Optimizing the cardholder lifecycle part 3: usage

Key Takeaways

  • Optimizing usage will deliver outsized impacts on customer lifetime value (CLV) as this is the stage where the bank generally recoups acquisition costs and generates revenue.
  • Banks that leverage their mobile apps to intelligently target audiences based on needs, preferences, and situation will boost KPIs such as diverse category spend. 
  • Banks should proactively address credit card misalignment by identifying when a customer is ready for upsell and making them a targeted offer.
  • Because rewards redemption is a key indicator of commitment, satisfaction, and loyalty, banks should particularly emphasize timely reporting of points balances and nudges to reach rewards thresholds.

Usage is generally the stage of the cardholder lifecycle where the bank recoups acquisition costs and generates the most revenue. When a customer is fully onboarded and credit card usage is happening on a regular basis, banks enjoy steady revenue, especially if the customer has set profitable primary-card habits as discussed in my last post on activation and early month on book (EMOB). 

Banks that leverage bank-owned channels to engage customers regularly at this stage can see significant impact on CLV. Hyper-personalized campaigns delivered through the bank’s mobile app can build loyalty and stickiness at relatively low cost compared to third-party channels. By providing value beyond the transaction, banks create a tight value exchange that builds trust with the customer, who comes to feel that the bank knows them and their needs. 

This evolution also shifts banks away from running high-volume campaigns with low conversion rates toward providing meaningful, targeted experiences that reach fewer customers but convert a larger proportion of them. By communicating the right value to customers at the right time, banks will also reclaim mindshare from fintech and bigtech competitors that are increasingly disintermediating banks at the customer interface.

Increasing credit card usage through high-touch, contextual offers

While contextually intelligent one-to-one communication can address multiple goals, there are three in particular that banks should focus on during the usage phase.

1. Intelligently target audiences based on their needs, preferences, and unique situations to boost specific KPIs

Monitoring customer behavior is key to banks’ success during the usage phase. If their data is properly assembled, banks can look at high- and low-performing segments across multiple KPIs to identify opportunities to incentivize profitable behaviors with hyper-personalized campaigns. 

Drawing on contextual data such as a user’s activity or location can boost effectiveness even further. Just issuing “smart” nudges and recommendations — such as a list of partner retailers near the customer’s current location — without offering discounts or other customer incentives can raise spend by 5-10%, according to McKinsey. However, banks can get even greater results by targeting specific KPIs, such as:

  • Card on file with subscription services: Getting a card on file with a subscription service is one of the easiest ways to increase card stickiness, and contextual intelligence can help drive signups. For example, on a rainy Friday when people are likely to stay in, banks could push a tailored offer for a discounted Netflix subscription to cardholders with a history of purchasing movie tickets. Similar credit card incentives work for other subscription services like Spotify as well as order-ahead and delivery apps like Grubhub and Postmates.
  • Diverse category spend: Intelligent audience and situational targeting can help banks promote this key primary card behavior. For example, a bank might identify a segment of customers who spend regularly on groceries but never use their card for gas, even though these complementary spend categories often go hand-in-hand. The bank could create a campaign that will nudge the customer when they’re in a car on their way back from picking up groceries and happen to pass close to a gas station. For added incentive, the bank could offer double points back on any gas purchase that day. It could even offer a signup bonus if the customer adds the card to their gas app, making the card even stickier.
  • Frequency of use/use of contactless payment: Incentivizing card usage in a high-frequency consumption category is a straightforward way for banks to increase transactions. In addition, while it has low penetration in the U.S., contactless payment or “tap” is a high-engagement method of using the card, which pairs nicely with banks’ usage of the mobile app as a communication channel. For example, a bank could ping a customer whenever they pass by a tap-enabled quick-service restaurant — which is additionally valuable as a category since these small purchases are often paid for with cash. To improve results, the bank could gamify the experience by offering 5x points if the customer makes five tap purchases at quick-service restaurants over the course of one week. To keep the reward top of mind, the bank could periodically ping the customer to let them know how many purchases are left to unlock the reward.

2. Intelligently incentivize rewards redemption

Accumulating points on a credit card isn’t an indicator of customer loyalty and satisfaction unless they are redeemed. But today, simply having a rewards program is not enough to encourage redemption. Banks must leverage high-touch, bank-owned communication channels and properly assembled data to create differentiated loyalty programs that cater to the needs of individual customers. 

With intelligent audience and situational targeting, banks can ensure customers take full advantage of the rewards available to them based on their spending behaviors and lifestyle context. Communications that report timely rewards balances and/or notify the customer of being near a rewards redemption threshold will deliver particularly strong results.

For example, a cardholder might only need to spend $50 more on retail purchases to reach the minimum redemption threshold on their card. Their bank could then send a notification to the customer’s mobile phone when they’re close to a brick-and-mortar location of one of the bank’s retail partners. This strategy both encourages increased spend and builds loyalty and stickiness by encouraging reward redemption.

3. Proactively address card misalignment by identifying when a customer is ready for upsell

We’ll discuss the problem of misalignment in more depth in next week’s post on retention, but it’s relevant at the usage stage too. As customers’ life situations and spending habits evolve, it can create a mismatch between their needs and the rewards and fee structures of their credit card. This is an opportunity for banks to upsell a better-fit card — if they notice and address the potential misalignment in time. A 2017 Bain study found that half of customers who defected to other banks would have stayed if that bank had made a relevant offer.

If a bank notices signs of misalignment, it should respond proactively by drawing on various sources of data to offer the customer a more aligned product in the right place at the right time. Let’s say John is a recent college graduate with a basic credit card who begins receiving direct deposits to his checking account, a sign that he’s now earning a salary. At the same time, he starts to spend more on flights and hotels. 

His bank could proactively offer him a travel rewards card that he qualifies for, ideally when he’s at home and stationary with time to fill out an application. By offering a better aligned product before John begins to look for himself, the bank can avoid misalignment and increase CLV.

Building customer relationships for the long term

During the usage phase, banks must continuously engage customers to encourage profitable, primary-card behaviors; boost loyalty and stickiness; and proactively fight misalignment when a customer is ready for upsell. (Remember, half of all defectors could have been induced to stay with the right offer!)

To do this cost effectively and at scale, banks must leverage bank-owned channels such as a mobile app to cut through the noise and communicate directly with customers. By offering tailored credit card incentives at the right place and at the right time, banks can build trust with customers while also lifting CLV. They can also reduce churn, which we’ll discuss in more detail in next week’s blog post on retention.


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