TRK ADVISORS ONLINE CARD SCHOOL. Session #2. Segmentation & Product Matching

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1 ONLINE CARD SCHOOL Session #2 Segmentation & Product Matching Timothy Kolk Timothy Kolk (603) May 2016

2 The Online Card School Purpose Provide market intelligence including performance trends, competitive events and market evolution. Build staff skills and expertise in managing your credit card program to growth, profitability and member value. Share proven tactical approaches and specific action items which you can use immediately. Design and provide fair and competitive products that your entire organization i can dli deliver with ihpride. Put you in a position to demonstrate your program s future potential ti and advocate for the resources you need. 2

3 Card Market Overview Brought to you by CO-OP Financial Services Think Ahead Apply Swiftly Scale Continuously Serving 50 Million Account Holders 3,500 Credit Unions 5,200 Shared Branches 30,000 ATMs

4 Logistics We target 60 minutes with Q&A after. Feel free to ask questions via the chat box during the session. We ll try to get to them on the fly if we can. Slides are available to download in your control panel under Handouts Sessions are being recorded and you will have access to the library throughout the year. Anyone from your organization can attend: one subscription covers all of your staff. 4

5 Session #1: Why Credit Card is Critical Loan Product Priorities (Success here lets you bring maximum value to your members) Growth Rates Accounts Activation Levels $ Balance per Account = Growth Drivers Yield (Revenue) Usually just APR BUT Not for credit card! Credit card has the best mix of all these elements. Credit Quality Charge off Frequency, $ Loss per Charge Off, Balance per Good Account = Credit Results Profitability Lots of Pieces (this is where heroes are made) 5

6 Session #1: Critical Points Credit card market is growing again (and banks are coming on strong) Credit risk iklevels l are spectacular (but maybe even better for banks) Yield is historically high and now rising (which is why rewards are getting richer) Best ROA of any loan product..by a lot (so everyone wants more) 6

7 Today s Session What we said today is all about: Too many credit card issuers let the tail wag the dog: they design products and then try to match them to their prospects. But in today s super competitive market it can be much more effective to first understand consumer behavior and desires, and then create products which meet those expectations. In this session we will explore how to segment your member base and then ensure that your card products are designed to appeal to individual segments. 7

8 Segmentation, Not One Answer It s Simple, Really Credit cards are a financial tool Like any tool, different people use it different ways Unfortunately, they aren t always honest about how they use it (even with themselves) It is up to you to figure out how they use it Only then can you develop your own set of tools to meet those varying expectations. For Credit Card: 10% creativity and 90% execution. 8

9 First View: Types of Cardholders Understand: Different Purposes for Card All Consumers High Risk Low Risk Declines Credit Users (Revolvers) Convenience Users (Transactors) 50%? 30%? 20%? What are your #s? 9

10 New Account Prospects: Basic Scheme Member Base This is one schematic that has proved useful to many of our clients Have Card No Card Too risky (for now) Possible Target What are your #s? (I m not joking, you need to know these #s) Convenience User Rate & fees irrelevant: access, rewards & benefits Credit User Everything matters! (Including making them feel right) 10

11 Existing Accounts: Basic Scheme Total Portfolio Inactive Active What are your #s? (Still not joking) Newly Long Term Revolver Transactor New(ish) Established New(ish) Established Low Balance High Balance Low Spend High Spend 11

12 Case Study/Walkthrough The Institution io $1B+ CU with 200,000 members and 30,000 card accounts Overall performance strong Looking to to best serve their members Card portfolio > $100 million Card profits are strong: 5% ROA Very fact based organization: opinions after facts Have internal evaluation and prioritization process 12

13 Case Study/Walkthrough First Step: Define & Gather Data Internal Card File: data on 30k cardholders Open date, line, rate, balance, purchase $, cash $ volumes, balance transfer $, interest t paid, fees paid, delinquency dli history, payment rate, status, t DQ, other products, Internal Member e File: ie data aaon 200k members e (incl. above) Member date, member duration, other loans, depository balances, debit transaction velocity, Raddon segmentation, Internal profitability measures, Acxiom segmentation, Occupation, Experian Data: On all members Credit score Income and Debt to Income to estimators Credit Card Use (TAPS): #, high credit lines, payment rate, type of use, and spend $ on other cards, 13

14 Case Study/Walkthrough The Raw Data Result A member level file for each and every member A profile of each for how much they use credit cards with you and how much with others An understanding if they are more likely to be a Revolver or Transactor An estimate of how many balances and how much spending is taking place on other cards From this, data can become information 14

15 Case Study/Walkthrough First Step: Get the Team Interested Millions $350 $300 $250 $200 $150 $100 $50 $0 Spend by Score Range: All Members Millions $120 $100 $80 $60 $40 $20 Balances by Score Range: All Members $ Bellco Credit Spend Union Other Spend Bellco Credit Balances Union Other Balances Showing how members needs are not being met can be pretty motivating! 15

16 Case Study/Walkthrough And who knows what else 30% Penetration Rates by Score Band 25% 20% 15% 10% 5% 0% Pen % Every situation has to follow it s own findings. 16

17 Case Study/Walkthrough Segmentation: Who Behaves How? Internal Data: Who has a card already? Internal Data: Those that t do, how used and how much? External Score Data: Who is too risky to consider? External Other Card Data: Do they have other cards? External Card Use Data: How used (Revolver/Transactor)? Start with a purpose and a roadmap, don t start with a pile of data and grab random pieces. 17

