Despite its apparent value, both for customers and for banks, the credit card has not yet achieved its breakthrough in German-speaking countries. Most people are simply not aware of the wide range of benefits credit cards offer. Those benefits by far exceed the comfort of cashless payments for customers and additional revenues through the interchange fee for banks.
“Cash or credit?” – In many countries, this is the standard question when a customer asks to pay. Why is it then that the focus is firmly on “cash” in German-speaking countries? The reason for this is as mundane as it is shocking. There are simply no alternatives. While in the Anglo-Saxon countries almost everyone owns a credit card, in the DACH region, the figure is just about 40 percent. This is surprising, particularly considering the many advantages credit cards offer.
1. Liquidity, wherever and whenever you need it:
Credit cards offer freedom and flexibility. There’s no need to worry whether you have enough money in your wallet, no need to waste time withdrawing money from an ATM – you always have the ability to pay. In German-speaking countries, debit cards are often used to fulfill this need. However, traveling abroad poses a challenge, since debit cards are often not accepted. Credit cards, on the other hand, can be used almost everywhere. Moreover, deferred billing means it is even possible to pay when your account balance is low. As a result, it is less important to credit card owners whether their salary has actually been paid into their account, providing these customers with much more flexibility in terms of how they meet their payment obligations.
2. Everything travelers need:
“Premium” credit cards offer travelers a carefree package with insurance coverage included, taking yet another worry away. It doesn’t matter whether their luggage goes missing, their flight is canceled, or they have an accident abroad – with the right credit card, travelers are protected against virtually every eventuality. Purchased individually, these services would cost over 100 euros in total. Many platinum credit cards offer additional premium advantages – access to fast check-in lanes and exclusive airport lounges are particularly appealing to frequent flyers, who would otherwise have to pay a lot for this added value.
3. Exclusivity and status:
Besides travel benefits, various other advantages may be offered, depending on the credit card provider, such as tickets to special events or reduced green fees at selected golf courses. However, there is one motivating factor that is more important than almost any other – the desire for status. As cliché as it sounds, this is a fact. Many customers don’t buy a specific credit card for its objective added value – for many, it is simply about the color. Whether platinum, black, or gold, "premium” credit cards increase customers’ sense of self-worth. In addition to the objective benefits of credit cards, sales staff need to properly incorporate the idea of “status” in order to unlock its profit potential, steering customers away from “classic” cards to the more profitable “premium” credit cards. With so many advantages, it is necessary to ask: Why is the credit card penetration so low in German-speaking countries? And why is the active use of credit cards so low in comparison with Anglo-Saxon countries. Looking at retail banking, two factors stand out – the product current account and customer advisors.
In many ways, the credit card remains a peripheral product and isn’t a particular focus for advisors. Consequently, credit cards aren’t anchored in the minds of customers. Customers often aren't offered credit cards when they open a current account; instead, the product is hidden away on a long price list that is difficult for customers to decipher. Moreover, these price lists aren't typically provided unless the customer specifically requests one. During sales conversations, advisors are deterred from bringing up the subject of credit cards due to the seemingly complicated ordering processes or the tedious credit checks. Customers are insufficiently informed about the advantages of credit cards, or not at all. As a result, retail banks’ credit card penetration often lies around the 20-30 percent mark or lower. Significant potential to generate revenue through credit cards is therefore waiting to be tapped.
Three good reasons for banks to expand their credit card business
The solution isn’t complicated. Some banks already offer comprehensive account packages containing current account, credit card, and additional payment services as a bundle. This makes the product current account more attractive, while also increasing the penetration and active use of credit cards. Here are three key reasons why banks should sell more credit cards and encourage customers to actively use them:
1. Increased revenues:
Credit cards hold huge revenue potential, particularly in terms of turnover fees in the form of “interchange”. Here, corporate cards are highly attractive for banks, since there are no legal restrictions on interchange fees. The revenue potential from interchange fees isn’t solely dependent on credit card penetration but, in particular, on the extent to which customers actively use their cards. With rapid changes in the competitive and regulatory environment, the diversification of revenue sources is a subject that banks have to address.
2. Protection against rising costs:
In the last few years, even the DACH region has seen a clear trend away from cash to more card payments. Banks have deliberately steered customers toward using their debit cards much more frequently. This trend is expected to continue with a significant increase in small card payments at the point of sale. Debit card payments result in costs for banks. In order to shield themselves from significantly higher costs, banks should make a conscious decision to steer customer behavior toward using credit cards. This would mean that instead of a large number of transactions being made from customers’ accounts, there would only be one transaction, the payment to settle the credit card bill.
3. Customer loyalty:
The modern bank relationship is much more dynamic than in the past due to increasing competition. Following the introduction of PSD II, the danger of losing customers is high. However, credit card providers can use value-added services and attractive designs to speak to customers on an emotional level and foster loyalty. If customer demand isn't met, providers from other industries, such as Apple or Amazon, will enter the market. Developing attractive credit card offerings and increasing credit card penetration are the first steps for banks to secure long-lasting customer relationships. Cross-selling of other financial products can expand customers’ product portfolios further, reducing their likelihood to churn.
Credit cards offer various advantages, both for customers and for banks. As digitalization and mobile communication grow in importance – also in payments – credit cards must be recognized as key products for increasing customer loyalty and maintaining a successful monetization strategy over the long term. Credit card penetration can be promoted through a variety of initiatives. Attractive bonus programs make credit cards appealing to customers and value-selling tools such as product finders highlight the value of the service. Effective training for advisors and an overhauled sales process take credit cards from being peripheral products and establish them as an important part of the customer's financial portfolio. Bundling credit cards with accounts and other related products supports holistic sales approaches and increases cross-selling. Through measures such as these, and with the support of Simon-Kucher & Partners, numerous banks have been able to successfully increase their credit card penetration by up to 300 percent and have significantly improved the active usage level of their cards. It’s now time for banks to take the next steps to secure sustainable revenue streams for the future.