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Innovative Strategies for Dealing with No-Longer-Profitable Consumers (U.S.)

By Theodore Iacobuzio

While many in the industry favor raising fees and reducing costs, banks may have a viable path forward by innovating their way back to profitability.

These innovations can result from taking a fresh look at products that until now have not gained traction with banks, such as prepaid or charge cards. They can also come from new business models that utilize web-based delivery, relationship rather than product-level profitability measurement, and value-added partnerships. Segmenting customers based on a combination of their needs and their contribution to bank profitability is the mechanism that would allow banks to determine which customers are profitable, which have the potential to be profitable if they can be persuaded to change their behavior, and which they should choose to let go.

1. Throughout this paper, we have included assumptions about the impact of the Durbin Amendment and Regulation E. These are among many possible scenarios and in no way reflect MasterCard’s position on the final impact of these regulations, as to draw conclusions while outcomes are still being shaped by regulators, as well as by consumer behavior, would be premature.

Forty Percent of U.S. Households May No Longer Be Profitable for Banks
Impact of Overdraft Fees Decreasing by 30 Percent and Debit Interchange Revenue Decreasing by 50 Percent

Sources: Federal Reserve Bank of St. Louis, 6/30/2010; Federal Reserve Survey of Consumer Finances, 2007; Lightspeed Research, 2010; FDIC Study of Deposit Overdraft Programs; U.S. Census. MasterCard Analysis.