given the
high cost of acquisition in many markets, credit cards only become
profitable if a customer remains for a certain length of time. Even
though a customer relationship is clearly one of the most valuable
assets a credit card company can have, the relationship is often
undervalued by the organisation.

In many credit card organisations the emphasis
has been on recruiting new cardholders – and overlooking the value
of existing cardholder relationships. However there is a growing
recognition of the importance of customer retention as profits have
come under pressure from competition, regulators, and the economic

The critical starting point in developing a
retention strategy is agreeing on what retention means. Retention
needs to be defined.

Does it cover attrition only – reducing the
churn rate and cancellation of cards? Does it also include
activation – ensuring that all new customers use their card? Or
does it also encompass increasing wallet share among existing
customers or cross-selling them additional products and

Even attrition needs to be defined. Is it when
the customer actually cancels their card? Is it when their average
balance drops significantly? Or is it a reduction in normal

Customer engagement and

Indeed, customer satisfaction is
increasingly viewed as a poor indicator for customer retention. In
recent years “customer engagement” has emerged as a more popular
metric as it better captures the depth of the customer

The advantage of using customer engagement as
a metric is that it is a deeper and more holistic measure than
customer satisfaction. Proponents of customer engagement maintain
that while satisfaction is the foundation and minimum requirement
for retaining and continuing a relationship with customers,
engagement is the measure of the strength of this relationship.

Strong customer relationships develop over
time and are not easy to replicate. Banks with strong customer
relationships can use their tacit knowledge of customers to offer
products tailored specifically to the customer’s individual

A premium can be charged for these as they are
not readily available elsewhere. Strong relationships also engender
trust, and customers are willing to pay more for a product from a
known trustworthy provider.

Additional benefits of engaged customers

• Improved complaint resolution;

• Increased market intelligence;

• Improved customer service support; and

• Better public relations/reputation

Setting the retention

At the outset of developing a new
retention strategy it is important to develop a high-level

Elements of this may include: delineating the
phases of the roll-out and the steps required in each phase;
setting a timetable for this phased roll-out; developing financial
projections for the initiative, and; conducting a strategic
assessment of the organisation’s current position versus a desired
future scenario.

When launching a credit card customer
retention initiative it is important to have key-performance
indicators in place. The appropriate indicators will be related to
the definition of retention chosen but must be tied to customer
profitability. Usually it will be either a profit and loss measure
or a lifetime value per customer. Once clear profitability measures
have been established, the success of retention efforts can be
measured against these.

For a specific retention campaign this is
relatively straightforward. However the more that retention is
woven into the organisation’s culture, the more difficult it
becomes to measure it accurately.

How much of the profitability rise can be
attributed to retention efforts? To what degree are specific areas
of the retention efforts contributing towards the rise? What
retention costs should be included in the calculation? In the
absence of a well-developed standard, banks will need to closely
examine their overall costs and make common sense estimates.

A critical part of developing a customer
retention strategy is to understand your customers well; this
includes customer expectations, level of engagement, behaviour, and
demographic, geographic and psychographic characteristics.

The issuer should understand whether customers
feel loyal to the credit card brand, how likely they are to
recommend the credit card to others, and what the factors are
behind reduced use and attrition. If a credit card organisation
understands more about customers and knows more about which
cardholder groups are defecting to rival providers or lowering
their usage of the card, more effective retention strategies can be

VRL’s Credit Card Retention
Strategies report is available now. For more information, please
contact Ashwin Rattan on +44 (0)20 7563 5655 or