18 Total Member Base 200,000 No Credit Union Card 170,000 Has Credit Union Card 30,000 Note: 30,000 fall out due to no score or other issue Continued on next page Too Risky? 40,000 Risk OK 100,000 No Other Cards Has Other Cards 7,000 93,000 Credit User 40,000 Convenience User 53,000 High Use Low Use High Use Low Use 22,000 18,000 35,000 18,

19 Total Member Base 200,000 Has Credit Union Card 30,000 Inactive 10,000 Active 20,000 Long Time 6,000 Recent 4,000 Revolver 12,000 Transactor 8,000 No Other Cards 1,500 Has Other Cards 4,500 No Other Cards 1,000 Has Other Cards 3,000 Low Balance 3,000 High Bal. 9,000 High Use Low Use High Use Low Use Low Spend High Spend 3,000 1,500 1,500 1, , ,

20 Case Study/Walkthrough Once you know who, figure out how much External data can provide spend on other cards (TAPS) Estimate balances based on use type and other factors For each bucket you can figure out how much activity i you don t have Guides efforts to highest opportunity/priority: marketing, promotional campaigns, product design 20

21 Total Member Base 200,000 No Credit Union Card 170,000 Has Credit Union Card 30,000 Note: 30,000 fall out due to no score or other issue Continued on next page Too Risky? 40,000 $200MM in Spend $100MM in Bal. Risk OK 100,000 No Other Cards Has Other Cards 7,000 93,000 Credit User 40,000 Convenience User 53,000 High Use 22,000 $700MM Spend $600MM Bal. Low Use 18,000 $50MM Spend $40MM Bal. High Use 35,000 $1.2B Spend $200MM in Bal. Low Use 18,000 $60MM Spend $100MM Bal. 21

22 Total Member Base 200,000 Has Credit Union Card 30,000 Inactive 10,000 Active 20,000 Long Time 6,000 Recent 4,000 Revolver 12,000 Transactor 8,000 No Other Cards 1,500 Has Other Cards 4,500 No Other Cards 1,000 Has Other Cards 3,000 Low Balance 3,000 $20MM Spend $16MM Bal High Bal. 9,000 $80MM Spend $60MM Bal High Use 3,000 $100MM Spend $80MM Bal Low Use 1,500 $6MM Spend $5MM Bal High Use 1,500 $50MM Spend $40MM Bal Low Use 1,500 $5MM Spend $3MM Bal Low Spend 6,000 $60MM Spend $8MM Bal High Spend 2,000 $20MM Spend $3MM Bal 22 22

23 Case Study/Walkthrough This Then Focuses Action This issuer figured out that their weakest performance and greatest opportunity was in high end spenders Redeveloped reward program Introducing a Signature product: higher interchange, richer rewards After decades of incenting on rate, migrating some promotions to spend Also have an opportunity to build balances in mid range CLIP program Focused balance transfer work (with better efficiencies) Reviewing underwriting policy for mid range accounts Exploring deepening approval criteria on a test basis Populated MIF and front line systems with likely product match/suggestion 23

24 Many Many Many Many Benefits* The Obvious: Product set is developed d with the end in mind Members get a value proposition they care about Portfolio balance and spend growth is improved You improve your competitive position against large bank offers The Sort of Obvious Marketing $ are better focused Better campaign ROIs Program management disciplines improve overall The Intangible (but you know what I mean) Management stops asking Why are we doing this again? and then offering their own opinions based on their own biases Management starts asking What comes next? How is that going? * There are a whole lot of benefits! 24

25 This In Just One Approach Other Segments e Ae Are Possible You may be focused on demographic segments in overall strategy: cross index those with card use/behavior Affinity Programs: A type of segment with a different value proposition expectation Underserved or credit rebuilder segments are viable Staff! New members (first, best chance to get them be aggressive) Always start with How does this segment use this tool? 25

26 Then You Get to Have Fun Matching Proposition to Segment Segment Examples Proposition (examples) Revolver/Credit User Rate (Intro, BT, Special period); Refund of interest; Points on BTs Transactors Point bonuses (3/2/1, 2x for holidays, 5000 after 20 purchases ) Affinity College gear, special access, points auction for events Valued demographic 25 50% point bonus above base level every quarter Millennial Low threshold rewards; Budgeting/info tools Credit builder Interest refund with prompt payment; Product graduation Inactives Points, No fee BT with great rate (depends on use elsewhere) New members Great BT rate and duration if you Cut up other cards Mature Promo gift cards for Dunkin Donuts/Starbucks/Etc Employees Best rate and rewards; pay incentives in reward points... stop rushing to the next problem and have fun with this Knowing your card program profitability and what you can afford is pretty important (see you next time!) 26

27 Everything Has to Come Back to This Loan Product Priorities Growth Rates More new accounts More active accounts More spend Increased balances Better retention Yield (Revenue) Gather balances = more interest revenue Gather spend = more interchange This work hits every critical need of a successful loan product. Credit Quality Attracting high quality balances lowers credit loss rates. Profitability Smarter spending Growing revenues Better expense leverage Improved Net Income 27

28 SOFI: Segmentation on Steroids 28

29 SOFI: Sound (sorta) familiar? 29

30 2016 Sessions March 17 May 19 CARD MARKET OVERVIEW MATCHING PRODUCTS TO SEGMENTS June 30 DESIGNING PROGRAM REPORTING FOR SUCCESS Sept 1 BUILDING YOUR 2017 CREDIT CARD PLAN Nov 17 LOOKING BEYOND TODAY (GUEST?) 30

31 2016 Sessions THANK YOU Questions Welcome: (603) Survey Follows 31