Credit Card Customer Retention

Benchmarking Study Results
by Zilvinas Bareisis, June 14, 2011
Operations/ Benchmarking
Global, Asia-Pacific, EMEA, Latin America, North America

Abstract

Customer retention is a critical activity for most financial institutions. However, as Celent’s and Oliver Wyman’s study of credit card issuers demonstrates, there is a considerable diversity in retention operational practices and performance results, with retention rates ranging from 10% to 50%.

In this report, Credit Card Customer Retention: Benchmarking Study Results, Celent explores customer retention performance and practices among ten credit card issuers and a UK bancassurance player. The study participants represent a diverse group of card issuers from the UK, Spain, and the US. They range from small to very large issuers, and include a mix of bank issuers and monolines, a finance division of a major UK retailer, and a consumer loans joint venture.

The study found that all participants were focused on reactive retention, with only 45% also engaged in proactive retention. While most deploy specialised resources, the degree to which the unit is dedicated to cards retention varies widely across the issuers. Likewise, there are important differences in the operational tools deployed by the issuers, such as decision-making aids, customer segmentation, save tools and agent incentives. Performance data is not always robust, and many issuers have only a qualitative understanding of the value of retention. One of the biggest improvement opportunities for most issuers is to ensure that "outlier" retention (e.g., written and "out-of-hours" requests for issuers geared up for an inbound retention model) is actively managed.

"The majority of credit card issuers have grown to appreciate the importance of customer retention," says Zilvinas Bareisis, Senior Analyst with Celent’s Banking Group and author of the report. "As a result, customer retention area is in transition with many respondents either actively changing their practices or recognising the opportunity to improve."

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

5

Customer Retention: Setting the Scene

8

 

Importance of Customer Retention

8

 

Defining Customer Retention

9

 

Reactive Retention: Two Prevalent Models

10

Reactive Retention: Customer Journey

13

 

Overview

13

 

Decision If Customer Is “For Retention”

14

 

Specialised Retention Unit

17

 

Customer Segmentation

23

 

Save Tools

26

 

Management Information Capture

29

 

Confirmation Letter and Retention Follow-Up

29

Retention Performance

31

 

Defining Retention Metrics

31

 

Retention Performance: The Results

32

 

Measuring the Retention Value

35

 

Agent Incentives and Compensation

36

Concluding Remarks

39

Celent Recommendations

41

Leveraging Celent’s Expertise

42

 

Analyst Access

42

 

Support for Financial Institutions

42

 

Support for Vendors

42

Related Celent Research

44

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