In an increasingly mature and complex market, Taipei Fubon Bank needed to accurately determine profit and loss data by customer and customer group so that it could lower operating costs and increase profits while maintaining its quality of service. The bank developed a customer profitability management system that provides in-depth information regarding cardholder spending patterns and profitability to build highly targeted marketing and retention programs. This system reduces costs by providing timely profit and loss management reports, thus speeding the marketing strategy adjustment decisions.
Since emerging from the consumer finance credit and debit card crisis in 2006, Taipei Fubon Bank, a subsidiary of Fubon Financial Holding Co., has emphasized customer profitability. Its Consumer Finance Division was the first in the company to implement a customer profitability management (CPM) system. This system extracts individual credit card transactions from a large database of complex customer transactions. The system then investigates each credit card transaction, analyzing the actual costs and profits by customer or customer group.
Consumer Transactions Reveal Spending Habits
Taipei Fubon Bank issues 25 different types of financial cards, including government purchase cards, Fubon credit cards, affinity cards and co-branded cards, from three major international organizations: Visa, MasterCard and JCB (Japan Credit Bureau). Through the bank’s activity-based costing system, profit and loss for each card type can be determined and group consumer spending patterns can be examined.
The Consumer Finance Division, however, wanted more information than just high-level cost reporting. It wanted to progress to the next level – to profitability reporting. Specifically, the division wanted detailed analysis of:
- Earnings by card type.
- Cardholder spending habits.
- Profitability by card type at the individual customer level.
Enter the new customer profitability management system. Drawing on both cost and revenue data at the transaction level, its first and primary output is a customer profitability ranking – by customer, group and customer within a group. Further analysis of the ranked data can sort and identify profitable customers by secondary demographic characteristics.
By performing an in-depth analysis at the transaction level, the customer profitability management system will accurately assess losses and profits for each individual customer or customer group. The staff can combine that information with the customer’s spending habits to allow product management to design highly focused, accurately targeted marketing plans aimed at increasing retention and growing the most profitable customer groups. This information can also be used internally for devising improved and appropriate cost strategies by group, channel and product.
Taipei Fubon’s new CPM system contributes to division-wide productivity through the delivery of as-needed reporting to the user’s custom Web portal. Depending on a user’s needs, the reporting may include customer spending habits, including food, clothing and travel; customer rankings by demographic criteria such as age and gender; or the profitability of co-branded cards by service channel.
Thorough Analysis, Better Business Decisions
The bank found that marketing practices previously implemented were not sustainable in the current economic climate. In the rush to compete for and acquire large customer bases, banks offered waves of special preferences to those with healthy credit. Tolerable under a less pressing financial environment, these preferential service offerings became a costly burden. Banks were presented with a challenge: They needed to lower operating costs while increasing profits and maintaining the quality of existing services to their valuable customers.
The new CPM system can analyze and describe the primary and secondary characteristics of the most and least profitable customer groups. This allows product management to target customer retention programs at the most profitable groups and focus on applicable cost strategies for the least profitable.
With CPM analysis, Fubon Bank’s Consumer Finance Division has gained a more in-depth perspective on the cost and profit relationship that exists between its customer and service offerings:
- Which services have costs that are too high in relation to the margin and profitability of the customer group in question?
- Which preferential treatment campaigns seem to be generating considerable revenue and high growth, but are actually producing lower than anticipated profits, or in some cases, a loss?
After using this system, Taipei Fubon Bank has adjusted the benefits and services offered to its cardholders, significantly improving division profitability. Backed by solid, verifiable and clean data, each step of Fubon Bank’s decision-making process is more accurate, leading to better decisions, faster.
Not only has the direct output of reporting and analysis from the CPM system had its desired impact on the business decisions of the marketing and service functions, but after just six months in operation, the CPM project team has become an example of best practices in the implementation and maintenance of information technology within the company.
SOURCE: Taipei Fubon Bank Uses Activity-Based Management to Build Customer Profitability