Best Practice in Card Operations Credit, Debit and Prepaid

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1 Best Practice in Card Operations Credit, Debit and Prepaid

2 Best Practice in Card Operations Best Practice in Card Operations Credit, Debit and Prepaid ii

3 Contents Executive summary Introduction 10 The dimensions of the business 13 Level and type of issuance 15 Business or product 17 Chapter 1 Organisation Structure 20 Conceptual design 20 Personality 20 Existing structure 20 Planned business dimension 21 Management capabilities 21 Traditional versus non-traditional 23 Structure is designed to support process 23 By area 25 Finance 25 Accounting 26 Credit cycle 27 Customer service 28 Sales 29 Marketing 29 Human resources 29 Technology 30 Operations 30 The management team 30 Chapter 2 Outsourcing 32 Authority versus responsibility 32 Potential functions 34 The initial decision process 38 Vendor relations and management 39 Bring it back? 40 Chapter 3 The System and Technology 42 Build or buy 43 Outsourcing considerations 45 Why? 46 Who? 47 Issues 47 General attributes 48 Security 48 Controls 49 Authorisation limits and levels 49 vi iii

4 Best Practice in Card Operations Referrals 49 Linkage to existing CIF 49 Linkage to other bank systems 50 Historical data visibility 50 Automated logic 50 True self write and self analysis 51 Operational friendly screen content and navigation 51 Corporate account capabilities 51 General current product and future product support: 51 Design of the web site 52 Internet utilisation 52 Decision on parameters and modules 53 Parameters: 53 Modules. 54 Other technology 55 Telecommunications 55 The project 57 Testing 59 Chapter 4 Capacity Planning 62 Definition and design 62 Standard and non-standard processes 66 Key areas 68 Anticipated volumes 68 Daily usage 70 Planning and budgetary tool 72 Chapter 5 MIS Running and Measuring the Business 74 General 74 Typical financial data/mis 75 Revenue 76 Expense 76 Volume data/mis 77 Operational MIS 79 Using it 81 Chapter 6 Legal and Regulatory Considerations 84 Basic considerations 84 Some specifics 85 Some other specifics by area 87 Legal resource positioning 89 Ongoing change 89 Chapter 7 Procedure Creation 91 Who does it? 91 Style 92 The purpose 92 The users 92 The medium 93 Level of detail 93 Basic steps 93 Timing 96 Customer communication 97 Ongoing Flexibility 99 Chapter 8 Acquiring Staff and Training 101 Staff desirable attributes, by area 101 From the competition 108 Who hires? 109 Interviewing and testing 109 Training requirements, by key areas 111 The training responsibility 114 Chapter 9 Disaster Recovery 117 General 117 Disaster, degree of resource loss 119 iv

5 Table of Contents Asset protection 121 Backup facility 122 Appendix Building Social Responsibility into the Operation 125 Green Marketing 126 Carbon Footprints 128 Carbon Offsets 129 Action steps 131 Ethical Marketing Practices 131 Greenwashing 132 The Six Sins of Greenwashing 132 Marketing to college students 134 Robocalls 135 Action steps 135 Community Outreach 136 Action steps 137 Global outreach 137 Action steps 138 Affinity marketing 138 Action steps 140 Social awareness marketing 140 Action steps 143 Social Responsibility Trade-Offs 143 Sales vs. ethical marketing practices 144 Action steps 146 Donations to causes 146 Action steps 147 Using sustainable materials 147 Action steps 148 Marketing Messages 148 Action steps 149 Employee involvement programmes 150 Action steps 151 Environmental Issues 151 Using Recycled/Renewable Materials 152 Action steps 154 Paper 154 Action steps 155 Inks 156 Action steps 156 Biodegradable Credit Cards 156 Card manufacturing 157 Action steps 158 Environmentally Friendly Data Management 158 List/data hygiene 158 Segmentation and targeting 159 Opt-in/Opt-out 159 Improving deliverability of mail 160 Energy issues, challenges and considerations 161 Action steps 163 Market 163 Action steps 163 Recyclable and renewable 164 Action steps 164 Delivering socially responsible marketing messages 165 Branding Issues 165 Action steps 166 Believability Issues 167 Action steps 169 Delivering on your promise 169 Action steps 169 Publicising your message 170 Action steps 172 v

