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Engaging the disengaged: An inside look
at credit card customer behavior
Authors: Mayank Prakash, Amit Singh, Sanket Nerkar
Contributor: Michael J. McEvoy
Problem
Inactive credit card users are an
untapped opportunity for issuers.
Solution
Trigger-based marketing
can re-engage inactive
customer segments.
Figure 1
Time Period of Study
While financial services companies make huge
investments in acquiring new customers and
retaining existing ones, the less engaged/inactive
population represents a potentially large “undertapped” opportunity. And that opportunity is
particularly significant for highly competitive,
mature, developed markets.
As issuers develop their future marketing strategies,
they should consider analyzing their customer needs
and their portfolios to identify relevant triggers and
enhance their customer engagement strategies
accordingly. The potential gains to issuers for engaging
the currently disengaged makes this a potentially
profitable effort.
A recent study was conducted by MasterCard Advisors
across three such markets: Singapore, the UK and the
U.S. For a proportion of credit card customers, the
study found that a shift from a low level of spending
activity to that of “highly engaged” was a step change
that happened over a very short period of time. This
is counter to conventionally-held wisdom of a gradual
shift over time. The finding may imply that customers
are responsive to specific triggers, suggesting new
potential opportunities for banks to effectively engage
with their cardholder base.
Studying cardholder behavior
MasterCard Advisors, with its access to anonymous and
aggregated transactional data, recently conducted a
study across several markets to understand the change
in spend behavior as cardholders increase engagement
with their credit cards.
Anonymized card accounts were aggregated into one of
five usage segments — Very High, High, Medium, Low,
and Zero — based on the number of industries (i.e.,
Figure 1: Time Period of Study
Country
U.S.
UK
Singapore
2% MC (Debit + Credit)
sample data
5% MC (Debit + Credit)
sample data
5% MC (Debit + Credit)
sample data
Active Period
Jul–Sep 2013
Jul–Sep 2012
Jul–Sep 2012
Pre-Period
Oct–Dec 2013
Oct–Dec 2012
Oct–Dec 2012
Analysis Period
Jan–Sep 2014
Jan–Sep 2013
Jan–Sep 2013
Post-Period
Oct–Dec 2014
Oct–Dec 2013
Oct–Dec 2013
Pre-Migration Period
Jan–Dec 2013
Jan–Dec 2012
Jan–Dec 2012
Post-Migration Period
Oct 2014 onwards
Oct 2013–Sep 2014
Oct 2013–Sep 2014
Data
Source: MasterCard Advisors
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Figure 2
Figure 2: Major Time Segments Comprising the Overall Period of Study
Major Time
Segments Comprising
the Overall Period
of Study
Pre-Migration Period
Active Period
Pre-Period
Post-Migration Period
Analysis Period
Post-Period
Source: MasterCard Advisors
merchant categories) in which the spend occurred (1).
The analysis sought to develop a greater understanding
of the transition from low/inactive to a “High” level of
engagement.
To help remove potential bias related to a particular
geography, the analysis included three different
markets, namely the U.S., the UK and Singapore.
While geographically distant, all three markets are
highly developed and mature markets for credit cards.
For the analysis, spend behavior was analyzed over a
period of 2+ years (Figure 1). This period was divided
into three major parts (Figure 2): a) pre-migration
period, b) long study/analysis period, and c) postmigration period. Each card was segmented twice: once
in the pre-migration period and again in the postmigration period. The segment that was active before
the last 3 months of the pre-migration period was
included in the study.
It is worth noting that, from earlier studies by MasterCard
Advisors, the number of industries has been found to
more accurately represent “customer engagement” than
overall spending volumes or number of transactions. In
fact, it has been shown that as customer engagement
increases, the cardholder begins to use the card across
more diverse industries. Therefore, a “top of wallet”/
engaged card will typically be used for spending across
more industries compared to rarely used cards.
