Fighting Credit Card Misalignment With Personalization

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Key Takeaways

  • One-fifth of cardholders carry a credit card whose fee structures and rewards are misaligned with their spending
  • Effectively addressing this issue requires real-time, 1-to-1 communication with the customer at scale
  • That means breaking down internal silos to assemble customer data; orchestrating always-on, personalized campaigns; and leveraging mobile banking apps as digital communications channels

It’s in every bank’s best interest to place well-aligned credit cards in their customers’ pockets. Customers spend 32% more and put a higher share of their monthly spend on credit cards when a card’s fee structures and rewards match their spending.

These primary card behaviors make it more likely that customers will purchase other products from the same bank, too. In fact, primary card customers are 15 times more valuable to banks than casual card customers over the long term. Nurturing these relationships is especially important as banks face growing competition from fintechs and big tech, whose products threaten to erode banks’ interface with customers.

Customers spend 32% more when a card’s fee structures and rewards match their spending.

Despite these high stakes, most banks struggle to effectively address credit card misalignment. Outdated data infrastructure makes it difficult to detect early warning signs, and banks’ marketing campaigns are often too broadly targeted to effectively address misalignment at an individual level. Most banks also lack an effective means of real-time digital communication with the customer, making it impossible to harness the power of contextualization to deliver the right messages at the right time.

As a result, one-fifth of cardholders carry the wrong card, with fees and rewards that are ill-suited to their needs. That’s a lot of money being left on the table, and a lot of customer relationships at risk.

Taking a Proactive Approach

Why is addressing misalignment so difficult? To determine whether a customer’s current card is really the right fit, banks need a deep understanding of the customer’s particular spending habits, financial goals, and overall lifestyle. However, most banks haven’t assembled the necessary customer data — much less learned to analyze and act on it in real time. 

As a result, they often miss early symptoms of misalignment and only register the problem when a customer reduces spend — a sign that that the customer has acquired a better-aligned card elsewhere. At that point, it’s generally too late or too costly to rebuild the relationship.

In addition, banks lack the tools to personalize credit card offers and other communications, which is key for both addressing misalignment and reinforcing alignment where it exists. If banks want to nurture lucrative primary cardholder relationships, they need a more proactive retention strategy

20% of cardholders carry a credit card that is misaligned with their spending.

Three Steps to a Proactive Credit Card Retention Strategy

  1. Use transaction data to predict misalignment at scale. By looking at card usage data, banks can identify early signs of misalignment before customers acquire new cards elsewhere. For example, if a customer starts to compartmentalize spending by using their card for groceries and nothing else, that’s a signal the card might no longer fit their needs.
  2. Offer a better-aligned card. If a customer shows signs of misalignment, their bank can offer them a card that’s better aligned with their spending habits and preferences. For example, a customer with a gas points card hasn’t been redeeming their rewards — a sign of misalignment. They spend a lot on flights and hotel rooms, so their bank sends them an offer for a new travel rewards card via the customer’s mobile banking app. Using contextual data, the bank targets the offer to arrive right after the customer makes a hotel or flight booking.
  3. Reinforce alignment with personalized incentives. When a customer holds a well-aligned card, their bank can use similar techniques to encourage primary card behaviors. For example, if a customer often uses a card for groceries, but never to buy gas, the bank can encourage diverse category spend by sending an offer for extra cash back on gas purchases when the customer is near a gas station, again via mobile app.
By making sure each customer has an aligned card in hand — and that they’re using it often — banks can strengthen customer relationships and ensure their products remain top of wallet. However, at most banks, multiple obstacles stand in the way of realizing this vision.

Top Barriers to Addressing Card Misalignment and How to Solve Them

Before harnessing the power of hyper personalization, many financial institutions will need to overcome these barriers to success.

Before banks can address misalignment at scale, they need to be able to detect it. That means building comprehensive data infrastructure that enables banks to identify noteworthy changes in spending habits, major life events, or lifestyle shifts. For example, if a customer doubles her spending on hotels and flights from one month to the next, it could be a sign she is ready to trade in her basic credit card for one with travel rewards. 

In addition, contextual data — such as location information collected from smartphones — may offer important insights, too. If a customer stops at a gas station every day, but never uses her card there, it might mean she needs a stronger incentive to put her card on file in the gas app.

Most banks are not set up to assemble their data like this. Legacy backend infrastructure may not be compatible with modern analytics solutions, making it difficult to generate insights from data points the payments group already has. Internal silos also keep data from different lines of business (LoBs) apart, so the payments group can’t access relevant customer information from other business functions. And most banks aren’t even collecting contextual data yet.

SOLUTION: Assemble data effectively.

Banks must break down internal silos and link together data points from different channels, LoBs, and backend systems. This doesn’t have to entail costly restructuring — data may be assembled in an independent layer that draws from existing data systems rather than replacing them. Contextual data can be integrated into the same platform to enable more precise real-time targeting. Once data is properly assembled, banks can unlock a deeper understanding of their customers’ behavior and needs.

Most banks’ marketing campaigns aren’t set up to enable the kind of one-to-one interactions that can proactively address credit card misalignment. Instead, banks run broad campaigns targeted at demographic groups (e.g., women aged 18-35) and often timed to coincide with seasonal events, like tax day or back-to-school season. 

While they can boost relevance for some, these tactics result in many customers seeing messages that aren’t relevant to them. For example, a childless working adult would likely tune out a back-to-school-themed campaign. Irrelevant messages hurt banks in the long term by teaching customers to ignore their banks’ communications, reducing the ROI of future campaigns. 

Without context on a customer’s habits and activities, these campaigns often reach out to customers at inconvenient times — think of a telemarketer calling during dinner. And customers also have no way to opt out of irrelevant campaigns.

SOLUTION: Orchestrate always-on, personalized campaigns.

Armed with properly assembled data, banks can tailor the content of each campaign to the individual customer and their situation at the moment. Campaigns no longer have to be tied to a seasonal event. Instead, in always-on campaigns, enrollment can be triggered at any time by contextual cues such as the customer’s location, whether the customer is walking or driving, the current weather, in-app engagement, or customer behavior. 

By boosting relevancy, this type of campaign increases the likelihood of conversion and deepens the customer relationship. Marketers can review metrics as the campaign continues and make tweaks to improve performance. In the long term, this process of optimization creates a virtuous cycle — customers see more relevant content and offers the more they interact with the bank’s app. 

Banks have gotten a lot better at digital communication, but there’s still room for improvement. Many banks still rely heavily on third-party channels like online ads and direct mail to reach their customers. These channels are both expensive to use and hard to personalize, making it difficult to reach customers at the right place and the right time at scale. Banks also tend to see their mobile apps as self-service portals, rather than the communication channels they could be. 

SOLUTION: Use existing digital channels to deliver timely, relevant messages.

The most successful marketing campaigns meet customers where they’re at — and these days, that’s usually on a smartphone. Banks can leverage their existing mobile apps to communicate digitally with customers. Triggered by contextual information, such as the customer’s location and spending habits, apps can transmit hyper-personalized messages optimized to convert. 

By using digital tools to reach customers at scale, banks can increase efficiency and reduce the risk of misalignment and customer attrition. Banks also save money by communicating with individual customers through existing digital channels instead of splurging on broadly targeted mass campaigns.

Rethinking your bank’s data infrastructure, marketing strategy, and digital communication tactics all at once may seem like an intimidating task, but it’s also a very necessary one. Customer expectations today are set by companies like Apple and Amazon. Personalized communications and seamless digital experiences are the default. Modernizing banks’ digital approach will not only help address credit card misalignment, but also help build a better — and more competitive — customer experience overall.

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