Last November, Wachovia (Charlotte, N.C.) announced it was going to re-enter the credit card business. This week, the financial institution is going live with these new offerings.
However, Wachovia is not planning on directly swooping down on the competition. According to Jennifer Darwin, a spokesperson for the bank, Wachovia intends to market its card product exclusively to its existing customer base. "This is our long-term strategy," says Darwin. "We're not interested in going outside our customer base. We have around 13 million customers. If we can capture 8 to 10 percent of their card spending, we feel we can produce the volume to become a top issuer."
Wachovia is hoping to capitalize on the strong relationships it has fostered with its current customers, along with the relatively lower risk they present to the bank since they are known entities, explains Darwin "Relationship customers are more profitable to the company," she says. "We understand the total picture of what those customers are doing with their money. It's a better risk to do more business with your relationship customers."
As such, Darwin does not expect Wachovia's foray into the card issuing business to dramatically change the balance of power in the space, short-term at least. "I don't know if we're competing with the other monoline issuers in the industry now," she relates. "We're just competing within our own market."
Wachovia originally maintained a relationship with MBNA on the issuing side until Bank of America announced last year it was purchasing the card company. Now Wachovia is on its own in terms of creating a card and service infrastructure. However, states Darwin, the bank is more than prepared.
Wachovia stipulated in its original contract that if MBNA were ever sold, it would have to pay Wachovia $100 million. That money certainly helped Wachovia's card efforts get off the ground, she relates. The bank is partnering with Total Systems on the back office side and is insourcing the call center and customer service end of the business. "We're leveraging our other business units and our scale for this," Darwin says. "We trained over 40,000 employees in the last three or four months to prepare for this rollout."
To appeal to its somewhat limited customer base, Darwin says the Wachovia cards will be very focused on customer relationship building. "This is important to us. It underlines our commitment to our customers." She explains that the bank developed its card business strategy by listening to customers and employees to see what they liked and disliked about credit cards. What Wachovia came up with was a plan designed to engender mutual trust between the bank and the customer. For example, Wachovia will waive late fees provided a customer was not delinquent three consecutive times in a year. The bank also will not use universal default pricing, a standard practice in the card industry that adjusts customers' pricing based on whether they defaulted on loans with other companies. "Wachovia won't do that as long as we see the customer has been living up to the spirit of the deal he or she has with us," Darwin states.
The bank also built a rewards platform that combines rewards on debit and credit cards for customers. Darwin says Wachovia is leveraging technology from Visa to accomplish this unified rewards program. In the end, Darwin states, Wachovia's card strategy is around providing more value-added services to its existing customers. "It's a unique value proposition we've created around optimizing customer relationships," she says.