As more Americans experience a loss of confidence in the economy, reduction in household wealth and shaky employment statuses, some credit card database managers claim their cardholders are keeping their credit in good standing.
In an economic slump, consumer-facing companies may be able to leverage the loyalty they’ve promoted and nurtured through rewards-program databases. It seems frequent, automated communications through database tools encourage responsibility from consumers who are familiar with the retailer. They may not generate many new sales, but the relationship may mean reliable revenue streams nonetheless.
“Co-branded credit cards have loss rates significantly lower than the industry average because people feel very good about those cards and maintain them in good standing,” said Steve Jacowitz, a director at Auriemma Consulting Group.
The Motiva database by Discover is one rewards database not built around a product marketer or retail brand. It is the only credit portfolio in the United States that offers its cardholders account savings for making minimum monthly payments. Perhaps that’s because cardholders in the Motiva portfolio tend to be those who want to keep on top of their finances and manage their credit better than the average American, said Julie Loeger, senior vice president of product management at Discover. They spend smarter, manage debt better and save more, she said.
Further, Discover cardholders are awarded an interest-free month if they have made regular minimum payments for the preceding six months. Through statement reminders about this award, Discover communicates with its database members at least monthly.
“We help consumers keep on top of their credit,’’ Loeger said.
Another Discover rewards program studies its database for common transactions by season and rewards cardholders in the portfolio with 5 percent cash back on purchases with businesses frequented at the particular time of year. In July, for example, gas station payments were eligible for cash-back bonuses, enabling consumers to commute to work and take summer road trips without fiscal concern in the face of record-high fuel prices.
Research from TowerGroup found that empathy through database communication and rewards yields improvements of up to 20 percent in prioritizing payment. But card issuers need not be as generous as Discover to acknowledge their customers’ current struggles with cash flow, said Brian Riley, research director of TowerGroup.
For example, while most credit card rewards programs fine consumers who do not make a payment within 90 days by taking away accumulated points, American Express has a process by which Membership Rewards earners may regain points once they have restored a reliable payment pattern.
For companies that are especially budget-strapped themselves, Riley suggests they search their databases for ZIP codes hit particularly hard by the recession, home foreclosures and industry-intensive layoffs. Then, they can offer rewards for responsible, regular payment behavior to customers only in those locations.
After all, now is the time for creative and flexible database management and credit policies.
Kelly Shermach is a freelance writer based in Chicago who frequently writes about technology and data security. She can be reached at editor (at) certmag (dot) com.