Author Archives: mronan

Growth of referral programs at banks

Following the financial crisis, U.S. banks have refocused on optimizing relationships with existing customers.  One of the ways that banks have sought to monetize these relationships is to cross-sell additional financial products and services. Another is to leverage the existing customer base to acquire additional customers, through referral programs.

It is notable that there has been recent growth in the incidence of referral programs on bank websites. the following is a list of banks currently featuring referral offers on their websites:

Small business credit card issuers are ratcheting up rewards

In July, EMI posted a blog on leading small business credit card issuers making large bonus point offers to encourage small business customers to activate and continue to spend on their business cards.  Some of these leading small business card issuers are turning their attention to revamping rewards structures for their leading cards.  Yesterday, Bank of America announced the introduction of a new version of its Cash Rewards for Business MasterCard.  It has added 2% cash back on spending at restaurants, in addition to the previous rewards of 3% on purchases at office supplies, gas and computer network services, as well as 1% on other purchases.

Other issuers that have enhanced their small business rewards card programs include:

  • Capital One: launched the No Hassle Cash Premier Card, featuring 2% cash back, as well as a bonus of up to $150 (this card does come with a $59 annual fee)
  • American Express: introduced a new version of its Business Gold Rewards Card, with triple points on airfare, double points on advertising, gas and shipping, and 1 point per dollar on everything else.  It previously offered a flat 1 point per dollar reward.  The card also features a 50,000 point bonus (for spending $10,000 on the card within the first 150 days).  The annual fee for this card has risen from $125 to $175 (both American Express and Capital One are evidently betting that small businesses will be willing to pay an annual fee in exchange for these higher rewards)
  • Chase: launched new earnings structures for Chase Ink Classic and Ink Cash: 5 points per dollar/5% cash back on first $25,000 in annual spend on office supplies, telecommunication services and cable services; 2 points per dollar/2% cash back on first $25,000 in annual spend on fuel and lodging; and 1 point per dollar/1% on all other purchase

The growth of bonus offers and bonus rewards illustrates the extent to which the leading small business credit card issuers are competing to capture a share of small business card spending.  There is significant growth potential in this market, as cards still account for a small share of overall small business spending.

And there are recent signs of life in the overall small business card market, which has been in the doldrums since the start of financial crisis.  Last week, American Banker reported on FDIC data that shows big banks starting to grow loans of $100,000 of less (which are largely made up of small business cards).

Treat growth projections with caution

Recently, there has been a lot of coverage on the emerging mobile commerce sector, with various stakeholders launching trials and developing initiatives to develop a strong market position. In addition, there have also been numerous projections on the expected growth of this market in the coming years. Some of these projections are quite reasoned, but others are more outlandish, and appear to expect that in a few short years, mobile commerce will displace cash, checks and plastic.

These exaggerated growth projections garner headlines for the research firms as well as companies sponsoring the research.  However, in many cases, the reality tends to fall short of the projection.  For example, future projections of card spending made in 2005-2006 were not realized, as the industry was hit by a largely unanticipated financial crisis and economic recession in 2008-2009.

Growth projections typically suffer from a number of deficiencies.  One of the main problems is that researchers start their research by thinking of themselves as the average consumer, which then leads to biases in the research process. In addition, researchers often tend to take an overly-optimistic “blue sky” view, which does not factor in forces that can compromise the growth trajectory. One of the most powerful of these factors is inertia. Consumers typically need to have a compelling reason/motivation to change behavior, and will not automatically adapt behavior just because a new technology hits the market.

It should also be noted that the industry and general business press tend to use these projections from these research firms/analysts/sponsoring firms to fill column inches, without checking back to see if previous projections by those same firms were actually accurate predictors.

Getting back to mobile commerce, there is indeed reason to believe that the rapid penetration of the smartphone and consumers’ increased comfort with mobile apps augur well for strong growth in the mobile commerce market. However, we also need a sober assessment of some of the factors that may impact that growth; in addition to inertia, these include security and privacy concerns, regulatory developments, merchant acceptance, general economic growth, emergence/evolution of competing payments methods, and the need to develop a business model that will satisfy all stakeholders.