Telecom & Wireless

Verizon Could Seriously Cut Customer Churn With New Credit Card Launch

Wireless carrier Verizon Communications Inc. (NYSE: VZ) on Monday announced a new Verizon Visa credit card for its wireless customers offering rewards (called Verizon Dollars) that can be used to purchase Verizon products or pay their monthly bills.

Verizon customers can apply for the new Visa card beginning on June 26. The card is being issued by Synchrony Financial (NYSE: SYF) and offers rewards of 4% on grocery and gasoline purchases, 3% on dining out, 2% on purchases at Verizon stores, and 1% on all other purchases.

The Verizon Visa card is an effort by the company to reduce what is known as its churn rate. That’s the monthly rate at which retail service is terminated by customers. Those customers are very likely going to sign up with another wireless carrier like T-Mobile US Inc. (NASDAQ: TMUS) or AT&T Inc. (NYSE: T). By one estimate, about 75% of the 17 to 20 million Americans who are signing up for a new wireless carrier every year are coming from another wireless carrier.

Last year, Verizon reported a wireless retail churn rate of 1.28% per month and ended the year with 94.5 million retail subscribers. That indicates that more than 1 million customers a month dropped Verizon as their carrier.

Fortunately for Verizon, it added 379,000 more customers than it lost last year. But it’s far cheaper to retain a customer than it is to troll for new ones, and the big wireless companies are constantly trolling for new customers. If a co-branded credit card can help Verizon lower its churn rate, it’s worth the cost and effort.

For Verizon, the new Visa card is practically risk-free. Synchrony, the card issuer, assumes the credit risk. The only real risk to Verizon is that very few customers will sign up for the card. The fewer who sign up, the less valuable the card is to Synchrony and Visa. And a low number of sign-ups is not a promising sign for lowering Verizon’s churn rate.

Verizon shares traded down about 0.4% in the early afternoon Monday, at $55.94 in a 52-week range of $48.84 to $62.22. The consensus 12-month price target on the stock is $60.20. Verizon’s dividend yield is 4.38%.