January 2009

Editors Letter
Our January US credit card statement
yields high interest, high anxiety. By Pat Atkinson

“Credit granting is far too lucrative for financial institutions to go out of the business,” Anne Brennan assured me when I contacted her to hear her perspective on the future of credit and debit card marketing—this month’s industry sector focus.

As a New York-based marketing consultant specializing in consumer financial services in the US, Europe and Asia, her focus is the development and execution of targeted direct marketing
programs designed to produce growth, create competitive advantage and increase profitability. Within her “platinum card” clientele are such international players as Visa Advisors Asia/Pacific, National
Australia Bank, Lotte Card, Hyundai card, ICICI bank, China Merchants Bank and Lloyds TSB. Prior to joining boutique consulting firm Future Vision Consulting and taking her career global, Ms. Brennan
held important roles in the credit card groups of Citigroup and JP Morgan Chase, two of the largest US financial institutions. Simply put, she knows her “plastics” and is a sought after speaker at industry
events in the US and Canada. She has also been a contributor to “Marketing Financial Products & Services,” a marketing handbook for financial services managers. Listening to her recount the litany of current market conditions affecting US credit card customers is a real eye opener:

Amex is already cutting lines of credit for small businesses. For individuals, issuers are reducing existing customers’ credit limits. Cap One has just increased minimum payments and Citibank has given notice that it’s going to do the same thing. I think this is all about financial institutions managing their exposure. They are saying, ‘You’re not a bad customer—you’re a good customer and we
want to keep you but we can’t afford to be so exposed to any one person. This is a follower’s
industry so if one player does it, the others will follow suit

Brennan says that fee revenue, by way of late payment charges, has also significantly increased in the US so issuers can raise late payers’ interest rates to near punitive levels. “If the consumer starts to look like he’s lost a job and is not keeping up with credit card payments, the banks are going to jack that rate right up,” she notes, emphasizing that risk is going to be proactively managed.
She adds that financial institutions will continue to use vague catch phrases, such as “Credit lines up to $25,000” when marketing acquisitions and will subsequently decide, once the application
has been submitted and the credit history examined, exactly how much risk they are actually willing to assume for that client. Anecdotally, she has learned that Citibank will not be concentrating on
customer acquisitions in 2009 at all. “This is a company that dropped 350 million pieces of mail a year on acquisitions,” she stresses. “Now, I’m assuming that position is going to be reviewed at the end of the second quarter and third quarter going forward… but that also means the Bank is going to have to get more spending out of its current file of customers.”

She says that given the worldwide credit crunch and reduced marketing budgets, issuers everywhere are going to have to concentrate on becoming cleverer and cites Capital One®’s online Card Lab as a fine example of what she means.

Card Lab allows customers to construct and customize their own credit card online; making choices between features such as fee or no fee, APR, reward program options, and card design. She explains, “This is so clever because the way it’s constructed, the customer is led through a progression of questions and based upon the customer’s answers to the first two — which are financial questions— the program will automatically generate the card’s conditions without any real choice. If I absolutely will not pay a fee for the card, I’m only going to get a certain APR,” she
explains. “It’s wonderfully designed and for the consumer, it’s really a lot of fun to do.”

In a nutshell, in any type of dicey environment, smart financial institutions will concentrate on keeping the good guys and controlling the bad guys—while being very scrupulous about who is taken
on as new customers. What we infer from all this terrifying news down south and elsewhere is that loyalty marketing and doing more with existing customers will be underlying themes in marketing
credit and debit cards throughout 2009.

(See Credit card marketing in Canada: an evolving landscape by Bob Coles, Cornerstone Marketing, in this issue.) In closing, Brennan notes that it won’t be long before plastics themselves disappear
in favour of mobile transactions, but that’s a tale for our April issue.