Visa Consulting & Analytics unveils strategies for banks to enhance customer retention and profitability amid digital evolution.
- The report reveals acquisition costs surpass those of retention, making retention crucial for financial institutions.
- Key phases identified: acquisition, activation, engagement, and retention, offering competitive advantages and relationship building.
- Digital channels disrupt acquisition; 25% of customers recently switched to digital-forward institutions.
- VCA emphasises early intervention to prevent attrition, highlighting that retaining customers is cost-efficient.
Visa Consulting & Analytics has released a comprehensive report focusing on optimal strategies for financial institutions to bolster customer retention and profitability within an evolving digital landscape. The insights are rooted in anonymised data from VisaNet, underlining the pivotal role of customer retention in augmenting banks’ profitability.
The report underscores that the expenses related to acquiring new customers often exceed those associated with retention. Acquiring customers entails substantial resource allocation, particularly in risk assessment, onboarding, and servicing, which underscores the value of retention as a cost-efficient strategy. In light of this, Visa stresses that enhancing customer retention is not merely beneficial but necessary for financial institutions.
Visa’s report delineates four cardinal phases of effective card portfolio management: acquisition, activation, engagement, and retention. Each phase furnishes distinct opportunities for financial institutions to strengthen their market position and solidify customer relationships. The report advocates for refined segmentation-based strategies and the utilisation of advanced digital channels to optimise customer engagement and acquisition.
The disruptive influence of digital channels on traditional customer acquisition processes is a notable focal point. A Visa-commissioned survey indicated that about 25% of consumers had recently transitioned to banks with strong digital capabilities. The report advises financial institutions to adopt deep segmentation-based acquisition strategies and exploit sophisticated digital onboarding channels to thrive in this new landscape.
VCA stresses that the initial 90 days following account opening hold critical importance in moulding cardholder behaviour. The report suggests that financial institutions need to allocate significant resources during this critical period, as current marketing budgets often inadequately cover it. To maximise engagement, it recommends emphasising profitable use cases such as high-value transactions and cross-border spending.
The importance of early intervention in reducing customer attrition is further highlighted by VCA. They estimate that the expense of acquiring a new customer is five times that of retaining an existing one. To proactively manage dormancy, financial institutions are advised to closely monitor spending patterns and promptly address any signs of decreasing activity. A case study within the report details how a ‘Flight Risk’ propensity model effectively identified high-risk cardholders, facilitating targeted campaigns that significantly boosted spending and retention.
Through strategic management of card portfolios, banks can significantly enhance customer retention, thereby ensuring sustained profitability.
