Update on Card Product Development Trends in Europe
While European countries vary substantially in terms of the level of market development, structure, and consumer demand, we have observed three key themes in recent card product development trends across Europe. Issuers are expanding their product offerings to the affluent segment, striving to enhance customer value propositions (although this will be complicated by forthcoming interchange regulation), and giving customers greater control over their finances. We examined each of these themes by reviewing the product offerings of representative European card issuers (see Figure 1).
Figure 1: Example European Card Products
Source: Card product websites.
Theme 1: Expansion in the affluent segment
Following the financial turmoil across Europe, resulting in increased capital requirements and more stringent underwriting regulations, issuers have launched new products targeted at affluent customers in order to reduce the credit risk in their portfolios. Typical attributes include 1% – 2% cash back on purchases (points programs are less prevalent, with the exception of co-brands), and annual fee waivers based on spend. For super-premium cardholders, concierge services, merchant discounts, and extra travel insurance are fairly standard.
Theme 2: Enhanced customer value propositions
As European credit cardholders have become more sophisticated and demanding of card products, issuers have responded with new products that promote simplicity, immediacy, personalization, and extra soft benefits. Many issuers have shifted rewards programs from points to cash back in order to simplify and better convey the value of the card to customers, however forthcoming decreases in interchange will likely cause many issuers to revisit their rewards strategies. Issuers are also examining card-linked merchant offers to reduce rewards costs while providing higher “headline” rewards, and simplifying their overall product sets to allow for straight-forward sales messaging. We have also observed examples of efforts to increase personalization (e.g., choose your own card image) and efforts to target merchant offers to specific segments.
Theme 3: Enabling more control over finances
In the face of economic uncertainty, customers are displaying more careful borrowing behavior, and issuers are responding with products that offer greater flexibility and control over personal finances via mechanisms such as installment payments, increased marketing of automatic repayment options (although this negatively impacts revolving rates) and combining debit and credit features in one product. We have not observed more complex budgeting and repayment features such as those exhibited by Chase’s Blueprint platform in the U.S., likely due to systems limitations.
Considerations for Issuers
As we noted in the September 2013 edition of the Navigator, interchange reductions will necessitate significant changes to European issuers’ product and marketing strategies via product set rationalization, reducing rewards costs, introducing merchant-funded rewards, commercializing data, and migrating small business users to commercial cards. Within this context, we have identified two general considerations for issuers based on our market scan:
Fit the product set to the strategy. Aligning the product set with the sales strategy is critical to driving sales and a positive initial customer experience. For example, issuers focused on selling through branches typically benefit from promoting fewer, clearly differentiated products. On the other hand, issuers that leverage direct channels can use a broader product set with more nuanced variations to target different segments.
Fit the product set to the target customer base. Segmenting the customer base by needs, preferences, and lifestyles can enable targeting the right customer with the right product. Additionally, incorporating meaningful product features (e.g., unique rewards, budgeting tools, customization, etc.) differentiates the offering from the competition and helps sales uptake. However, the level of product segmentation and breadth of product features can vary widely depending on the issuer’s scale and strategy – for many issuers, a product set consisting of an entry-level/basic product, a mass market product, and a premium/affluent product is sufficient.
Although the ultimate success of a product set and individual products will vary depending on the market, customer characteristics, and execution, we encourage European issuers to consider the product trends described above along with the importance of fit when considering responses to interchange reductions.
For more information, please contact Maria Popova, Associate, firstname.lastname@example.org, specializing in Credit Card Issuing.
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