Capital Services plans to begin offering its internally-used suite of payments, consumer and portfolio management tools to a broad market of financial players.
"Credit cards are a valuable component of business and banking structure, and a lot of people don't know how to manage them well," says Chuck Hendrickson, CEO of Capital Services.
The Sioux Falls, S.D.-based company has traditionally deployed its profitability analysis, transaction processing and data management tools only at card-issuing banks owned by its parent company, the Farrar Banking Group. These include First Savings Bank in South Dakota and First National Bank in Minnesota.
Capital Services' ViPR (Vintage Profitability Reporting) tool captures consumer response rates, utilization, loss rates, delinquency, revenue, expenses, accounting treatments and other information tied to card performance.
It uses ViPR and other technology to analyze historical and current card usage in context with income and cost to the issuer.
"People in the payments business talk about the nuances that are introduced by mobile and digital coupons and all of those things. But in the card business, if you are managing a portfolio, the actual costs mirror what you pay and what you get back, as well the effects of managing attrition," he says. "Those fundamentals haven't changed."
Capital Services' analysis is used to produce profitability scorecards. These scorecards predict which consumers are most likely to utilize a payment product, respond to a marketing program or a special offer. The card issuer can then use that scorecard to help customer segmentation, sales, marketing or customer service, Hendrickson says.
"It's like having someone who drives the car versus someone who just makes the engine," Hendrickson says.
By selling its tools to banks outside the network of Farrar-owned financial institutions, Capital Services is attempting to bridge what it sees as a gap between payments data and how that data relates to a card issuer's overall financial performance.
"In the credit card business the platforms don't have the financial reporting capabilities that other systems in conventional banking have," Hendrickson says.
Capital Services is making an unusual move by selling payments analysis technology to its parent's competitors, but it's a good play given the power of the company's technology, says Jim Van Dyke, CEO of Javelin Strategy & Research.
"It is in a great position to do this. What they can bring to the table is vital information for a payment executive to be working from," Van Dyke says.
While there's a general reluctance in the payments and financial services industry to share customer segmentation models, Van Dyke says Capital Services is wise to market its product now before other players develop a competing offering.
"They have the capability to mine the data that says 'here is the ideal customer for certain products,' or 'here is what to look for in terms of fee-based services' such as travel cards or upgrades," Van Dyke says.
Solid predictive analysis is attractive as a way to manage the expense card issuers incur to develop and market payment products, he says.
The largest issuers will likely develop or enhance their own technology to perform advanced predictive analysis, though Capital Services should find a market among smaller institutions, Van Dyke says.
"If they go out to credit unions and regional banks, in the top 50 or 75 institutions, those guys should eat this up," he says.
Capital Services' technology would work best in concert with other predictive measurements, since there are still shortcomings in mining an issuer's own payments data by itself, Van Dyke says.