10 Key Takeaways from the Latest Crop of Consumer Credit Cards

Leading U.S. credit card issuers continued to roll out new credit cards, as they look to attract new clients, cross-sell and upsell existing clients, and win a greater share of clients’ spending.  

The following are the common trends or standout elements that we identified among these new cards.  (Note that the table at the end of this blog provides a comparison of features/benefits of 10 cards that were introduced over the past 12 months.)

  1. Introductory offers are focused on generating balance transfer volume.  7 of the 10 cards have 0% introductory offers on either purchases and balance transfers or balance transfers only.  6 of these 7 introductory offers have a duration of at least 12 months.
  2. Go-to APRs continue to be prime-based and operate in a broad range.  The APR range of many of the new credit cards is at least 7 percentage points.  Two cards (American Express Cash Magnet®, and Wells Fargo Propel® American Express) have an APR range of 11 percentage points.
  3. Some cards offer a high earn rate on all purchases.  One approach to using rewards to attract and retain cardholders as well as drive more spending is to have an earn rate of more than 1% on all purchases.  The Citizens Bank Cash Back Plus® World Mastercard® stands out with an earn rate of 1.8% on all purchases with no limit and no annual fee.  The Barclaycard Arrival® Plus World Elite Mastercard® offers 2 miles per dollar on all spending, but carries an $89 annual fee (waived first year).
  4. Issuers continue to offer tiered earning structures.  To drive card preference and grow spending in categories where cards have traditionally had a low share, many new cards continue to use tiered rewards structures, with higher earning on categories like travel, gas, dining and groceries.  It is worth noting that these bonus earn rates do not come with monthly or annual spending caps.
  5. Acquisition-and-activation bonus offers persist.  Issuers continue to promote bonus points/miles/cash back for activating the card and meeting a minimum spend requirement within an initial period (typically three months).  Higher-end cards that carry an annual fee also tend to have higher bonus levels.  Wells Fargo Propel American Express Card is looking to differentiate itself from competitors with a dual bonus structure: acquisition-and-activation bonus of 30,000 points and an additional 20,000 points for reaching a spending threshold in the first 12 months.
  6. Cards are offering redemption bonuses.  Some issuers are looking at rewards redemption as an opportunity to engender loyalty and preference.  Cards are offering bonuses:
  7. Most cards have no annual fees, but the cards that do carry an annual fee provide more features, higher earn levels and larger bonuses.  Annual fees tend to be waived the first year, although Navy Federal Credit Union’s Visa Signature® Flagship Rewards card has a $49 annual fee and no waiver. 
  8. Most cards apply a fee on balance transfers, usually a rate of 3% with a minimum of $5 or $10.  Navy FCU’s Visa Signature Flagship Rewards has no BT fees.  For its SavorOne℠ Rewards Card, Capital One imposes a fee of 3% during the card’s 15 month introductory period.  After this introductory period, there is no fee on balance transfers.
  9. Like BTs, most cash advances come with a fee (of 3% or 5%, with minimums of $5 or $10).  Again, Navy FCU stands out with no fee on cash advances.
  10. No foreign transactions fees are quickly becoming the norm, even on non-travel-based cards.

An Analysis of Leading U.S. Banks’ 2018 Marketing Spending

EMI analyzed 2018 marketing spend by 27 of the leading U.S. banks, and found that most banks are ramping up their investment in marketing.  The rise in marketing budgets is driven by a number of factors, including:

  • The continued growth of the U.S. economy.
  • The ongoing scaling back of bank’s branch networks.  This reduces their on-the-ground presence, so banks need to invest more in marketing to maintain brand awareness.  In addition, cost savings from smaller branch networks can be redirected to other functions, including marketing.
  • The need for established banks to reposition themselves in a changing financial services ecosystem, characterized by the emergence of fintech firms and direct (branchless) banks.

Overall, marketing spending by the banks rose 13% to $13.0 billion in 2018. 

  • 17 banks grew their marketing budgets.
  • 14 banks increased their marketing spend by double-digit rates, led by Wells Fargo (+40%), BBVA Compass (+34%) and Capital One (+30%).

5 banks spent more than $1 billion on marketing: JPMorgan Chase ($3,290MM), American Express ($2,578MM), Capital One ($2,174MM), Bank of America ($1,513MM) and Citibank ($1,419MM).

The 27 banks’ cumulative marketing spend represented 2.9% of their 2018 net revenues, which represents a 17 basis point rise from the banks’ 2017 marketing ratio. 

  • The marketing ratios of the 27 banks ranged from 11.2% for American Express to 1.0% for Wells Fargo. 
  • A majority of the banks (16 of the 27) had marketing ratios in the 1.5% – 2.5% range.

The variation in marketing ratios is due to on a number of factors, including product concentration, size of branch networks, perceived importance of strong brand equity, as well as the timing of marketing investments (such as the launch of new advertising campaigns).

