Key Features in the Latest Crop of Small Business Credit Cards

April 19, 2019

In spite of the emergence of new electronic business-to-business payment forms, and the continued popularity of checks, U.S. small business owners continue to grow their small business credit card usage. According to The Nilson Report, U.S. Visa and MasterCard small business credit card volume rose 15% in 2017 to $223 billion. And American Express also reported that its Global Small Business Services loans rose 13% to $12.3 billion in 2018.

In order to capture their share of small business card spend, leading U.S. banks have launched a range of new small business credit cards over the past year. These credit card launches are summarized in the table at the end of this blog. The following are the key trends and features that stand out for these new cards:

Pricing:

There is a mix of 0% purchase-only and purchase-and-balance-transfer introductory offers, with durations of 9 or 12 months.
Most cards have an APR range. The only exception is U.S. Bank’s Business Leverage Visa Signature Card, which features a non-tiered go-to APR of 18.74%.
As demonstrated by both M&T Bank and BB&T, there tends to be a 200 basis-point gap between rewards and non-rewards business card versions.
Business credit card APRs tend to be lower than their consumer card counterparts. BB&T launched Spectrum Cash Rewards (consumer) and Spectrum Cash Rewards for Business at the same time: the business card’s lower tier was priced 300 bps less than the consumer card (and the business card’s upper tier is 100 bps less than the consumer card).

Rewards:

New business cards offer either a 1.5% earn rate for all purchases with no limits or a tiered earn rate.
For tiered programs, the business cards either offer higher earnings on specified spending categories (such as at restaurants and gas stations) or on the top spending categories during the month (U.S. Bank Business Leverage Visa Signature).

Bonus Offers:

Issuers are now deploying different approaches to incentivize business card usage.
- We continue to see acquisition-and-activation offers for reaching a spending threshold within the critical 90-day initial period. However, new American Express Amazon Business Card cardholders receive a $100 Amazon gift card on approval.
- To promote relationships, some business cards now offer bonus earnings on cumulative spending over the first year. Recent examples include Discover it Business Card and U.S. Bank Business Leverage Visa Signature. Furthermore, the new U.S. Bank card also enables cardholders to earn rewards for accepting credit card payments.

Fees:

Most business cards launched over the past year have no annual fee, the exceptions were BB&T’s Spectrum Travel Rewards for Business and U.S. Bank’s Business Leverage Visa Signature.

New business credit cards show significant variation in the percentage (3-5%) and minimum fees ($5-$15) for both cash advance and balance transfer fees. However, some new cards deviated from the standard approach:

The Discover it Business Card carries a 5% balance transfer fee with no minimum.

The U.S. Bank Business Leverage Visa Signature Card has a different fee for balances transferred with the card application vs. the ongoing BT fee.

Mirroring consumer cards, many new business cards now come with no foreign transaction fee. This include non-travel cards, such as the American Express Amazon Business Card and the two new M&T business credit cards.

The Emergence of Employee Financial Wellness Programs

April 16, 2019

Over the past few years, financial institutions have significantly increased their investment in initiatives to grow consumer and small business financial literacy. An even more recent development has been the emergence of workplace-based financial wellness programs: a 2018 survey by Strategic Benefit Services found that 59% of employers offer financial wellness programs or planned to do so. And recent research by Alright Solutions found that 64% of employers say their organization’s financial wellness program is more important now than it was two years ago.

This rise of workplace financial wellness programs has been driven by several factors, including:

The overall growth of investment in financial education programs by the financial services sector in response to concerns about gaps in financial literacy levels, and the proven positive impact that financial education programs have in driving smarter financial behavior by consumers and small businesses.
Employer desire for additional benefits and services to attract and retain staff.
Employee need for financial education: PwC’s 2018 Employee Financial Wellness Survey found that 41% of employees say their employer’s financial wellness plan has helped them get their spending under control.
Recognition of the value and critical role the workplace channel can play in teaching financial concepts, as well as in providing advice and potential solutions.

Financial firms providing workplace financial wellness programs include banks, investment firms, and employee benefits providers. Many of the leading firms in these sectors have launched new or enhanced existing financial wellness programs over the past year:

Principal launched Principal Milestones, which provides personalized information based on an online assessment.
MassMutual introduced MapMyFinances, a financial and benefits planning tool that features a financial wellness score.
Morgan Stanley Wealth Management launched an enhanced Financial Wellness Program for employees of mid-to-large sized corporations, which features a digital portal, a catalog of financial wellness materials, financial assessment as well as the option to collaborate with a Financial Advisor or through Morgan Stanley’s online investing program.
Prudential introduced a range of new financial wellness capabilities, including expanded digital and on-demand solutions, as well as needs-based and life-event solutions.

Unfortunately, financial wellness programs do not tend to be immediately embraced by employees. This can be attributed to a number of factors, including a lack of interest among employees, perceived complexity of the programs, and the lack of resources to manage the program. To overcome these challenges, employers must clearly communicate to employees how they will benefit from engaging with the financial wellness program. To that end, financial institutions need to support employers in marketing the program to employees. It’s also important to gather feedback from employers in order to enhance features and improve the user experience.

The growth in workplace financial wellness programs shows no sign of abating, and we expect financial institutions to further improve and differentiate their programs through new features and options (such as enhancing access to the program via digital channels), as well as continue to develop financial wellness-related content.

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

March 1, 2019

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%).