We have heard much in recent months on banks going “back to basics” and pursuing a relationship banking approach. One of the recent manifestations of this approach is the provision of financial needs assessment, which enables the banker to develop a closer relationship with the customer, as well as providing a platform for marketing financial products and services.
–In introducing new checking accounts, Fifth Third Bank is placing a good deal of emphasis on its free Financial Needs Assessment
–A recent U.S. Bancorp presentation highlighted that it is pursuing a relationship banking approach by offering relationship reviews as well as product packages. Almost half of new U.S. Bank DDA customers are selecting a Consumer Package.
Banks cannot just automatically switch from a product-centric to a relationship banking model. In effecting this transition, marketing and sales support (in particular, training and providing support tools to branch personnel) play key roles. In addition, product development needs to switch from a silo-based approach (often with different product units within a bank competing for the customer’s attention), to a solutions-based model, centered on customer needs and behaviors, and a longer-term payoff.
Marketing 101 teaches us about four P’s of the Marketing Mix: Product, Price, Place and Promotion, with Positioning thrown in for good measure. The passage of new credit card legislation means credit card issuers will have to do a refresher course on these elements, in order to figure out how to market credit cards in a radically changed environment.
Positioning: Credit cards have become a tarnished product category in recent years, having been associated by many with the excessive availability of credit. Issuers will need to figure out how to position credit cards as a useful and flexible source of credit. The largest issuers have traditional run their card units as standalone operations, but we also envisage this will change radically, with credit cards increasing integrated with other financial products and services.
Product: The restrictions on issuer’s ability to generate interest and fee income may lead to the emergence of stripped-down cards with fewer features and rewards. In addition, concern over defaults could lead to growth in secured cards as well as a hybrid cards with secured and unsecured components.
Pricing: The card offer is expected to change significantly with annual fees, less attractive introductory offers and higher APRs.
Place: Banks’ desire to go “back to basics” and focus more on a relationship banking approach means that the branch and online banking platform become increasingly important cross-selling tools.
Promotion: Comperemedia reported in DM News that credit card direct mail fell 72% year-over-year in 1Q09. While an economic recovery could lead to some issuers increasing their DM volume, there is little prospect of DM reaching the historic high levels of 2006. According to Cards and Payments, credit card advertising did increase in 2008, but with most issuers cutting back on acquisition activity and reducing noninterest expenses, we expect a decline in ad spend in 2009.
The passage of new credit card legislation may accelerate the growth of debit card spending, at the expense of credit card.
To date, debit card’s growing share of payments has mainly been at the expense of cash and checks. However, the next stage of debit cards growth may eat into credit cards’ share.
Even before the passage of new credit card legislation, data from MasterCard and Visa indicated continued growth in U.S. debit card spend and a marked reduction in U.S. credit card spend. One of the potential outcomes of the new legislation is the re-introduction of annual fees, even for transactors (cardholders who pay their balance in full each month). These transactors may now switch a portion of this credit card spending to credit to their debit cards.
This switch to debit card is being facilitated by the increased proliferation of debit card rewards programs, in particular merchant-funded programs. Merchants have a vested interest in consumers switching to debit card, as they pay lower merchant fees on debit card transactions.
Another impact of the legislation may be a reduction in the average number of credit cards held by consumers. This will lead to greater spending on the retained credit cards, but also some switch in spending to debit card.