Gamification

Gamification can be defined as “the use of game design techniques and mechanics to solve problems and engage audiences to generate desired behavior.” Gartner Group estimates that up to 50% of all companies will use gamification by 2015. Whether a bank wants to sell more products, increase card spending, educate their customers, or make their loyalty program increase retention by heightening customer engagement, gamification can help achieve these objectives.

Banking rewards are traditionally related to packaged accounts and credit cards. Customers with a certain asset size and/or number of products qualify for a packaged account, which typically grants lower fees and interest charges or added services such as concierge service compared to not having a packaged account. This does not really engage the customer, but builds a negative barrier to switching. Credit cards have traditionally relied on spending related rewards; in whether as flat or tiered cash back or point-based bonuses on spending.

Airline and fuel loyalty programs are traditionally tiered based on spending levels, and while there are certainly cases of customers that work hard to reach and maintain the higher tiers of these programs (e.g. going on “air miles runs”), this is not really a fun, engaging and brand-strengthening approach to building loyalty and desired customer behavior. So how can banks and cards be smarter than simply offer generic spend-based point rewards?

The first thing a bank or card program manager should ask is “What do we want to achieve”? Do we want to attract more customers, increase loyalty, cross-sell more products, increase a desired behavior, decrease an undesired behavior, educate our customers etc. Once we know, we can set objectives for our program and work to drive customers to those goals through fun and rewarding engagement using elements such as achievement points and badges, mini-games, leader boards, progress bars and other game elements.

To make card spending more interesting, one could give the cardholder achievement rewards for using the card in 5, 10 or 25 different MCCs in a certain period, at certain partner retailers, or for example in one or more different countries or continents. If the card issuer is facing fraud problems, educate cardholders by rewarding them with points for completing educational programs in the form of viewing instructional videos and then doing mini games such as quizzes. If we want to increase cross-sales, we could give new customers bonus points for signing up to new products, such as id theft insurance. These are just a few examples of how banks and card issuers can use gamification to drive desired behavior.

This blog post is an excerpt from MACAW Card Bulletin 41: Differentiation with Gamification. If you would like to subscribe to the MACAW Card Bulletin or hire MACAW to help your organization exploit the potential of gamification to reach your sales and marketing goals, please call +47 412 69 669 or e-mail post@macawresearch.com.

Retail Prepaid Management

Retailers worldwide are embracing prepaid gifting solutions, although their degree of sophistication and understanding of prepaid as an element of marketing strategy and execution vary greatly.

The majority of retailers might view gift cards primarily as a payment instrument, potentially with a fee to cover the cost of issuance and a small margin, and possibly some breakage (unspent funds) that can be claimed as revenue at a later point. However, this narrow view prevents retailers from realizing the true potential of prepaid.

For example, according to South-Africa based gift card provider DrawCard, South African merchants who switch from paper to plastic prepaid gifting experience anywhere from a 30% to 200% increase in sales. What is more, 61% of South Africans spend more than the face value of the card. Coupled with float, higher margin sales, and the potential for new customer acquisition, gift cards offer significantly more benefits than might be superficially apparent.

A retailer or service provider that grasps the economics of the gift card will make efforts to promote their cards actively in their in-store environments. The next step up from in-store promotion is incorporating gift cards into the overall marketing strategy of the company. There are many opportunities for issuing a prepaid card during interaction with customers and potential customers. For example, instead of giving a customer a cash refund upon returning a product, one can issue a prepaid card to encourage repeat visits and incremental spending. Prepaid cards can also be used as part of promotions. One example is replacing point of sale cash discounts with giving out a gift card of a certain value.

When a retailer or non-retailer has exhausted its options for self-promotion of gift cards, it is time to look beyond the physical outlet network and online sales channels. Enter the concept of third party prepaid distribution. A retailer with sufficient margins on its products should consider distributing its gift cards through other retailers’ stores, such as with Blackhawk Network.

Retailers and non-retailers that view gift cards as a category, rather than merely a payment instrument (or unspent funds to go into the bottom line at a later point), can significantly increase their sales revenue. Gift cards can be used to attract, retain, compensate and stimulate additional customer spending; but they cannot do so if they are in a drawer behind the till and not promoted.

