Jan 25, 2006

The iPod’s halo effect, and a possible parallel in the banking industry

You may have heard about the iPod’s “halo effect” by now, the notion that strong sales of iPods will spill over into sales of Macs. A Morgan Stanley survey found that 19% of PC iPod owners have purchased a Mac in the past year, double Wall Street's expectations of 10%. Going forward, the firm believes the conversion rate of the iPod customer base from PC to Mac could grow to 25%.

There may be something similar happening in the banking industry. When banks deploy cool new card products using chip technology for innovative marketing features, promotions and VIP services, we have seen indications that cardholders are more likely to be interested in the bank’s other products and services. One year after Akbank launched their Axess card in Turkey, they discovered that 59% of Axess cardholders were new to the bank, and two out of three of these new customers had also purchased other banking services. The financial impact was easily measurable. Akbank’s market share of consumer loans grew faster than the cardholder base thanks to higher card usage and, especially, strong cross selling of other bank products to new customers.

From a marketing perspective, this would suggest that banks migrating to EMV might be able to get better than average results out of a cross selling campaign that is scheduled at the same time.

Judging from the number of articles written in the general press and the amount of broadcast time spent on the evening news, smart cards generate a great deal of interest. A Google search for news in the UK on “chip and PIN” reveals over 100 articles published over a one month period when UK banks began massively replacing magnetic stripe cards with chip cards. There are a few examples at the end of this post.

Most of these articles have two things in common. They are heavily slanted to fraud, and they are not paid by banks. Lots of media attention exists around chip migration, much of it at no cost to banks. Since many of your competitors are primarily focused on EMV’s ability to combat fraud, you have an excellent opportunity to stand out from the crowd with a message built around “a new way to pay”. When your competitors launch EMV cards which only use the PIN code verification feature, and which are otherwise not very different from existing cards, you could end up attracting a larger portion of the free marketing buzz. The media has a strong desire to talk extensively about chip cards and your message will be much more exciting than your competitors’.

The window of opportunity only exists during EMV migration. Once migration is completed, the marketing buzz will move on to something new. If you launch with the same message as everyone else, then come back in a few months or a year with a new message promoting the full capabilities of your cards, it may be much harder to get lots of free publicity.

A sample of mainstream media articles on Chip and PIN in the UK:

“Retailers still not prepared for Chip and PIN. Thousands of retailers are calling for more time to adopt Chip and PIN guidelines, despite an extensive campaign by the government to boost awareness, a new report claims.” (The Register, October 29th, 2004)

“UK's chip-and-PIN rollout on schedule. Christmas will be first big trial for the technology, predicts analyst. The UK's chip-and-PIN rollout is on track to meet its December targets of issuing new cards to 36 million consumers and converting 636,000 tills. From January 1 2005, retailers that still accept customer's signatures instead of their PIN codes will be liable for any card fraud perpetrated by customers, rather than their banks.” (Computing, November 3rd, 2004)

“Is chip and PIN safe? Am I alone in being worried about the new Chip and Pin system? The new system seems to move the fraud liability from the banks to the retailers. But in fact it moves it from both the banks and the retailer and puts it completely on the customer.” (This Is Money, November 4th, 2004)

“Chip and PIN cards take off. Three-quarters of all cardholders now have at least one chip and PIN card in their wallet, according to figures released yesterday.” (The Scotsman, November 9th, 2004)

“’Tis the season to watch your wallet. Christmas is the time when criminals step up their activity around cash machines as customers queue to withdraw cash before going on shopping sprees and attending festivities and celebrations. Criminal attacks on the machines nearly doubled over the past year. Fraudulent withdrawals have risen by 85 per cent to £61m, making this the fastest-growing type of fraud in the UK. The widespread use of the new chip and pin cards, currently being rolled out, will make it impossible for card information to be copied.” (The Telegraph, November 17th, 2004)

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