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George Albert

Dual-card products are a classic case of reverse engineering. The strategy, catching up in the UK and Australia, could well be a winner globally too.

IN early April, a press note announcing GE's first quarter results said that the company launched a pilot dual-card product with ASDA, a 270-store Wal-Mart subsidiary and one of the UK's fastest-growing chains. GE also launched another dual-card product in Australia. The announcements raised a lot of queries. What exactly are dual-cards? What are the benefits that it provides? How does the technology work?

Dual-card products are a classic case of reverse engineering. The strategy, catching up in the UK and Australia, could well be a winner globally too. Let's take an example for India. A petroleum major issues a private label card to pay solely for fuel purchases at its petrol pumps, where it also accepts other credit cards. However, it sees competition from other cards with a MasterCard or Visa logo for spends. It is also difficult to induce customers to retain the private label card, as it cannot be used outside BP outlets. Now, adding a MasterCard or VISA functionality to the BP card, allows for purchases not only at the specified petrol pumps, but also for other purchases and at several ATMs across the country. The technology driving the dual-card functionality also enables the company to retain customer information collected on its card to drive spends on the new, more powerful dual-card. GE did just that with the cards in UK and Australia.

GE Consumer Finance Australia and Coles Myer Ltd, a large retailer with over 1,900 stores in Australia and New Zealand, launched the dual-card for the Australian market in 2003. The card combined features of Coles Myer's existing private label credit card with MasterCard.

And the presence of the MasterCard logos meant that these cards would be accepted wherever MasterCard is accepted worldwide, and also be utilised at 890,000 ATMs. The card provides cardholders benefits typically associated with store cards such as interest-free offers on select purchases at Coles Myer stores of three, six and 12 months. Cardholders are also given a 10-per-cent-off voucher to be used when making any one transaction on the card at select Coles Myer stores.

The dual-card technology also enables the integration of loyalty points from the private label card to the new MasterCard-enabled plastic. For instance, Air India can continue to track mileage points on its Flying Returns card, even after a MasterCard logo is added.

Coles Myers too benefited on this front. FlyBuys, a joint venture between Coles Myer Ltd and National Australia Bank Limited, is one of Australia's largest consumer loyalty programs. Points earned on the program can be redeemed for more than 1,000 different awards including restaurant vouchers, flights and household appliances. Coles Myers cardholders with the FlyBuys option are able to earn points for eligible purchases anywhere MasterCard is accepted and also with purchases at participating Coles Myer stores. The Coles Myer Source Gold{trade} MasterCard with the FlyBuys option also offers gift reminders, advisory services, extended warranty and transit accident cover. The bundling is made possible by the dual-card technology.

This essentially means that the dual-card operates like a private label card inside the store and a regular MasterCard outside the store. The cardholder continues to use one card, with one PIN and one statement.

A win-win situation

The customer does not have to retain two cards — one store card and one credit card — and bother about the associated paperwork. The issuer is able to drive more spends through the card due to wider acceptability and increasing profits. With loyalty, purchase and other customer information derived from the private label card, the issuer is able to target the customer with better marketing campaigns. Also additional information gathered from out of store purchases, enables the store card issuer to have a better product mix.

As more transactions are routed through the card, the issuing bank gets better revenues on outstanding credit and increased processing fees from the card issuer. For instance, if Bank of Baroda issues the BP card, the bank will get more interest revenues and higher transaction fees as spends on the card increase.

Eventually, brand loyalty to a private-label is rewarded with more functionality.

Technology

Launching a dual-card involves connecting to the MasterCard or Visa's clearing system. This is made possible by the card-issuing bank. It also means putting in place a risk system to assess the credit worthiness of the cardholders. In India, it would mean connecting to the technology platform of say, Credit Information Bureau (India) Limited (CIBIL).

A good technology platform to run credit card processes should include a credit management system, a financial authorisation service, a transaction management system and a collection tracking system.

Though the dual card strategies are good for existing private label cards, if the label card issuer is a small player, additional functionality may not be cost-effective. Once the issuer grows business to a critical mass, dual-carding makes sense.

The author is a Chicago-based freelance writer and can be reached at geoalb@yahoo.com

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