A new report released today by management consultancy Arthur D. Little entitled “Tapping potential in Europe’s card market” has identified a huge opportunity for the European financial services industry.  While the number and volume of card transactions have increased globally at an annual rate of over 13 per cent, cash payments still constitute 80 per cent of total payments made in Europe. As such, there is clearly great potential for the continued expansion of the European card market – however, the report also emphasises that the card business has to address challenges arising from changing customer needs.
In its new report Arthur D. Little advises that for European card providers seeking further growth, maximizing the value they derive from customers and expanding the customer base will be key issues. Card providers can pursue increased customer value in three ways:

1. By retaining existing customers
2. By acquiring new customers
3. By targeting high-value customers

Retention top priority
Given the current economic situation and European consumers’ current strong preference for cash, Arthur D. Little recommends that card providers should make customer retention their prime focus.
"Cards are set to become the most important type of non-cash payment – in fact, card could soon overtake cash as the most widely used form of payment globally," said Dr. Gerrit Seidel, Managing Director and Global Head of Arthur D. Little’s Financial Services Practice. "However, while there is clearly a vast untapped card market out there, the industry in Europe must continue to innovate in order to also retain existing customers.  That means expanding popular reward programs, developing stronger links to banking services, and learning best practice from markets around the world."
The reward route
The report cites a number of examples of reward programs that have combined with banking services to provide benefits to customers beyond traditional points schemes. The Bank of America, for instance, has recruited over 5 million customers since the launch of its ‘Keep the Change’ card in October 2005, which enables cardholders to automatically transfer to a savings account the difference between the price of a purchase and the price rounded up to the nearest dollar.
Innovate to grow
The report also looks at ways in which card usage can be increased, and examines the growing convergence of credit and debit cards. It cites the emergence of ‘check cards’ in South Korea, one of the most advanced credit card markets in the world.  Check cards differ from credit cards in that payment is drawn directly from the cardholder’s checking account (like a debit card), but are similar in that they offer benefits such as discounts, air miles, cash back and monthly bill payment. As a result, South Korea has seen a rapid growth in the adoption of this type of card.
Finally, the report identifies some of the challenges that the European card industry faces.  For example, card issuers need to manage profitability effectively and build strong, professional relationships with merchants, requiring effective cooperation with operating companies such as VISA and MasterCard. In order to convert more cash payments into card payments, issuers must also continue to persuade consumers that cards are secure and convenient.
Tapping potential in Europe’s card market is now available for download at