The Offer Management Spin on Fairbank’s Earnings Call
American Banker reported some remarks from Capital One CEO Richard Fairbank we find relevant to risk and marketing officers and worthy of comment.
“Fairbank said issuers have been richening rewards inducements and that account origination costs had become high. He predicted that cardholder attrition would rebound after a period during the recession when consumers “wanted to hang on to what they have.”
In addition to the obstacles posed by heated competition, Fairbank was cautious about the overall environment for loan growth.
He said that while household deleveraging is stabilizing, “I don’t think the consumers [have] fully demonstrated how much collectively they are going to step up and be the same consumers they were before with respect to cards.”
Regarding the high cost of account origination, Fairbank cites rewards as the driver. Rewards may be creating a new problem, but we suspect marketing is still the bulk of that cost. Marketing costs get divided over each new origination. Driving better offers through in-portfolio cross-selling can reduce marketing costs by a factor of five. Outbound marketing campaigns targeted to potential customers with ability and propensity to accept would help as well. Equifax UK has found that over 30% of marketing offers are declined after interest. This means wasted marketing, risk, and operations dollars.
Regarding increased cardholder attrition, we feel more options will mean more attrition as credit losses continue to fall and risk policies allow for better offers. Stickiness will be key to keeping your balances high. Increasing share of wallet through in-portfolio cross-selling will ensure it is your cards that stay in your customer’s wallet. Reducing APR or DDA fees because of multi-product relationships will reduce churn and prevent defection.
With regard to increased credit spend, we can only say, “My, what short memories American consumers have.” Under Fairbank’s rosy outlook, increases of a few basis points here and there on the expense side, or a few more in the loss column, will be hidden in the bottom line. We would recommend maximizing spend with offers that increase lifetime value across all lines of credit in your institution. Lower-cost acquisition and better retention will create the greatest benefit from greater customer spend.
The goals of Equifax’s strategies are protecting your customer acquisition strategy and maximizing customer value over the long haul. Click here to read more.
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