Nordic Card Trends & Opportunities 2011-2012

Nordic Card Trends & Opportunities 2011-2012 is the anticipated sequel to our previous report in the Nordic Card Trends & Opportunities series published two years ago. Much has happened in the dynamic Nordic payments space in the economic downturn and recovery phases; and many new possibilities have opened up.

http://www.macawresearch.com/Reports/NordicCardTrendsAndOpportunities20112012_infopack.pdf

The report describes the development of the credit and debit card markets over the last three years and predicts the debit and credit spend values for 2011-2012 for Denmark, Finland, Norway and Sweden utilizing a historically accurate statistical model based on card payments and economic indicators.

Next, the report assesses the potential of the emerging Nordic prepaid card sector, including drivers and inhibitors to growth, and the size of the current market potential for both closed and open loop products. Nine different prepaid categories are assessed: Consumer gifting, Government disbursements, Corporate incentives & benefits, Payroll, FX & Travel, Fuel, Transportation, Remittance, and General purpose reloadable products.

Finally, the report presents 12 Trend articles, each which explores new card trends and opportunities in the Nordics. The topics revolve around modern card portfolio optimization, new prepaid channels and segments, social media and payments (including Facebook), mobile and contactless payments, and credit and debit trends including loyalty points and cash back. The articles are backed by facts, professional views and case studies.

For those readers who want additional information on a given topic, references to online resources such as blog posts, news articles, press releases, company websites and financial reports are provided.

We think you will enjoy the report and that it will help you see new ways to improve your business and tap into new revenue streams in an increasingly competitive card market.

Questions and sales orders can be directed to sales@macawresearch.com

PS: Grab the report info pack: http://www.macawresearch.com/Reports/NordicCardTrendsAndOpportunities20112012_infopack.pdf

Card Performance Optimization

Increased competition and uncertainty force banks to better understand their customers and what drives profitable card behavior. Card performance optimization will likely be a key European payment trend in 2011-2012.

Card Performance Optimization (CPO) is a common name for statistical methods for maximizing credit card profitability based on behavioral analysis and risk policies. CPO allows issuers to reduce credit loss ratios, reactivate inactive accounts, approve more customer applications, and help build revolving balances - in essence to stimulate profitable card behavior. The methods can also be used to cross-sell credit cards to customers with existing prepaid, charge and debit card accounts.

While highly developed in the US and UK, the rest of Europe is still in an early stage of CPO adoption. Interestingly, even European branches of US and UK banks have only to limited extent adopted the successful measures of their parent banks. The players leading the way in Europe are typically niche banks whose core competencies are in credit card issuing.

One of the key components of CPO is behavior scoring – basically speaking a risk scoring method based on customer behavior after the customer has been issued a credit card. Behavioral scoring based on actual card behavior supplements application credit scoring, allowing issuers to approve more credit applications and to dynamically reassess credit limits – and interest rates – based on the risk pattern the customer exhibits.

Depending on the card issuer’s objectives, CPO can be used to optimize card program features and card pricing structure to drive the desired card behavior needed to achieve set goals. For example, a card issuer that wishes to generate higher revolving balances on existing accounts can optimize fees and interest rates to stimulate cash withdrawals, which have a higher tendency to revolve than purchases. For an issuer that wishes to activate inactive cards, other measures are more suitable. The exact measures should be tailored to the desired objectives – or to maximize overall profitability for the portfolio. Interestingly, cardholders are far from rational, which can yield different results than first anticipated. This represents both a challenge and an opportunity – mostly the latter.

With increased competition and macro level uncertainties in many countries, there is a growing need for card players to understand what drives profitable behavior, how to better manage risk, and how to capture new and profitable customer segments. Different banks will have different priorities, but banks that do not implement CPO will likely ultimately lose market share. Even a sub-optimized card portfolio can be highly profitable compared to other banking products, but the difference in returns on an average compared to a great portfolio is substantial. Credit cards are a volume and data-driven business, and as the market saturates, performance optimization will increase in importance.

To learn more about Card Performance Optimization, and receive a FREE assessment of your card portfolio's optimization potential, please contact sales@macawresearch.com.