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.
Monday, March 21, 2011
Friday, December 3, 2010
Nordic Card Professionals on LinkedIn
MACAW research invites all professionals with ties to the payments industry in the Nordic region to join our LinkedIn community. According to our members, the community is a great source for local and global industry news, discussions and to connect with new business partners and connections.
We also aim to provide that something extra that sets us apart from other LinkedIn groups. For example, the members of the Nordic Card Professionals group have received free issues of the MACAW Card Bulletin, our monthly card publication, and rebates for select payment conference events we have negotiated discounts with. In other words, we look for creative ways to add value for our 400+ community members. Membership is free of course.
To join the Nordic Card Professionals LinkedIn group, go to http://www.linkedin.com/groups?gid=2203368 and apply for membership.
We also aim to provide that something extra that sets us apart from other LinkedIn groups. For example, the members of the Nordic Card Professionals group have received free issues of the MACAW Card Bulletin, our monthly card publication, and rebates for select payment conference events we have negotiated discounts with. In other words, we look for creative ways to add value for our 400+ community members. Membership is free of course.
To join the Nordic Card Professionals LinkedIn group, go to http://www.linkedin.com/groups?gid=2203368 and apply for membership.
Thursday, August 26, 2010
Gift card kiosks
An evolving Nordic gift card market drives distribution channel innovation. In shopping malls, new machines are finding their way to high trafficked areas. The gift card kiosks reduce personnel costs and drive up card sales, and constitute an innovative channel for card distribution, especially in the business to consumer market.
The business case is simple. A kiosk has the potential to reduce the cost of issuing gift cards considerably compared to a physical employee. The kiosk is quicker, reduces queues at other points of sale, frees up personnel time, and it drives up sales.
Kiosks also represent opportunities beyond the core functionality of selling cards. A printed receipt represents a potential marketing channel. For example, while the card payment is being processed and the card dispensed, ads for promotions at select retailers can be displayed.
For gift card kiosks to be an economically viable option, card sales volumes are critical. Major shopping malls, hypermarkets and other large format retailer outlets are eligible destinations with many visitors. It is also conceivable to distribute an open loop product through card kiosks in other high traffic locations, such as train stations. Despite these opportunities, kiosks are likely to remain a niche channel.
This post is an extract from an article on gift card kiosks in MACAW Card Bulletin issue 27 - Gift Card Kiosks. To subscribe to the MACAW Card Bulletin, please contact sales@macawresearch.com
The business case is simple. A kiosk has the potential to reduce the cost of issuing gift cards considerably compared to a physical employee. The kiosk is quicker, reduces queues at other points of sale, frees up personnel time, and it drives up sales.
Kiosks also represent opportunities beyond the core functionality of selling cards. A printed receipt represents a potential marketing channel. For example, while the card payment is being processed and the card dispensed, ads for promotions at select retailers can be displayed.
For gift card kiosks to be an economically viable option, card sales volumes are critical. Major shopping malls, hypermarkets and other large format retailer outlets are eligible destinations with many visitors. It is also conceivable to distribute an open loop product through card kiosks in other high traffic locations, such as train stations. Despite these opportunities, kiosks are likely to remain a niche channel.
This post is an extract from an article on gift card kiosks in MACAW Card Bulletin issue 27 - Gift Card Kiosks. To subscribe to the MACAW Card Bulletin, please contact sales@macawresearch.com
Thursday, July 29, 2010
Amazon + Facebook
Earlier this week, Amazon announced a move towards socializing online shopping. A new application will allow Facebook users to integrate information from their Facebook profiles with their Amazon accounts.
So what does it do? In short, Amazon shoppers will be able to see recommendations from their friends on Facebook. It also will alert them to upcoming birthdays and suggest gifts from Amazon based on friends' interests and preferences from their Facebook profiles.
Does Facebook see Amazon purchases? No. Amazon states it will not share account information with Facebook, so Facebook will not receive any information about a user's purchases at Amazon.
Does Amazon see Facebook activities? Yes, but only profile information that is publicly shared on Facebook. Amazon will not scrape non-public information from friends' profiles. Meaning the application will only provide suggestions for those who are open-minded about sharing personal information to anybody online.
