Staying top of wallet in a digital world: it’s all in the data

The payments business is digitising faster than anyone could have expected – and the fight to stay at the top of consumer wallets is getting tougher, with new ways to pay constantly proliferating. But card issuers have a big advantage in this battle: the ability to understand transaction data can help them anticipate future needs, meet cardholder expectations and build better customer relationships.

Responsible data use

Transaction data gives card issuers rich insights into how, where and when people are spending their money, which retailer segments are growing in popularity and the effectiveness of promotional campaigns. When used ethically and responsibly, data can unlock opportunities and allow banks to offer the kind of tailored, bespoke solutions we have become accustomed to in other walks of life. “Data and the way it is used affects everyone; every data point is an element of someone’s life, someone’s business, something that really happened, so the use of data needs to be fair and ethical,” says Jessica Lennard, Senior Director of Global Data and AI Initiatives at Visa. “Now more than ever, we can use data to benefit economies, businesses and consumers.”

Rich detail

Click on a category label in the interactive graph below to view or hide its x-fold increase compared to pre-lockdown levels.

Much can be gleaned from taking an analytical approach to cardholder transactions. Looking in more detail at data from the UK & Ireland and across Europe using Visa analytics¹, some interesting trends emerged between January and October last year. In the first eight weeks of lockdown (February to April), the data shows online grocery shopping exploded by 70 percent, and it then remained at elevated levels through October, which suggests this is a trend that was beginning to stick. By contrast, the data reveals a very different trend for online orders from restaurants. Two months after Europe went into lockdown, spending in this category had actually decreased, before rising over the following months to record a rise of 80 percent versus pre-lockdown levels by October. A third trend the data reveals is an increase in sales on home improvement products. Confined to their homes, people spent 30 percent more on DIY in the early months of lockdown, compared to February. And then as summer allowed us to venture out more, spending shot up further. By July, home improvement spending was 60 percent higher than pre-lockdown levels – where it remained through the autumn.

Estimates from McKinsey & Company suggest that 40 percent of US consumers tried online shopping for the first time in the first six months of the pandemic²: some issuers were able to identify customers new to digital, and provide help and assurance as these cardholders navigated their first online shopping experience. Moves like this boost card usage – and enhance customer loyalty to the card product at a time when other options are growing in popularity

Shifting priorities

The current pandemic has also seen people change their shopping habits as their circumstances alter. In August 2020, the Europe-wide unemployment rate stood at 7.4 percent, compared with 6.6 percent less than a year earlier³. Such changes in financial circumstances cause a shift in how people spend money, including a move from shopping for rewards to shopping for value. The European Head of Visa Consulting and Analytics, Claudio Di Nella, says this can also have an effect on the payment method used: “Being attentive to changes in customer behaviour and being able to anticipate and address these shifts can propel a card to the top of a customer’s wallet. For example, by sending a timely reminder about zero-liability online shopping, or waiving foreign exchance fees before a trip, banks can target specific use cases and establish themselves as the ‘go to’ provider.”

There’s no doubt that being “top of wallet” matters. Analysis from Visa Consulting and Analytics (VCA) shows most issuers lose this status with between 10 and 25 percent of cardholders every year. Given that consumers will spend four times more with their top of wallet choice than other payment methods, this represents a significant drop in revenue.⁴

Visa’s analysis adds that losing top of wallet status can lead to cardholder inactivity, which ends in around 40 percent of customers being lost to other banks or payment methods.⁵

Di Nella says analytics can act as an early warning system when customers might be about to switch provider or payment method: “By tracking the frequency, volume and categories of spending, we can see where customers are reducing or increasing their use of certain payment products, including where and how they spend. Issuers can then develop loyalty and retention campaigns that foster loyalty and grow spending with their products.”

According to Di Nella and the VCA team, there are two ways to deploy engagement tracking across a card portfolio: a diagnostic approach to monitor the changes in customer spending patterns, and the predictive approach, which can analyse consumer engagement levels and can predict changes in behaviour. Both are recommended in developing long-term customer relationships.

Data science tools and techniques like predictive analytics and machine learning can deliver huge value to businesses and the customers they serve. But, as with anything involving data, the approach should be underpinned by a deep respect for privacy and a concerted focus on ensuring models are fair, explainable, and accurate.

All change: the arrival of open banking

As we come to grips with the fallout from COVID-19, the extent to which we’ve entered a new payments landscape will become apparent. Alongside the widely-understood shift to online payment, we’ll see open banking start to become a reality. This will mean continued growth in mobile wallets and alternative payments methods such as account-to-account, QR code and peer-to-peer (P2P) transactions. And the players involved won’t just be banks, but also big tech, retail chains, FinTechs and digital-only “neobanks” – all of whom will be fighting to grow market share.

In such a competitive environment, banks need to offer customers more personalised products and services to survive. New research from Deloitte suggests less than a third of the UK’s retail banks offer their customers any degree of personalised service, despite the fact that, as Deloitte Partner Margaret Doyle points out, “from a profitability point of view, connected customers are more than twice as valuable as satisfied customers.”⁶

Undertaking sophisticated analysis of how, where and why customers are spending is going to be central to success for issuers in the open banking environment. Accessing rich data from cardholder spending will help issuers to run highly-targeted usage campaigns focused on specific retail segments, identify current and future spending trends, and develop new, digital-first products.

As Di Nella puts it: “And let’s not forget that the challenge – and opportunity – presented by open banking lies right ahead. For banks, this means the delivery of best-in-class, customer-centric experiences based on value and convenience. And the first step in doing that is to think outside-in.”

“Payments provide a very rich source of information, and banks should be doing more with that information to protect and grow their business in tomorrow’s highly competitive market.”