Page 4: Benefits of early market entry
Many charitable organisations, clubs and societies have a high proportion of their members who are securely employed and comparatively well paid, or comfortably placed in retirement.
A major benefit to Bank of Scotland from entering the affinity credit card market early was that it was able to have 'first pick’ and select good quality business.
Not all membership lists are equally desirable. Latecomers to the industry either have to prise good accounts away from established suppliers, find good untapped sources or settle for new business of inferior quality. From a bank’s point of view, a good credit card customer is one who:
- has a substantial and reliable source of income
- uses the credit card regularly
- makes substantial purchases using the card
- never defaults on the minimum monthly repayment
- regularly carries over a debit balance on which interest is chargeable
- never loses the card
- intends to honour the conditions attached to using the card
- is likely to stay with the product for at least four years.
Some affinity groups have a high proportion of members who meet all these criteria. Other groups produce less satisfactory customers, e.g. people who use their card too seldom to generate a profit for the bank, people who are habitual switchers and people who will either default or defraud. A bank that is looking to grow may be tempted to take on new credit card customers without paying sufficient attention to the probable profitability of the new business. Some business carries too high a risk.
Bank of Scotland operates rigid quality controls on new business. It is looking only for profitable growth. Identifying potential customers is one thing. Reaching them is quite another. In this respect, Bank of Scotland is particularly successful.