Balance transfer campaigns can be implemented by lenders to increase cardholder engagement. But, as See Tong Lim, Senior Analytics Consultant, points out, understanding your wallet share could mean the difference between running an effective campaign, or wasting time and resources. Let’s look at why wallet share can be so important to balance transfer campaigns, and how lenders can use data to help optimize their targeting methodologies.
The benefits of balance transfers
Balance transfer campaigns are a well-known tool for lenders to increase customer engagement. Providing a consumer with funds to pay down balances with another credit provider, is one strategy lenders can use to attract new customers and increase interest revenue over the longer term.
For consumers, a balance transfer could offer the convenience of debt consolidation and reduced interest payments. Some lenders may even allow consumers to deposit the funds into a bank account and may offer a low-rate promotional period. But despite the seemingly sure-fire recipe for success balance transfers offer, lenders may still struggle to improve campaign selection efficiency, grow revenue and increase customer engagement.
Why successful balance transfer campaigns can be tricky
There are a few possible reasons behind this, the main one being lenders may often neglect to fully understand what their wallet share of existing customers looks like, and how they stack up against competitors. Without a holistic view of consumer wallet share, lenders have no way of knowing whether they are targeting customers that appear to benefit from balance transfer offers.
Why lenders should always start with wallet share
In a recent TransUnion Canada case study, we observed that Canadian banks may only hold about 30-35% of their existing cardholders’ wallet shares. We also observed that some wallet share campaigns being conducted appeared to be targeting customers with profiles that are less likely to respond, to spend and to have a sticky balance. Without a more holistic view of their wallet share, banks appeared to be targeting candidates who:
- have lower off-bank balance (which provides reduced amounts for the bank to absorb)
- have lower off-bank utilization (cardholder may have a low appetite to spend)
- are predominantly transactors (balances are generally paid in full which makes them less profitable).
All of these factors could mean that bank balance transfer campaigns do not yield a more positive return on investment, and that their marketing efforts may be diluting their customer engagement.
Using algorithms to size wallet share
Regardless of the potential challenges, balance transfer campaigns may still offer opportunities to lenders that deploy them effectively.
Optimal targeting in these campaigns can be important for unleashing their potential. Our study suggests that the performance of a bank’s campaign could be enhanced by leveraging enriched data characteristics in the strategy design. Using algorithms themed around wallet share and revolver behaviour can assist with selecting a pool of eligible consumers with a tolerable credit risk trade-off which, as we saw in the study, could help increase profits more than three-fold.
By leveraging enriched and trended data characteristics themed around wallet share and revolver behaviour, such as ones offered by CreditVision® Algorithms, lenders can enhance balance transfer campaigns and continue to benefit from this customer engagement tool.