City National Bank’s MasterCard Gold
How City National Bank improved its debit card penetration rate from less than 20% to more than 75% in fewer than eighteen months.
In early 2002, City National Bank of West Virginia, a $2 billion bank based in Charleston, West Virginia, made the strategic decision to upgrade their debit card program. As part of the program, the bank converted from Visa Classic cards to MasterCard Gold cards. Bank customers were excited to get their new, “upgraded” cards and began to use the cards more frequently and for larger purchases. As a result, the conversion was a huge success.
As part of the new program, City National Bank has made a concerted effort to track the portfolio performance every month. “The three primary areas we have established for measurement are penetration, activation, and utilization,” says Bill Butcher, City National Bank’s Executive Vice President. “Our first goal was to get the cards into people’s hands,” says Butcher, “then we would focus on improving the usage rates, and finally work toward educating customers who had never activated their cards.”
In the eighteen months since City National began to focus on its debit card program, penetration rates have improved from below 20% to more than 75%, with 90% penetration on new account openings.
City
National Bank’s MasterCard Gold
Prior to the focused debit card program, City National had no way to track its debit card usage. “We estimated that usage was about 3 to 4 per month per card,” says Butcher, “but we had no reliable way to track it.”
While City National’s penetration, activation, and utilization rates are now measurable and measured, the bank is more pleased with the income it has generated. The bank’s interchange income is up more than tenfold from the same period 18 months ago.
City National Bank’s debit card program succeeded primarily because of its streamlined management strategy focus. Four keys to the success of the program included
“Bill’s strength is in tactical execution of a good strategic plan,” says Laurie Peters, Senior Consultant and Manager of the Brintech Connection, who has worked closely with Butcher and City National Bank. “Bill’s strategic focus allowed City National’s program to be such a viable and immediate success.”
Researching the Options. “One of the reasons that City National was so successful with this specific program was its thorough product and market research,” says Tom Gerry, Senior Consultant at Brintech who has also worked with City National Bank in the past year. Butcher spent significant time educating himself about the industry options and talking to consultants and bankers who had experience with similar programs. “I really wanted answers to the basic questions,” recalls Butcher. “Specifically, what works, what works well, what would you do differently?”
Planning a Strong Product Launch. “Once we decided to convert to the new MasterCard Gold product, we adopted a 30- to 60-day focus,” says Butcher. The bank made upwards of thirty thousand phone calls to customers without debit cards to sign them up under the new program. One of the drivers of the product launch was the employee incentive program, which amounted to $2 per card that teller and platform employees were able to convert. After one week of this incentive, the bank had between 15,000 and 20,000 customers sign up for the new card. “Basically we used a blitz mentality,” says Butcher. “Every customer who walked in the door was asked to sign up for the new card. We tripled, almost quadrupled, penetration within the first 30 to 45 days.”
Focusing on the Product. “Another primary strength that City National Bank has demonstrated with this and their other successful programs is their strong ability to focus,” says Peters. “Because the bank concentrates on one initiative at a time and achieves a high level of buy-in from its employees, their success rates are enormous.”
Butcher agrees that the focused management strategy has made the debit card program a success. “Retail is our focus,” he states. “We would rather be great at two or three things than good at ten.” Within its retail focus, City National Bank relies on a totally free checking product, home equity lines of credit, and ARM loans. The debit card, which has no annual fee or per-usage charge, complements the free checking product. City National Bank views the no-fee debit-card product as a natural extension of their totally free checking product, utilizing the attractive free checking to cross sell the bank’s profitable HELOC and ARM products.
Measuring and Tracking Daily. Another primary driver of the bank’s debit card program success lies in the strength of the management information systems that track and monitor the program on a daily basis. On any given day, managers can see the most recent penetration rates on new and existing accounts. The bank tracks the number of new applications and new accounts and the corresponding debit card penetration, then utilizes that information to coach front-line employees to increase the penetration, activation, and utilization rates. Rather than waiting until the end of the month to find a problem, City National Bank prefers to measure more frequently and address challenges as they occur. “This way,” says Butcher, “we can react to trends and changes in days versus weeks and months.”
In addition to the management information generated from the tracking reports, City National Bank also utilizes checklists at the front line. Each time a customer opens a new account, they are educated on strategies for using their new debit cards. “For example, our front-line employees provide the customers with typical utilization rates and places to use the debit card,” says Butcher, “along with ways to protect PIN numbers whenever possible.” The “customer coaching” is all part of City National Bank’s focus on increasing utilization of the debit card.
“We can react to trends and changes in days versus weeks or months.”
Perhaps the most important benefit that City National Bank has seen from their successful debit card program has been the clear competitive advantage that the program has given to the bank. “West Virginia is dominated by small community banks that don’t offer debit cards, and then a few super-regional banks that offer and charge for debit cards,” says Butcher. From a competitive standpoint, then, City National’s free checking/free debit card program has provided a great advantage.
Not only can the bank earn revenue on the debit card portfolio, but DDA deposits have increased 10% to 15% since the inception of the debit card program, and cross-sales of ARMs and HELOCs have also increased. “Any non interest income we would gain from charging for the debit card is far offset by the increased revenue and cross-sell opportunities we have gained by making the debit card a free service,” according to Butcher. Because of the limited growth potential within West Virginia, City National Bank’s management strategy focuses on attracting customers from competitors and then building the cross-sell opportunities with those customers.
Because of its success with the consumer debit card product, City National Bank’s next area of focus will be on business penetration rates. The bank has recently introduced a totally free business checking account and plans to promote that along with the business debit card in a blitz-like program similar to the one they adopted for the consumer product.
“We absolutely recommend this type of program for those banks with a similar business strategy and target market,” says Peters. “City National Bank’s streamlined management structure and focused, disciplined approach are what has made this program a success. We anticipate that other banks could adopt similar strategies with equal success.”