Key Performance Indicators, popularly known as KPIs, are very important in the evaluation of business performance on different levels. They basically represent a set of measures that focus on important aspects of business performance for the overall success of the business. KPIs in the credit world are invaluable for the following reasons:

• They help a business to stay focused on productivity.
• They give you an insight into the overall health of your portfolio.
• Through the generated data, you can get easy and actionable insights that will drive your business to profitability.

Why are KPIs important in a Credit Card Business?

There is so much risk-taking in a credit card business. Since companies are always at risk of losing a high amount of money, they have to constantly evaluate just how safe the business is. They also need to evaluate the information protection measures in order to improve their system stability and the security of the business.  For every financial institution, it is important to always evaluate its credit risk from the expected revenue and the expected loss. Every part of credit card processing needs to be gauged to track down how each operation has been occurring after a certain period of time.

With that in mind, here are top KPIs for your credit card business:

1. Customer Acquisition Cost (CAC)

This is the most popular metric in determining how well or otherwise a business is doing in relation to its overall performance. It is basically the length a business goes just to acquire a customer. This can be simply put as the cost of convincing a potential customer to buy your product. A business that goes a long way to acquire a single customer may take an equal amount of time or length to recover that cost. It’s important for a business to stay in line at all times in order not to derail its chances of enjoying quick profits. Keeping CAC as low as possible should be the goal of every credit card business. To determine your CAC, divide all the costs spent acquiring more customers (marketing expenses) by the number of customers you acquired within that period of time.

2. Churn

This KPI determines the rate at which you are keeping your customers using your products. This should be very important for any program manager in a credit card business. The churn rate should not be high; otherwise the program may not be sustainable. To keep it low, a business should devise ways through which they can keep customers using their products. What strategies can you use to give your clients enough reason to use the cards? Value added services as well as incentives and rewards have been seen to work very well. It will take a complete understanding of your clients’ needs to know what would keep them coming back for more. To determine your business’ churn rate, divide the number of customers you lose during a certain time frame, and then divide it by the total number of clients you had in the beginning.

3. Card Portfolio Growth Rate

How much your card portfolio is growing is important in determining whether your business is moving forward towards profitability or not. To calculate this rate, determine the number of your net cards (cards activated minus those that have been closed), and then divide the total by the active cards in your current portfolio. Your card portfolio growth rate can be higher if you manage to make the cards part of your customers’ everyday lifestyle so they depend on the cards. You could also think of ways through which you could minimize churn.

4. Cash Cost of Service Per Card

This will measure the total cost of servicing every card in relation to the amount of profits the cards are bringing to the business. The kinds of services considered here include processing fees, customer service, ATM & ACH Fees, compliance costs and fraud among others. The salaries and benefits of the service desk employees for instance, and the travel, training, and office supplies are some of the important considerations in this KPI. A business should always aim at reducing the overall servicing costs. If possible, mobile apps and use of business website can be used to reduce some costs such as customer support, so that most customers can use self-service tools and not fully rely on customer support. Use of the latest technology and customer training can also help reduce technology costs and more profits for the business.

5. Average Revenue Per Card (ARPC)

Instead of focusing on the cost of service, how about concentrating more on the average revenue each card is generating for the business? This is determined by the total gross revenue the entire program has brought divided by the total number of active cards or accounts. There are basically two types of ARPC: the new and the existing. To understand better how your program is working out, compare the ARPC of the existing accounts with that of the newer accounts. Note that if a customer has more than one account, the accounts will be combined and considered as one before the average revenue per card is determined. This is a very important KPI as it can be used to compare different accounts’ performance by months. It can also be used to find out how the program is progressing.

6. Average Margin per Card

This is the KPI to use to understand the overall state of accounts or cards in a program. This KPI uses important information such as the customer acquisition costs, the cost of service per card as well as the average revenue generated by each card to get the measure of the amount each card is bringing in as profits on average. To determine this average, the operating expenses are taken away from the operating revenue, and then the result is divided by the average number of accounts or cards. Credit card business should always aim for a higher average margin per card but if the expenses are higher than the revenue generated then the company may headed for tough times in the future. This is considered as one of the most important measures of program success as it includes the pricing, marketing strategies, budget cost and any other relevant information needed in the calculation of profits.

7. Net Promoter Index

This KPI uses customer satisfaction and loyalty in determining how good a program is for the business. To determine how loyal your customers are and whether or not they are satisfied with your products, find out how many of them would recommend your services or products to other potential users. The promoter index will be determined by subtracting the number of detractors from those of promoters. If your net promoter index is low, or you have more detractors than promoters, you can always boost it by giving your customers features that are relevant to their lifestyle. You can also use a client-centered approach, whereby everything on offer is based on their needs and preferences. This way, they can feel free to provide feedback about the product, and you can use that to better the program for their benefit.

8. Generating income for the Credit Card Business

With this KPI, it becomes easier to determine what activities must be in place to ensure that it is possible to generate income. There are three main criteria that are typically enforced and these include interchange fee, interest and other fees. Through these, the credit card business can become profitable. The interchange fee is one that must be charged if the business hopes to make any business as it is a transaction fee that the merchant anytime a credit or debit card is used. Consider it a handling cost to cover fraud and bad debt. Interest and other fees help cover the costs of offering the product, and are also key to helping one make profit.

9. Protection from Defaults

A significant risk of starting a credit card business is that there are those customers that might default on their loans. When a customer defaults, their payment becomes overdue, meaning that the payment was not made by the date it was expected. After some time, these are considered to be debt that the card issuer is no longer expected to fully honor. For protection, it is at this point that a credit reporting agency should be involved. The best KPI stipulates that the involvement should occur by the 90 day overdue point.

10. Charge-Offs

After there are defaults, the next step is the charge off. This is a KPI that captures the point when the outstanding debt is not likely to be paid at all. Normally, this would be after 120 days and the debt would be handed over to a debt collection service or sold to independent debt buyers.

CONCLUDING THOUGHTS

All these KPIs are in place for one main reason, and that is to manage the risks involved in the business. There is massive potential to make a loss, but if you are able to manage these top 10 KPIs, it becomes possible to have a highly profitable credit card business that can grow with ease.