  • For example, American Express and Discover have no branch networks, are primarily focused on selling credit and charge cards, and have traditionally invested to maintain strong brand awareness. Therefore, their marketing ratios are more in line with fast moving consumer goods firms, rather than financial institutions.

15 banks increased their marketing ratios between 2017 and 2018.

  • Wells Fargo, which has traditionally had a low marketing ratio as it focused resources of its large branch network, increased its marketing spend by 40% to more than $850 million in 2018, and its marketing ratio grew by 30 bps.  The strong rise in spend was in large part due to the launch of the “Re-Established” integrated marketing campaign in May 2018.  It is worth noting that Wells Fargo remains well below national bank peers, such as JPMorgan Chase and Bank of America.
  • Other banks with strong increases in their marketing ratios include Capital One (+161 bps to 7.7%) and BBVA Compass (+57 bps to 3.3%).

Leading U.S. Banks Report Modest Increase in Marketing Budgets in 2017

Marketing spend by the top 40 banks reached nearly $14 billion in 2017, up 1.8% on average from the previous year–and once again, 5 banks spent over a billion dollars on marketing. EMI analysis of bank spending reveals:

  • 30 of the 40 largest banks grew marketing spend in 2017, with 17 reporting double-digit growth.
  • As in past years, banks with national credit card franchises lead all others, in both absolute terms and in their marketing intensity (marketing spend relative to revenues). In 2017, spending among these card leaders declined, as focus shifted from acquisition to portfolio marketing.
  • Two banks notable for substantial 2017 marketing increases are Goldman Sachs Bank focused on promotion of its online lending platform, Marcus by Goldman Sachs, and U.S. Bank capitalizing on brand-building around the Super Bowl, held last week at the Minneapolis stadium bearing the bank’s name.

EMI annual analysis of Federal Financial Institutions Examinations Council (FFIEC) call report data for 40 leading U.S. banks distills both absolute spending and marketing intensity ratios, as measured by spend percentage of net revenues (net interest income plus noninterest income).  Results are reported below.

Advertising and Marketing Spending Highlights

19 banks/bank charters had advertising and marketing budgets of more than $100 million.  5 had billion-dollar-plus budgets (JPMorgan Chase, American Express, Capital One, Citigroup and Bank of America).

Of the 17 banks reporting double-digit growth, the two with the largest absolute increases in their marketing budgets were:

  • U.S. Bank: +$107 million, with a focus on growing national profile behind the increased marketing spend, including heavy branding around the Super Bowl, which was held last Sunday at the U.S. Bank Stadium in Minneapolis.
  • Goldman Sachs Bank: +$80 million, driven by an advertising campaign to promote Marcus by Goldman Sachs, its online personal lending platform.
  • First Republic was also notable for its 46% increase–a strategy that seems to have paid off with 18%+ revenue growth reported by the San Francisco-based bank in 2017.

Other banks boosted marketing spend to support new campaigns in 2017.

  • Fifth Third (+10% to $115 million) launched a campaign in May 2017 that played on its “5/3” name, promoting “Banking that’s a Fifth Third Better”
  • BB&T (+10% to $89 million) introduced a new brand campaign and tagline (“All we see is you”) in September 2017.
  • SunTrust (+38% to $220 million) rolled out its ‘Confidence Starts Here’ ad campaign in March 2017, building on its onUp movement focused on building financial well-being.

Marketing spend declines were led by:

  • Capital One: decline of $139 million, with a strong drop in spending in its card unit partially offset by a $23 million rise in its retail banking unit.
  • American Express: down $111 million, although this follows a ramp up of marketing and promotion spending in recent years.  American Express is also increasing its focus on targeting existing clients, which typically involves lower marketing spend.

Marketing Intensity Highlights

Even though 30 banks increased their marketing budgets in 2017, only 14 increased their bank marketing ratios, meaning that growth in marketing spend did not match the rise in net revenues.  Banks with the strongest growth in their marketing ratios were Goldman Sachs Bank (+183 basis points), SunTrust (+61 bps) and U.S. Bank (+44 bps).

Most retail banks have marketing ratios of 1-3%. Those with the highest marketing ratios include Santander Bank (4.1%, due to continued growth in the bank’s U.S. marketing budgets in recent years) and BMO Harris (3.4%, following a 17% rise in marketing spend in 2017).  4 banks have marketing ratios of less than 1%.  Most notable in this category is Wells Fargo, which has traditionally–and infamously–focused on sales and required much lower advertising budgets than its peers.  Wells Fargo did launch a new integrated marketing campaign in April 2017, which it reported was focused on “rebuilding trust.”  This contributed to a 4% rise in its advertising and marketing budget in 2017, but its spend levels remain well below comparably-sized banks.

We expect that banks will maintain or even increase their marketing budgets in 2018 to build brand awareness and affinity, as well as to promote new products and services–in particular those focused on digital transformation.  However, many banks remain focused on improving efficiency ratios, and marketing budgets are often on the firing line when banks look cut costs.  However these cuts–when executed without a careful strategy for maximize marketing ROI–often sacrifice market share gain and longer-term growth.