Author Archives: mronan

Bank of America credit card production by channel: interesting trends

Bank of America recently published a breakdown of its credit card production by channel, in its second quarter 2011 Investor Fact Book.

Comparing the first half of 2011 with the full-year 2010, we see that eCommerce remains the most important credit card acquisition channel (at just over 28%), but its share fell almost 8 percentage points between 2010 and the first half of 2011.

Channels that have had the strongest share gain are:

  • Branch:  Bank of America was at the forefront of the push among leading bank card issuers to sell cards through their branches in the mid 2000’s, but this trend appeared to have lost traction in more recent years, as the financial crisis took hold.  However, there was a notable shift in the first half of this year, with branches accounting for 28% of credit card production, up more than 7 percentage points from 2010.
  • Direct mail: Traditionally, direct mail accounted for an overwhelming share of credit card production.  However, this share plummeted over the past decade, as response rates fell and new channels emerged with lower average acquisition costs.  However, this decline appears to have bottomed out, with bank card issuers now rolling out targeted direct mail campaigns to specific segments of interest, such as affluents.  DM accounted for 24% of card production in the first half of 2011, up 3.5 percentage points from 2010.

Google launches Google Wallet; what are its growth prospects?

Google and its partners (Sprint, MasterCard, Citi and First Data) officially launched the Google Wallet mobile payments app yesterday.

At the same time, Google licensed Visa’s PayWave contactless payment technology.  And both American Express and Discover signed on as Google partners.  With these companies now on board, Google is starting to build a strong partner ecosystem.  In so doing, Google Wallet competing with other emerging mobile payment systems (such as Visa’s own Digital Wallet as well as the Isis consortium), in getting the strong array of partners in place.

Building a partner ecosystem will certainly help to strengthen the various mobile payment offerings.  However, the emerging mobile payments sector will need to overcome a range of key hurdles in the coming years.  Two of the most significant hurdles are:

  • Merchant acceptance: only a very small percentage of merchant payment terminals can currently process mobile paymment transactions.  Mobile payment providers will need to focus initially on spend categories and merchants that are most amenable to mobile payments, and over time expand to other merchant categories.
  • Consumer adoption: Cash and cards are established and relatively convenient forms of payment, and will be very difficult to dislodge.  Mobile payment providers will need to build awareness of mobile payments as a spending category, and communicate mobile payments’ key advantages over establish payment methods (e.g., speed, convenience, as well as the ability to receive special offers at the point of sale).  In addition to marketing the categories, individual mobile payment providers will also have to differentiate their own offering from direct competitors.

With these hurdles in mind, it is notable that American Banker this week quoted a MasterCard executive as referring to Google Wallet as a “five-to-ten year effort, not a one-year effort.”

Banks brand their cost-cutting programs

U.S. bank profitability in recent quarters has been driven by significant reductions in provisions for loan losses.  With these provisions now returning to normalized rates, and with revenue growth anemic, many U.S. banks are turning their attention to reducing noninterest expenses.  A number of banks now have branded cost-containment programs in place, including Project New BAC (Bank of America), Project Compass (Wells Fargo) and Keyvolution (KeyBank).

While some may see this as a cynical attempt by banks to put a gloss on an effort that ultimately result in lost jobs, from the banks’ perspectives, branding these programs serves to emphasize their commitment to cost containment with both external (investors and analysts) and internal (executives and other employees) stakeholders.

  • For investors and analysts, this commitment is seen in having a named program in place, with overall saving goals, specified areas where savings can be attained, as well as regular progress reports
  • For bank staff, the branding of such programs builds awareness, coordinates various cost-containment initiatives at the bank, as well as providing a forum for staff to submit cost-containment suggestions

Expect more banks to follow the lead of Bank of America, Wells Fargo and KeyBank.