News & Views - Savantor

Rate tarts flirt with banks but just end up sleeping with them

Tuesday, 01 March 2005

- Dormant credit card accounts cost issuers millions of pounds
and the problem is only set to increase -

Despite credit card issuance being at an all time high (almost 55 million in the UK - APACS), between 18-35% of these accounts are dormant.  This is a significant problem especially when you consider that each dormant credit cardholder costs the issuer in excess of £5 per year.

To address this issue, Savantor, one of the leading international experts in cards, payments, transaction processing and banking has developed the Activation, Retention or Closure (ARC) solution.  ARC is a fully managed end-to-end segmentation service that helps to reduce costs through the identification and closure of truly dormant accounts.  It can also identify accounts which have the potential to be reactivated through cross selling opportunities.

Geoffrey Down, Savantor's managing director, commented: "Increased competition encourages cardholders to shop around for the best deal.  These 'rate tarts,' will move from issuer to issuer swapping their outstanding balance to the next financial institution offering a similar or better rate.  They have no loyalty to their card provider and in many cases will not even be a customer in other product areas."

He added: "Each dormant cardholder costs the issuer around £5 a year. Costs are incurred through issuing plastic cards, statements and marketing information.  In addition to this cost, issuers are having to face the expense of rolling out Chip and PIN which costs in addition an average of £1 per customer. Continued dormancy can only hurt credit card issuers and with the cost of attracting new customers at around £130 each, retention and reactivation of customers' cards is the most profitable way forward."

Some issuers have made a unilateral decision to close all dormant accounts and so save costs. This, however, will normally be undertaken without any analysis of the reason as to why the account has become dormant. This type of 'one strategy fits all' approach has its dangers and may cause the issuer to lose customers by not taking into account the other relationships that the cardholder has with the issuer. Having won the customer, it would be a pity to lose the account simply because the card is not currently being used, possibly for the reason that the card holder is running an overdraft or has converted to a fixed period loan.

Geoffrey Down concluded: "The rate of dormancy is indicative of companies failing to provide the right service to their individual customers.  Our ARC programme has been designed to provide a customer focus and address the growing problem of account dormancy."

 

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