From a commercial perspective it is clear to see the benefits of one major online player having access to your activities on another major site. Whether users will be comfortable is another matter. If the integration is perceived to have value for the consumer, it will likely be welcomed. There is no doubt Amazon can drive up sales from the integration; the question is whether users are being compensated sufficiently for allowing them to use their data.
Is the utility in seeing friends' favorites and tips for their birthdays worth it alone, or is something more required, e.g. points, rebates, special promotions or other benefits - paid out in Facebook Credits for instance?
So what does it do? In short, Amazon shoppers will be able to see recommendations from their friends on Facebook. It also will alert them to upcoming birthdays and suggest gifts from Amazon based on friends' interests and preferences from their Facebook profiles.
Does Facebook see Amazon purchases? No. Amazon states it will not share account information with Facebook, so Facebook will not receive any information about a user's purchases at Amazon.
Does Amazon see Facebook activities? Yes, but only profile information that is publicly shared on Facebook. Amazon will not scrape non-public information from friends' profiles. Meaning the application will only provide suggestions for those who are open-minded about sharing personal information to anybody online.
From a commercial perspective it is clear to see the benefits of one major online player having access to your activities on another major site. Whether users will be comfortable is another matter. If the integration is perceived to have value for the consumer, it will likely be welcomed. There is no doubt Amazon can drive up sales from the integration; the question is whether users are being compensated sufficiently for allowing them to use their data.
Is the utility in seeing friends' favorites and tips for their birthdays worth it alone, or is something more required, e.g. points, rebates, special promotions or other benefits - paid out in Facebook Credits for instance?
Saturday, May 29, 2010
Payments in Norway
The Bank of Norway recently published its much anticipated annual report on payments in Norway, providing 2009 statistics and updated information on the status of the Norwegian payment systems. MACAW research summarizes and comments.
CARD TRANSACTIONS
The growth in card use is strongly linked to household consumption. Despite economic turmoil, household consumption increased 2.3% in 2009, while the value of all card payments on Norwegian cards increased by 6.1% to NOK 645.9 billion. The total number of transactions grew by 8.4% to 1.28 billion transactions, equivalent to 246 transactions per capita in 2009, according to the Bank of Norway.
The growth in card value is a bit higher than expected based on analysis of historical data, indicating a continued strengthening of the position of cards vs. cash. This is also supported by cash withdrawal statistics, which reveal that ATM withdrawals on cards issued in Norway fell by 5.6% (6.2% domestic) if measured in no. of transactions and 3.0% ( 4.3% domestic) in value.
POS transactions on Norwegian cards used domestic and abroad increased to 1.18 bn (9.8%) with a value of NOK 486.5 billion (9.1%). Of this, the value of cash withdrawals at POS remained constant at NOK 27.8 billion, but the no. of such transactions continued to decline and was reduced by 2.9% compared to 2008.
DEBIT AND CREDIT
No. of debit card transactions in 2009 increased by 90.0 million (8.2%) year-on-year to record-high 1192.8 million, and value increased by NOK 30.4 billion (5.8%) to 556.3 billion. In comparison, the no. of credit card transactions increased by 10.1 million (17.9%) to 66.6 million in 2009, and card value grew by NOK 8.6 billion (14.8%) to 66.6 billion in total.
While credit cards saw two-digit relative growth in 2009, in absolute figures, the no. of debit transactions outgrew credit transactions by 9 to 1 and value by 3.5 to 1. Comparing the relative growth rates to previous years, both debit and credit cards experienced lower growth in 2009 than 2008, but higher growth than 2007. One conclusion drawn is there are no signs that Norwegian card use was adversely affected by the economic situation. Considering the development in household consumption, Norwegian card use even outgrew expectations.
An interesting side note is that the use of charge cards declined in 2009, after sporting several years of growth. One plausible explanation could be card issuers migrating charge card customers to more profitable credit cards. The decline could also simply be the result of increased competition from the increased number of credit card brands on the Norwegian market, with customers actively switching from charge to credit cards.
CARDS ISSUED
The number of issued cards increased by one million from 2008 to 2009, up from 10.6 to 11.6 million cards. 55.9% of cards were chip cards at the year-end of 2009.
