Posted by Ajay Kelkar on Sun, Aug 22, 2010
Credit cards helping you save-that sounds like a oxymoron! Are banks trying to become more customer centric!
Debit & credit cards are different silos within banks-Credit cards operates as a separate P&L and often the Debit card reports into the Liability business head. And of course it is rare for the silos to talk to each other in any business! So how on earth can these businesses become more Customer centric!
Credit card companies in the US that once were a vehicle for out-of-control spending are now helping consumers stay out of debt. Citi and MasterCard Worldwide announced that Citi will implement the consumer application in the U.S. of MasterCard inControl – a service that gives cardholders the ability to set spending controls and receive real-time information about their accounts. By itself this is nothing new, Quicken & others have been pushing this service for a while now.
Interestingly, MasterCard’s announcement comes days before the final provisions of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, the most comprehensive overhaul of the credit card industry in history, goes into effect today, August 22.
Dan Ariely the Behavioural economist has spoken about a “self control” credit card.
But is it practical to expect a financial institution to gustily embrace such a concept especially when they earn billion in “interest charges”. Is there an opportunity out there for a bank to be truly “customer centric” without “breaking the bank”!!
Here, from Dan Ariely’s Predictably Irrational is the idea of a” self-control” credit card:
A FEW YEARS ago I was so convinced that a “self-control” credit card was a good idea that I asked for a meeting with one of the major banks. To my delight, this venerable bank responded, and suggested that I come to its corporate headquarters in New York.
I arrived in New York a few weeks later, and after a brief delay at the reception desk, was led into a modern conference room. I began by describing how procrastination causes everyone problems. In the realm of personal finance, I said, it causes us to neglect our savings-while the temptation of easy credit fills our closets with goods that we really don’t need. It didn’t take long before I saw that I was striking a very personal chord with each of them.
Then I began to describe how Americans have fallen into a terrible dependence on credit cards, how the debt is eating them alive, and how they are struggling to find their way out of this predicament. America’s seniors are one of the hardest-hit groups. In fact, from 1992 to 2004 the rate of debt of Americans age 55 and over rose faster than that of any other group. Some of them were even using credit cards to fill the gaps in their Medicare. Others were at risk of losing their homes.
Now the ground was ready and I started describing the self-control credit card idea as a way to help consumers spend less and save more. At first I think the bankers were a bit stunned. I was suggesting that they help consumers control of their spending. Did I realize that the bankers and credit card companies made $17 billion a year in interest from these cards? Hello? They should give that up?
Well, I wasn’t that naive. I explained to the bankers that there was a great business proposition behind the idea of a self-control card. “Look,” I said, “the credit card business is cutthroat. You send out six billion direct-mail pieces a year, and all the card offers are about the same.” Reluctantly, they agreed. “But suppose one credit card company stepped out of the pack,” I continued, “and identified itself as a good guy--as an advocate for the credit-crunched consumer? Suppose one company had the guts to offer a card that would actually help consumers control their credit, and better still, divert some of their money into long-term savings?” I glanced around the room. “My bet is that thousands of consumers would cut up their other credit cards-and sign up with you!”
A wave of excitement crossed the room. The bankers nodded their heads and chatted to one another. It was revolutionary! Soon thereafter we all departed. They shook my hand warmly and assured me that we would be talking again, soon.
Well, they never called me back. (It might have been that they were worried about losing the $17 billion in interest charges, or maybe it was just good old procrastination.) But the idea is still there-a self-control credit card-and maybe one day someone will take the next step.
Posted by Ajay Kelkar on Sun, Feb 28, 2010
During the second quarter of 2009, the largest airlines in the US collected $669.5 million worth of baggage fees from the nation's hapless passengers. That's a huge 275 percent increase from the second quarter of 2008.
Ancillary income or revenue from sources other than the ticket price is categorized by the industry as a la carte features, commission based products and frequent flyer activities and today account for a substantial portion of revenue for airlines. Today, these features comprise as much as 10-15% of most airlines’ revenues. United Airlines, for example, has estimated that baggage fees and other add-on charges for meals and seat selection will generate $700 million in additional revenue in 2009. Asia is a bit different and possibly only Air Asia shows this kind of ancillary income percentages!
In an article by Joe Brancatelli, he states “But here's an indisputable truth: The more baggage fees that the big airlines pile on their customers, the faster their overall revenue is collapsing. In fact, the only carriers that escaped a double-digit revenue decline in the second quarter were the two that still allow all passengers to check at least one bag for free”
To me this conclusion is “so wrong” …airlines lost revenue for a whole bunch of reasons and you cannot attribute “cause & effect” here. In fact look at the facts, in many businesses like Airlines, Banking, Credit cards & Hotels,
you actually do not mind paying small amounts of money for a variety of services.
This “small amount of money” contributes substantially to the other income line for these marketers. In the case of credit cards when you use your card internationally, you pay a “not so small” markup and that is very profitable for the card issuer. Credit card loyalty programs are among the best examples of programs that allow Ancillary revenue (e.g. membership fees, point sales, partner payments). Even banks have developed sophisticated ways of charging you for all sorts of services which slip under your radar! At an individual level it may not hurt so much-as an example debit card fees may be just Rs 100-150($ 2 to 3) per customer but the Debit card portfolio makes a healthy pile of profit because of this innocuous line item!
Interestingly Analytics can play an important role to gauge pricing power amongst customers and finding segments that may find more “value” in a specific service offering and therefore not mind paying for it. I wonder how many companies actually have a specific executive or function tasked with uncovering “ancillary income” opportunities. A strong analytics based program to uncover these opportunities will more than pay for itself.
Read more about the Airline baggage charges here:
http://www.portfolio.com/views/columns/seat-2B/2009/09/29/baggage-fees-hurting-airlines-bottom-line/
Posted by Ajay Kelkar on Wed, Feb 03, 2010
Credit card retail spend data is also so valuable for Retail merchants but I do not see any concentrated initiative from any bank in India to use this data as a strategic differentiator.
Already credit card as a % of total sales would be 50% or more, for at least the department store category of Retailers. If I were a Retailer, I could use this information to profile my regular customer base far better-they may not be loyalty program members, it’s just that their credit card number tells us that they are repeat customers for the retailer.
So clearly there is an opportunity for Indian banks to provide retailers more insight and on the back of that build larger spends and revolves on their cards with that merchant establishment. American Express has traditionally been good at this. Only a few months after American Express announced its Business Insights solution for consumer data analytics and consulting, MasterCard Advisors has now launched “Merchants Solutions”, their response to the growing number of payment services companies that offer data on their customer’s purchases to marketers.
Read more about this at
http://www.dmnews.com/amexs-new-division-displays-value-of-data/article/159487/