When customers migrate to a more engaged state,
they tend to remain there, spending more and
engaging across a broader range of merchant categories
b
Migrating cardholders most often stay in the “High”
usage segment once they move to it (Figure 3),
transacting across a broader, more diverse range of
industries (Figure 4). In addition, customers that
migrate to these more active customer segments
show increased activity in terms of average number
of transactions and average purchase volume
(Figure 4). The combined impact suggests a
more profitable portfolio for the card issuer.
c
Key finding: The fact that cardholders can
suddenly become highly engaged suggests
that “account triggers” may instigate the change
in customer behavior
The fact that shifts in customer behavior are typically
sudden suggests that there may be “trigger” events
influencing the cardholder — likely, issuer-activated
triggers. An example is a card issuer offering rewards
points to its cardholders if they spend in certain sectors
(e.g., restaurants and grocery stores) during the next
statement period. “Early month on book” strategies,
reactivation campaigns and category expansion
campaigns are all potential sources of triggers aimed
at influencing cardholder behavior.
Conclusion
The study gave rise to several important findings:
a
Disengaged/low engaged customer segments
move to a highly engaged stage in a step manner
(i.e., within a short period of time)
The study showed that, across all three markets,
disengaged/low engaged customers that move to a
highly engaged stage do so in a step manner (i.e.,
suddenly and within a short period of time, such as
several weeks — see Figure 3). This is contrary to a
more intuitive view that such transitions would happen
in a steady, progressive manner.
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Card issuers would do well to analyze the impact of
issuer-initiated triggers on cardholders and determine if
they account for the types of rapid shifts in cardholder
behavior highlighted by the study described in this
paper. If so, determining which triggers are effective
for particular card portfolios and markets would add
considerably to the understanding of customer behavior
and therefore would prove invaluable to card issuers
redesigning their marketing strategies. In addition, it
could potentially help issuers understand gaps in their
current “customer value proposition” and suggest new
products to keep customers more engaged.
2
To determine the “perfect” triggers would require
additional analysis of issuer data and customer
engagement programs. However, with the inactive
cardholder population a relatively untapped potential
source of growth in mature markets, the potential gains
to issuers for engaging the currently disengaged makes
this a wholly worthwhile endeavor.
Figure 3
Migration Path
from Inactive/Low
to High Segment
NOTES
1. The number of industries associated with a particular usage segment
designation was determined by local market conditions and therefore
varied by market; e.g., “Very High” card usage was defined as activity
in 12+ industry sectors in the U.S., 9+ sectors in the UK and 6+ sectors
in Singapore.
Figure 3: Migration Path from Inactive/Low to High Segment
(Average Number of Industries vs. Time Period)
United States
16
14
12
10
8
6
4
2
0
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
2
4
6
8
10
12
2
4
6
8
10
12
United Kingdom
9
8
7
6
5
4
3
2
1
0
-12
-10
-8
-6
-4
-2
0
Singapore
5.0
4.0
3.0
2.0
1.0
0
-12
-10
-8
-6
-4
-2
Note: Month zero in the chart is the month during
which the analysis period commences. The time period
0
in the chart runs from 12 months prior to 12 months
following the month in which the analysis period starts.
Source: MasterCard Advisors
Figure 4
Increase of Customer
Spending Across a
Broader Spectrum
of Industries Among
Customers that
Migrate to “High”
Card Usage Segment
Figure 4: Increase of Customer Spending Across a Broader Spectrum of Industries
Among Customers that Migrate to “High” Card Usage Segment
Metrics
U.S.
UK
Singapore
High Segment Definition
7–12 industries
4-9 industries
3-6 industries
Average Pre-period Spend
U.S. $500
U.S. $500
U.S. $500
Average Post-Period Spend
U.S. $2,000
U.S. $1,300
U.S. $800
Average Pre-Industry Count
3
2
2
Average Post-Industry Count
12
7
4
% of Customers Migrating from
Low/Zero to High Usage Segment
2%
1.7%
7.5%
Key Industries
• Eating places
• Auto fuel
• Grocery
• Grocery
• Eating places
• Auto fuel
• Eating places
• Grocery
• Department stores
Growth in Number of Transactions
in Key Industries
6-7 times
4-5 times
4 times
Source: MasterCard Advisors
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