For the first time, the number of debit features declined (down 0.9%) and ended at 11.8 million at year-end. Note that BankAxept and Visa debit are counted as two different features – so a great number of cards have two features.
Assuming the figures are correct, the no. of credit cards saw explosive growth, up by 1.2 million (26.9%) to 5.5 million features. The number of charge cards remained stable. In absolute figures, the growth in credit features is previously unparalleled in Norway. Compared to earlier years, 26.9% growth is very strong (vs. 1.0% in 2008, 20.9% in 2007, 22.9% in 2006). Apparently, the economic downturn did not deter banks’ determination to push credit cards, and 2009 also saw a number of new card concepts put on the market.
However, card turnover did not keep up with the growth in credit card features. Spend per credit feature dropped from NOK 13,370 in 2008 to NOK 12,095 2009, and the no. of transactions per credit feature fell from 13.0 to 12.1. This is a clear indication that competition is intensifying in the credit card sector. Still, the transactions and spend per credit feature were higher in 2009 than they were in 2007, so the size of the cake is also increasing – even if not as fast as the growth in no. of card features...
To gain access to the full article with illustrations and complete text, order your subscription to the MACAW Card Bulletin today. Contact sales[at]macawresearch.com or phone +47 412 69 669.
CARD TRANSACTIONS
The growth in card use is strongly linked to household consumption. Despite economic turmoil, household consumption increased 2.3% in 2009, while the value of all card payments on Norwegian cards increased by 6.1% to NOK 645.9 billion. The total number of transactions grew by 8.4% to 1.28 billion transactions, equivalent to 246 transactions per capita in 2009, according to the Bank of Norway.
The growth in card value is a bit higher than expected based on analysis of historical data, indicating a continued strengthening of the position of cards vs. cash. This is also supported by cash withdrawal statistics, which reveal that ATM withdrawals on cards issued in Norway fell by 5.6% (6.2% domestic) if measured in no. of transactions and 3.0% ( 4.3% domestic) in value.
POS transactions on Norwegian cards used domestic and abroad increased to 1.18 bn (9.8%) with a value of NOK 486.5 billion (9.1%). Of this, the value of cash withdrawals at POS remained constant at NOK 27.8 billion, but the no. of such transactions continued to decline and was reduced by 2.9% compared to 2008.
DEBIT AND CREDIT
No. of debit card transactions in 2009 increased by 90.0 million (8.2%) year-on-year to record-high 1192.8 million, and value increased by NOK 30.4 billion (5.8%) to 556.3 billion. In comparison, the no. of credit card transactions increased by 10.1 million (17.9%) to 66.6 million in 2009, and card value grew by NOK 8.6 billion (14.8%) to 66.6 billion in total.
While credit cards saw two-digit relative growth in 2009, in absolute figures, the no. of debit transactions outgrew credit transactions by 9 to 1 and value by 3.5 to 1. Comparing the relative growth rates to previous years, both debit and credit cards experienced lower growth in 2009 than 2008, but higher growth than 2007. One conclusion drawn is there are no signs that Norwegian card use was adversely affected by the economic situation. Considering the development in household consumption, Norwegian card use even outgrew expectations.
An interesting side note is that the use of charge cards declined in 2009, after sporting several years of growth. One plausible explanation could be card issuers migrating charge card customers to more profitable credit cards. The decline could also simply be the result of increased competition from the increased number of credit card brands on the Norwegian market, with customers actively switching from charge to credit cards.
CARDS ISSUED
The number of issued cards increased by one million from 2008 to 2009, up from 10.6 to 11.6 million cards. 55.9% of cards were chip cards at the year-end of 2009.
For the first time, the number of debit features declined (down 0.9%) and ended at 11.8 million at year-end. Note that BankAxept and Visa debit are counted as two different features – so a great number of cards have two features.
