In recent years, leading U.S. credit card issuers have changed their focus from simply acquiring new customers to optimizing relationships with existing cardholders. A key element to the overall success of this strategy is the ability to motivate newly-acquired cardholders to start—and continue—to use the card. According to The Nilson Report, the average credit card activation rate (active accounts as a percentage of total accounts) for the top 50 Visa and Mastercard issuers was 57% in 2017. However, there is significant variation among issuers. For example, Citibank had a credit card activation rate of 68%, while Fifth Third’s was just 49%. Low activation rates represent a lost opportunity in optimizing customer lifetime value, as well as a waste of marketing resources expended in cardholder acquisition.
Here are 10 key considerations for boosting credit card activation rates.
Benchmark current credit card activation performance. The starting point involves gaining a strong understanding of your current activation rate, how this rate has changed over time, and how it compares to competitors’ rates. Also study previous and current activation rates to identify the primary factors contributing to the current rate.
Conduct customer research. Analyze customer data to size and profile the inactive cardholder base. Conduct additional primary research to identify key card activation triggers and barriers.
Develop a credit card activation plan. With input from all relevant stakeholders in the organization, develop an integrated credit card activation plan. Create a team dedicated to implementing the plan, and assign roles and responsibilities. Develop an integrated series of initiatives, and establish a timeline to roll out these initiatives and measure progress against plan objectives.
Create bonus offers. Most credit card bonus offers are based on acquisition and activation, with the cardholder receiving the bonus (points, miles, cashback) if they meet a certain spending threshold within a period following acquisition (typically 60-90 days). Higher-end cards (many of which carry annual fees) have larger bonus offers. Chase recently launched the Marriott Rewards Premier Plus Card, featuring 100,000 bonus points if the cardholder spends $5,000 within three months of account opening. A variation on the bonus offer is to have higher earn rates on specific spending categories for an initial period.
Develop pricing to drive activation. Set pricing levels (interest rates and fees) to encourage the cardholders to start using the card. One common approach is to have 0% introductory rates on balances transfers for transfers made within an initial period. For example, the new BBVA Compass Rewards Card has a 0% introductory rate for 13 months for balance transfers made with 60 days of account opening.
Focus on cardholder onboarding. Develop a communications plan to engage with new cardholders during the crucial initial 90-day period. These communications should welcome the cardholder, reinforce the card’s key strengths and differentiating features, highlight incentives, and encourage card usage.
Adjust sales incentives. Consider tweaking incentive plans to reward front-line sales people for their customer activation efforts.
Leverage cardholder usage of different service channels. Many cardholders use multiple channels (desktop, mobile, branch, call center, social media) to engage with their financial services provider. Develop messaging across these channels to promote card benefits and highlight the need for activation.
Create financial education tools. Many financial firms are investing in financial education tools using multiple media to boost overall financial literacy and to enable consumers made smart decisions in using a variety of financial products and services, including credit cards. Developing and sharing content around managing a credit card effectively can both build affinity with your company and encourage the cardholder to use the card responsibly.
Review performance. Following the launch of your credit card activation initiatives, identify and address any issues in implementation, track performance relative to objectives, and incorporate learnings into ongoing card activation efforts.
Banks looking to build awareness and engagement with small business owners should look to leverage strengths in specific markets and develop targeted marketing campaigns and other outreach programs. The following are some of the most popular ways that banks see to engage with small businesses at the local market level.
Leverage the branch network.
Small businesses continue to be among the heaviest users of bank branches, and leading banks deploy dedicated small business bankers in branches to provide expert advice and support. This past January, as part of a broader commitment to its brand network, Chase announced plans to hire 500 small business bankers.
Banks use their branch network to bring small business campaigns to life. Last month, Santander Bank rolled out its Small Business Month campaign, which featured in-branch merchandising and in-branch events across its network of more than 600 branches.
Some banks even allocate space in their branches for small businesses to use. Citizens Bank recently created open space in its Chestnut Hill, Massachusetts, branch that small business clients can use to conduct meetings with customers and business partners.
Target campaigns at local markets.
Capital One launched its We Work as One campaign, designed to promote and empower local businesses in select markets (New York City, Chicago, San Francisco, Denver and Boston) where it operates local Capital One Cafes.
Foster small business entrepreneurship.
Some banks include small business entrepreneurship as part of their broader community outreach. For example, Santander Bank’sCultivate Small Business initiative promotes small business ownership in underserved communities in Greater Boston.
Partner with local groups that promote small businesses.
Banks look to develop partnership with a host of local organizations that represent small business interests. Prominent among these organizations are the more than 3,000 chambers of commerce located through the U.S. Many banks team up with local chambers to carry out joint initiatives, such as hosting member events and carrying out surveys. Last November, Webster Bank hosted a cybersecurity event in partnership with Greater Boston Chamber of Commerce.
Publish market-specific versions of small business surveys.
These surveys enable banks to highlight their presence in and commitment to particular markets. In addition, market-specific findings can be leveraged by small business bankers to engage with small business owners in these markets. Banks that have recently published market-specific versions of small business surveys include Bank of America, PNC and U.S. Bank.
To develop and implement an effective small business-focused local market strategy, banks need to:
Identify and profile key local markets (including the bank’s in-market presence and competitive environment, as well as the size and composition of the small business market)
Prioritize the markets for targeting
Tailor marketing programs based on goals and local market conditions
Gain input and buy-in from key local stakeholders, including branch managers and in-branch small business specialists
Track campaign performance, and distill learnings for use in other local markets and future campaigns
Most leading U.S. credit card issuers reported relatively strong y/y growth in outstandings in the first quarter of 2018.
Breaking these growth rates out by FICO Score segment, we see that issuers generated growth across multiple FICO Score categories.
There are important differences in the FICO composition of card portfolios. The <660 FICO Score segment accounted for 34% of Capital One’s portfolio, a much higher percentage than other issuers, such as Fifth Third (3%), Chase (7%), KeyBank (11%), Citi (16%) and Discover (19%).
Among the largest issuers, one of the most notable trends was strong growth in the low-prime/sub-prime and super-prime segments, but low/no growth in their prime portfolio. Bank of America grew its sub-prime (<620) outstandings by 6% and its super-prime (>720) increased 8%. However, its loan portfolio held by consumers with FICO scores between 620 and 739 only increased by 2%.
Most regional bank card issuers (such as PNC, SunTrust and Regions) reported strong growth in their sub-prime and near-prime portfolios. Fifth Third’s <660 FICO Score portfolio rose 43%, but this category only accounts for 3% of the bank’s credit card portfolio, so growth was from a very low base.
As issuers enjoy strong growth in their credit card outstandings—especially for sub-prime and near-prime consumer segments—it is worth noting that charge-offs are also on the increase. Most issuers reported double-digit y/y basis-point growth in their credit card net charge-off rates. Four of the 12 issuers below now have charge-off rates of more than 4%, and only one (American Express) has a charge-off rate of less than 3%.
So, while issuers want to grow credit card loans across the FICO Score spectrum, they need to ensure that various functions are all calibrated to ensure that cardholder delinquencies and charge-offs remain at manageable levels. These functions include:
Marketing: targeting, offer development, and messaging
Pricing: fees and APRs need to be set at levels that balance cardholder ability to pay with an appropriate margin to offset potentially higher charge offs
Customer support: onboarding, financial education, as well as early engagement in cases where cardholders experience payment challenges