March 22, 2013

As international consumer transaction habits evolve, savvy global financial institutions have discovered an untapped source of transactional revenue. Drawing from the lessons learned from consumer’s migration from paper and cash-based preferences to card-based transactions in the United States, some financial institutions are expressly tailoring their messages to foster these additional sources of revenue in other parts of the world.

Banks looking to increase their transaction revenue are well advised to consider the emerging markets of the Russian Federation and Eastern Europe. While there is growing use of debit cards in many of these countries, their use is not yet as ubiquitous as it is in the United States, and promises to be a growing opportunity as payment habits shift. Specifically, many Eastern Europeans are using debit cards exclusively for payroll deposit, while still relying on cash from demand deposit account (referred to as current accounts in these countries). As the ease-of-use, security and convenience of debit cards becomes better understood, their use for payments of all types is likely to increase.

This migration of payments from cash-based to debit-card based, offers tremendous revenue opportunities for Russian and Eastern European banks (and any global bank with a presence in these or similar markets). However, changing consumer spending habits is not necessarily easy, or without risks. This is especially so in cases where those changes may result in unexpected fees. Painful lessons were learned by those U.S. banks that chose to impose monthly debit card fees, and were quickly met by a back lash of social-media-fueled, irate customers before retreating.

Create a strategy for growing non-cash transaction revenue

To avoid similar missteps, and maximize the benefits of fostering the Eastern European market’s move away from cash and toward fee-based debit cards, financial institutions should have a strategy. Experian’s Global Consulting practice advises that this strategy include following three areas:

  • Segment Customer-- Analyze and segment consumer transaction behavior
  • Adapt U.S. debit card marketing -- Apply proven (and disproven) debit-card marketing strategies to other markets and adjust accordingly;
  • Develop geographic tests -- Implement and test marketing strategies tailored for specific locations, gauging their influence on consumer shifts from existing payment methods

This three-tiered approach ensures that resources are targeted to the most appropriate candidates, recognizes that these markets may differ from those in the U.S, and that whichever approach is taken, it is done so with measurable results.

Segmenting target audiences also ensures that marketing communications efforts are used most effectively. For example, there’s little point in directing messages to unprofitable consumer segments, or in regions still years away from widespread card use because of consumer distrust or inadequate payment network infrastructure. Nevertheless, recognizing which consumers are heavy ATM and cash users—while not profitable as debit card users— might be helpful when planning transaction fees for relevant services. This group might be charged a nominal fee for certain transaction services or offered fee-waive options for minimum debit card use. Meanwhile, more profitable customer segments might be incentivized to use their debit cards for purchases by means of rewards programs that link card transactions to a salary card.

Note that while the U.S. market has a robust payment network that allows payments with debit cards and credit at more than 1,300 ATMs and 17,000 point of sale (POS) terminals per million inhabitants, the Russian and Eastern European market is not yet that well established. Markets with developing payment system networks, like Russia, have far fewer with less than 400 ATMs and less than 2,000 POS terminals per million inhabitants.

Also, cultural differences should be clearly understood by relying on the local knowledge and experiences of both customers and company personnel within each country or region, with local debit card marketing programs and strategies customized accordingly as much as practical. Messages based on the types of purchases made, are more likely to appeal to prospective customers. If a card is viewed as a tool for luxury purchases—vodka caviar and jewelry for example—then a message of exclusivity might be appropriate. However, if it is discovered that debit cards are used more for convenience than extravagance, which is actually the case in many Russian cities, then messages stressing ease-of-use are likely strike the proper chord.

The shift to greater reliance on debit card transactions by consumers in the United States offers lessons for marketing these services to the emerging Russian and Eastern Europe markets. However, encouraging the migration of payments from cash to non-cash transactions is best accomplished by understanding which customers currently use non-cash payment products such as debit cards, how often they use them, and how much is spent with each transaction and targeting alike consumers to migrate payment behavior. This information is invaluable when planning targeted marketing initiatives. While there are new revenue opportunities for global financial services companies who provide card-based transaction products into these new markets, there are also perils to those providers who venture into these countries without a roadmap for success.

John Taylor is a senior business consultant with Experian's Global Consulting Practice