Assuming the figures are correct, the no. of credit cards saw explosive growth, up by 1.2 million (26.9%) to 5.5 million features. The number of charge cards remained stable. In absolute figures, the growth in credit features is previously unparalleled in Norway. Compared to earlier years, 26.9% growth is very strong (vs. 1.0% in 2008, 20.9% in 2007, 22.9% in 2006). Apparently, the economic downturn did not deter banks’ determination to push credit cards, and 2009 also saw a number of new card concepts put on the market.
However, card turnover did not keep up with the growth in credit card features. Spend per credit feature dropped from NOK 13,370 in 2008 to NOK 12,095 2009, and the no. of transactions per credit feature fell from 13.0 to 12.1. This is a clear indication that competition is intensifying in the credit card sector. Still, the transactions and spend per credit feature were higher in 2009 than they were in 2007, so the size of the cake is also increasing – even if not as fast as the growth in no. of card features...To gain access to the full article with illustrations and complete text, order your subscription to the MACAW Card Bulletin today. Contact sales[at]macawresearch.com or phone +47 412 69 669.
Thursday, April 1, 2010
Breaking news
The EU has launched a new incentive program to help stabilize the situation in the Euro Zone, and quell any doubts in the financial markets concerning the future of the European currency.
The payments industry's interchange fees, previously under the scrutiny of the EU Commission, and under regulation, is now hailed as a savior and driving force for continued European prosperity.
A new affinity card program that donates 0.2% of card turnover to the country of the cardholder's choice will help reduce national account deficits in the so-called PIGS countries and stabilize the European economy. Eligible countries are Portugal, Ireland, Greece and Spain.
"The European citizens stand united. Consumers can help save their favorite vacation destinations simply by linking their card to the "Save the PIGS" program" which will be mandatory following an upcoming EU decree, according to an unspecified source.
Critics of the new program are concerned that the relative contributions of small countries with high card use, such as the Nordics, will lead to unfair subsidizing, and that certain key countries with low card use per capita, such as Germany, are not footing their part of the bill.
Others lament the low donation rates, a direct consequence of cross-border interchange regulations. Some analysts speculate this could be a rebound for interchange rates, as well as banks' reputations among EU citizens.
The new affinity program also comes with benefits such as "accounting services" provided by global investment banks, unique "debt protection" services, and an extended protection against April Fool's jokes - in case you fell for this one.
The payments industry's interchange fees, previously under the scrutiny of the EU Commission, and under regulation, is now hailed as a savior and driving force for continued European prosperity.
A new affinity card program that donates 0.2% of card turnover to the country of the cardholder's choice will help reduce national account deficits in the so-called PIGS countries and stabilize the European economy. Eligible countries are Portugal, Ireland, Greece and Spain.
"The European citizens stand united. Consumers can help save their favorite vacation destinations simply by linking their card to the "Save the PIGS" program" which will be mandatory following an upcoming EU decree, according to an unspecified source.
Critics of the new program are concerned that the relative contributions of small countries with high card use, such as the Nordics, will lead to unfair subsidizing, and that certain key countries with low card use per capita, such as Germany, are not footing their part of the bill.
Others lament the low donation rates, a direct consequence of cross-border interchange regulations. Some analysts speculate this could be a rebound for interchange rates, as well as banks' reputations among EU citizens.
The new affinity program also comes with benefits such as "accounting services" provided by global investment banks, unique "debt protection" services, and an extended protection against April Fool's jokes - in case you fell for this one.
Thursday, February 11, 2010
ID security
Last week, Oberthur Technologies hosted a seminar on ID security in Oslo, Norway. ID theft is a growing concern, and both government and corporate initiatives aim to create solutions to prevent ID theft from spiraling out of control.
A diverse range of speakers and subjects were on the agenda. MACAW research covered the event, and here we give you some of the highlights.
Eva Edwaldsson from Oberthur Technologies was first up and provided an introduction to current European initiatives on ID solutions, including the European Citizen Card project and biometric information schemes. A representative from Statoil inquired whether commercial players would be able to read complete biometric records. The Norwegian Ministry of Justice's stance was that this level of access would only be made available to government organizations and specifically border control.
The Data Inspectorate (Datatilsynet) presented excerpts from the Norwegian law on eSignatures and its skeptic attitude towards portal solutions for access to multiple government records for citizens from a single sign-on point, as well as tracking user behavior in electronic services in general. In essence, the latter boiled down to what the Data Inspectorate labeled as unnecessary identification, as well as logging; preferring this only be done at the point when a signature is required.