6 Best Practice in Card Operations Tables and figures Figure 1.1: Typical, traditional card functional business structure 22 Figure 1.2: Finance structure 25 Figure 1.3: Accounting structure 26 Figure 1.4: Credit cycle structure 27 Figure 1.5: Customer service structure 28 Figure 2.1: Structure and responsibility 33 Figure 2.2: Elements of changing the decision 39 Figure 3.1: Design of a simple credit card system. 45 Figure 3.2: Example of a system test script 60 Figure 4.1: Example of simple standard activity capacity plan layout 65 Figure 4.2: Expanded capacity plan 67 Figure 4.3: Capacity analysis productivity indicators 71 Figure 5.1: A simple internal MIS progression 75 Figure 5.2: Multiple month expense tracking 77 Figure 6.1: Legal involvement for changes 90 Figure 7.1: Procedure documentation 94 Figure 7.2: Timeline position of training 97 Figure 8.1: Key business areas operating and staff 102 Figure 8.2: The modern experience ladder 107 Figure 9.1: Simple resource impact description 118 Figure 9.2: Duration overlay 119 Figure 9.3: Impact analysis/basic plan response 120 vi

7 Executive Summary Operations Card products have traditionally been one of the most powerful tools for innovation and profitability in retail financial services. Combining consumer marketing skills, technology, credit-risk skills and innovation at a level not often witnessed in other banking products. Underpinioning these achievements in profitability and innovation is operational excellence. Having the right organisational support is critical to the successful launch and ongoing profitability of a card programme. This means having the right technology platforms, properly trained and knowledgeable employees, appropriate policies and procedures, and efficient back office support. Many card programmes have had solid products with appropriate promotional marketing, but have lacked proper operational support, making it difficult to effectively service a loyal cardholder base and negatively impacting overall profitability. This report lays out the key success factors for achieving operational excellence. It explores all of the issues which affect the success of a new card operation and the sustained efficiency of an established one. In reviewing the global development of cards, it is clear that three different market models exist. The focus of each model is different and leads to different outcomes when considering operational performance. The market models can be summarised as: 1. Adoption establish a card culture and infrastructure. 2. Growth sales driven approach. 3. Mature intense competition for borrowing or lending rates. vii

8 Best Practice in Card Operations It is difficult to adopt a product or service from one market phase and transfer directly to another for example using mature market products such as balance transfers in new markets is unlikely to be successful. Therefore this report explores operations in different contextsthe set up and the established operation. Recommendations will be offered that can provide a solid blueprint for establishing and maintaining a world class credit card operation. Increasing Competition Card companies are operating in evermore competitive and regulated environments, with the regulatory changes in mature card markets such as the United States and Australia an indication of the controls that could be set to follow in other markets. It is important therefore that card companies, build two factors into their organisational framework: A structure that allows for continuous innovation. Corporate Social Responsibility. Innovation Innovation offers a powerful strategic alternative providing superior profit returns and increased cardholder loyalty. Innovation theory has moved from the introduction of specific novel and useful ideas to the general organisational processes and procedures for generating, considering, and acting on innovative ideas leading to significant organisational improvements in terms of improved or new credit card products, services and/or internal processes. Innovation must be managed holistically and subjected to continual review by senior management. Successful innovation in credit card organisations usually has five key success factors: 1. Outstanding leadership across the organisation. 2. Innovative organisation values. 3. Communication is open. 4. Outstanding empowerment at all levels. 5. Knowledge management is seen as critical. While the common causes of failure within the innovation process in most card organisations can be summarised into five types: 1. Poor goal definition. 2. Poor alignment of actions to goals. 3. Poor participation in teams. 4. Poor monitoring of results. 5. Poor communication and access to information. viii

9 Executive Summary Corporate Social Responsibility Corporate social responsibility (CSR) in the card industry comprises seven broad categories: environmental sustainability, community/philanthropy, employee & workplace relations, fair and responsible lending, customer service & satisfaction, ethics & governance and diversity (across employee, executive, board and supplier levels). Although it is sometimes difficult to prove, corporate social responsibility is, without a doubt, a profitable investment. The primary objective of a card marketer s CSR effort is to generate value for shareholders, as measured by total shareholder return, and most card companies feel that CSR improves all relationships with all their constituent groups, which, in turn, helps them achieve their profitability goals. Operational best practices include setting achievable goals, maintaining the proper amount of resources to manage CSR projects and processes, aligning the company with the right standards organisations and then committing to their standards and guidelines, monitoring and measuring every detail, and doing it all by adding value to the bottom line. The cost of CSR varies based on the markets (and countries) a bank serves, the needs within those markets and the company size. Operating expenses cut across several departments, ranging from quality control to customer service, human resources, community relations and the diversity team even the board of directors. CSR can be attributed to overall budgets growing 25% or more in recent years. Some companies report that it can be responsible for half their costs. There are four broad components that must be considered to fully understand the cost of CSR: cash distributions (such as donations to charities), overhead, the cost of not doing enough and cost savings, which are offset to a degree by new business opportunities and revenue streams CSR creates. Metrics and measurement in a CSR programme Accurately measuring and reporting corporate social responsibility efforts is a definite challenge. Most card companies today are good at reporting front-end numbers such as money spent and energy used, and the majority are getting better at reporting year-over-year improvements, but few have the processes and procedures in place to follow the project s effects all the way to the bottom line. ix

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