Visa Advises Banks on Card Portfolio Management

Visa Consulting & Analytics (VCA), a division of global payments technology company Visa, has released a report detailing best practices for financial institutions to maximise value through effective card portfolio management.

The report draws on anonymised data from VisaNet, Visa's electronic payments network, emphasising customer retention's importance in driving profitability for banks and other financial institutions.

According to VCA, customer acquisition costs often surpass those associated with retention. Newly acquired customers can be more resource-intensive, particularly in risk exposure calibration, onboarding and servicing requirements.

The report outlines four key phases of portfolio management: acquisition, activation, engagement and retention. Each phase presents opportunities for financial institutions to enhance their competitive advantage and strengthen customer relationships.

Digital transformation in customer acquisition

VCA's analysis reveals that digital channels are disrupting traditional customer acquisition processes. 

A Visa-commissioned survey found that approximately 25% of customers had recently switched banks, with half opting for digital banks or institutions with higher levels of digital maturity.

The report suggests that financial institutions should conduct deep, segmentation-based acquisition strategies and leverage mature digital channels for customer onboarding. VCA recommends using behavioural segmentation to assess customer needs and potential profitability levels.

“By analysing over 1,500 features across channel usage, spend geography, and spend category, we can generate a comprehensive view of customer profiles and develop micro-personas for prioritisation,” the report states.

Activation and engagement strategies

The first 90 days following account opening are critical in shaping cardholder behaviour, according to the report. 

VCA advises financial institutions to allocate sufficient resources to this crucial period, noting that many issuers currently dedicate only about one-fifth of their marketing budgets to the first three-month onboarding period.

To drive engagement, the report recommends that financial institutions focus on profitable use cases, such as high-value transactions, cross-border spending, instalment payments and card-on-file payments.

VCA suggests using data science techniques to target specific high-impact use cases effectively. For example, propensity models can help identify customers most likely to travel within the next three to six months, enabling issuers to target them ahead of the travel period and capture related spending.

Retention and attrition prevention

The report emphasises the importance of early intervention to prevent customer attrition. VCA estimates that acquiring a new customer is five times more expensive than retaining an existing one.

To manage dormancy proactively, the report advises financial institutions to monitor spending migration patterns. As soon as a customer shows signs of decreasing spending, banks can trigger an alert and intervene.

VCA cites a case study where they analysed an issuer's portfolio performance and created a ‘Flight Risk’ propensity model. 

The model identified approximately 30% of active cards as having a high risk of dormancy within the next six months. Targeted cohort campaigns to drive card usage led to an overall spending lift of more than 20% for these high-risk cardholders.

The report concludes by outlining how VCA can support financial institutions in improving their portfolio management practices. 

Services include providing insights into portfolio performance growth opportunities, evaluating and improving portfolio management practices, developing advanced models for segmentation and propensity, and assisting with the implementation of effective portfolio campaigns.

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