Ståle Ekelund, CTO at Norman, presented malicious code statistics. The number of pieces of malicious code have exploded, marked by an increase in so-called polymorphism, i.e. multiple instances of the same code building blocks, but with a different order or added components. In total, there were 22 million unique pieces of malicious code reported in 2009, and growing by approximately 1 million per month. Several of the speakers also pointed out that cyber crime has surpassed narcotics in revenue, and that ID theft is "big business with good returns."
Jan Sigurd Aarberg, VP Cards & Payments at DnBNOR, raised the question "Do we need payment cards?" and ran us through the history of payment cards in Norway. An interesting element from the presentation was that the mobile payments pilot with Telenor and MasterCard has been put on hold due to a lack of suitable mobile handsets. Also, is it banks' duty to provide identification to Norwegian citizens, and will it be in the future? It is a paradox that banks require a passport to issue a debit card, when one can use a debit card to obtain a passport.
One of the final speakers was Christian Meyer, project manager at idtyveri.info, who provided interesting figures on ID theft, such as 5642 Norwegians having reserved themselves against credit risk assessments at Dun & Bradstreet as per 31 December 2009. Mr. Meyer also referenced a survey, in which 5.4% of the surveyed Norwegians had been victims of one or more forms of identity theft. It is to be noted that the term ID theft was broadly defined and included being victimized in cases of public transport dodging, i.e. someone providing false record to inspectors and thus the fraud victim being issued a wrongful fine.
All in all, Oberthur Technologies provided a good mix of speakers and subjects, and we look forward to next year's event. Maybe we will see you there.
A diverse range of speakers and subjects were on the agenda. MACAW research covered the event, and here we give you some of the highlights.
Eva Edwaldsson from Oberthur Technologies was first up and provided an introduction to current European initiatives on ID solutions, including the European Citizen Card project and biometric information schemes. A representative from Statoil inquired whether commercial players would be able to read complete biometric records. The Norwegian Ministry of Justice's stance was that this level of access would only be made available to government organizations and specifically border control.
The Data Inspectorate (Datatilsynet) presented excerpts from the Norwegian law on eSignatures and its skeptic attitude towards portal solutions for access to multiple government records for citizens from a single sign-on point, as well as tracking user behavior in electronic services in general. In essence, the latter boiled down to what the Data Inspectorate labeled as unnecessary identification, as well as logging; preferring this only be done at the point when a signature is required.
Ståle Ekelund, CTO at Norman, presented malicious code statistics. The number of pieces of malicious code have exploded, marked by an increase in so-called polymorphism, i.e. multiple instances of the same code building blocks, but with a different order or added components. In total, there were 22 million unique pieces of malicious code reported in 2009, and growing by approximately 1 million per month. Several of the speakers also pointed out that cyber crime has surpassed narcotics in revenue, and that ID theft is "big business with good returns."
Jan Sigurd Aarberg, VP Cards & Payments at DnBNOR, raised the question "Do we need payment cards?" and ran us through the history of payment cards in Norway. An interesting element from the presentation was that the mobile payments pilot with Telenor and MasterCard has been put on hold due to a lack of suitable mobile handsets. Also, is it banks' duty to provide identification to Norwegian citizens, and will it be in the future? It is a paradox that banks require a passport to issue a debit card, when one can use a debit card to obtain a passport.
One of the final speakers was Christian Meyer, project manager at idtyveri.info, who provided interesting figures on ID theft, such as 5642 Norwegians having reserved themselves against credit risk assessments at Dun & Bradstreet as per 31 December 2009. Mr. Meyer also referenced a survey, in which 5.4% of the surveyed Norwegians had been victims of one or more forms of identity theft. It is to be noted that the term ID theft was broadly defined and included being victimized in cases of public transport dodging, i.e. someone providing false record to inspectors and thus the fraud victim being issued a wrongful fine.
All in all, Oberthur Technologies provided a good mix of speakers and subjects, and we look forward to next year's event. Maybe we will see you there.
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