Reward for playing your cards right

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Becoming consumers’ default payment option, particularly in digital wallets, is an increasing challenge as incumbents and newcomers alike try to keep pace with developments in technology

It’s convenient, quick and simple: having a default card that can be automatically used when you next shop online or pay a regular bill makes a consumer’s life much easier.

Research from Deloitte suggests this default choice already dominates online payments, and those made via apps and smartphones in shops, as 84 per cent of the digital payments made by participants in its study used this option.

The advantages for card providers of securing this position begin with interchange fees and revenue charges on transactions, but access to a rich pool of customer data is close behind, says Abhijit Deb, head of banking and financial services, UK and Ireland, for global technology consultancy Cognizant.

“They should harness this to provide an innovative and hyper-personalised customer experience, to differentiate them from the competition. The value of payments data as an additional revenue stream has not been lost on those outside financial services,” he says, adding that Google recently purchased Mastercard credit card data in the United States to track customers’ offline spending.

To get customers to switch their card to default, providers must compete with deep-rooted consumer behaviours and attitudes. The longer a card has been in the default position, the harder it is to get the consumer to change it, according to Deloitte’s research. Partnerships between retailers or utility companies and card providers could override this apathy.

Citibank has offered Amazon discounts to customers who made its card their default choice for oneclick purchasing, for example. “It’s about building customer stickiness and loyalty programmes. The more that you use the one card, the more you will get those offers,” says Paul Anning, partner at Osborne Clarke.

Deloitte’s research shows 70 per cent of payments made digitally with a default card were for discretionary rather than regular, recurring items such as bills. Issuers could, therefore, focus their marketing and customer acquisition and retention strategies on this behaviour. For more traditional card providers, however, offering incentives to just one group risks alienating the rest of their vast customer base.

To compete in this field, card issuers must focus on the digital forces shaping default payments. Digital wallets and mobile banks, such as Monzo and Starling, and mobile payments, such as Apple Pay and Samsung Pay, have been built with gathering and analysis of customer data in mind.

They can share more insights on spending and saving, off er more personalised discounts, and build trust and loyalty by helping them navigate their finances. On the providers’ side, more data analysis can improve fraud detection, which is another marketable benefit.

As newer players, they have the potential to grow with their customers’ needs and in response to emerging technologies, such as voice-activated assistants and increasingly frictionless payment.

Smartphones offer geolocation, which could help personalise rewards and discounts for using a default card, and increasingly the ability to identify a user optically or biometrically. Developing payment solutions in line with these existing and emerging mobile capabilities can offer ultimate convenience to customers, and give card providers competitive advantage in the digital wallet.

“Customers could send a picture of their marriage certificate to change to a joint account with a spouse or to update their new name,” explains Nick Lincoln, partner and Europe digital consulting head, banking and financial services, at professional services firm Genpact.

“There are lots of other documentation that using the phone camera could facilitate with the realtime optical character recognition it brings. Saving time and creating an ease of use increases loyalty, and encourages customers to select them as the default provider.”

Card providers can “use their topof-the-wallet status to become the customer’s ‘digital front door’ to a much wider ecosystem of services”, says Cognizant’s Mr Deb. Acting as a portal could encourage more of the same card on the same device, which generates more insight upon which providers can act, adds Mr Anning. “There’s a lot of interest in building things, but it always has to match what the customer wants and help them overcome painpoints in payment,” he says.

The use of default payments for online shopping and mobile payment apps and wallets is only expected to grow in coming years. Some long-standing providers, such as JPMorgan Chase, already provide customers with a mobile payment app with a reward scheme and discounts linked to repeat use. It hopes the size of its existing customer base will help it compete with the digital agility of newer players.

But, says Mr Lincoln, there is typically more talk than action when it comes to innovation. “Many organisations do not yet have the technological infrastructure and ability to test at scale to truly innovate,” he says. “They’re too dependent on Apple and Android Pay’s hegemony, as opposed to developing their own alternative services. Incumbent and challenger banks alike must prioritise functionality and put developing technologies, such as facial recognition and biometrics, to good use for their customers to improve the future of payments.”

If card providers don’t integrate existing technologies and anticipate new ones, and have the analytical capacity to understand the effect these will have on customers’ spending behaviour, they risk being left behind.

As originally seen in Future of Payments published by Raconteur Media on 25th September, 2018 in THE TIMES.

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