Banks reaching out to small businesses in advance of National Small Business Week

May 4, 2011

Over the past couple of weeks, there has been evidence of a continuation of the sometimes tentative recovery in the small business market.

The Federal Reserve’s Senior Loan Officer Opinion Survey of Bank Lending Practices found a continued easing of lending standards for small firms, as well as a growth in demand for such loans (however, this growth in demand trails that for large and middle market firms).
A Greenwich survey of small businesses found evidence of significant growth in demand for small business loans (up to now, banks have been claiming that they are willing to lend, but that small business demand has been weak)
According to the latest ADP Small Business Report, private small business employment rose by 84,000 in April 2011. Small business employment fell every month from April 2008 to February 2010, with a total decline during this period of 2.7 million. Since February 2010, private small business employment has grown every month, with a total increase of 788,000.
Some surveys (such as the latest Capital One Small Business Barometer survey) show an improvement in small business optimism. However, it should be acknowledged that this can be tentative, and other surveys (such as the Wells Fargo/Gallup Small Business Index survey and the NFIB’s Index of Small Business Optimism) registered recent declines.

Banks are now starting to introduce initiatives in anticipation on a sustained small business recovery. At the end of April, Chase committed to lending $12 billion in small businesses in 2011. And some leading banks have introduced small business initiatives around the upcoming National Small Business Week:

Citibank launched a nationwide small business campaign, starting with a national outreach day. The bank expects to reach 50,000 small businesses through a range of activities
TD Bank has launched its first small business outreach campaign, with a goal of reaching 25,000 companies during May
Wells Fargo launched its annual Small Business Appreciation Celebration and introduced the online Business Insight Resource Center

Other national and regional banks, as well as community banks, will be looking at these small business campaigns with interest, and will be trying to determine if they constitute a one-off to coincide with National Small Business Week, or the tipping point for an industry-wide re-commitment to this segment. If it is the latter, these other banks will need to quickly develop and introduce small business marketing and sales support programs, so that they are not left behind, as small business recovery takes hold.

Credit card “versioning” to target different user segments

May 4, 2011

American Express recently launched two versions of its Blue Cash Card. The Blue Cash Everyday has tiered reward levels (3% at supermarkets, 2% at gas stations and drug stores, and 1% on other purchases) and carries no annual fee. Blue Cash Preferred features higher reward levels (6% at supermarkets, 3% at gas stations and drug stores, 1% on other purchases), but carries a $75 annual fee.

This continues a trend seen in recent months, with leading credit card issuers launching different versions of the same card, with one version offering greater rewards and/or bonuses, as well as higher annual fees. These leading issuers believe that heavy credit card users will be willing to pay the annual fee in exchange for the potential to earn the greater rewards. These heavy spenders generate significant interchange income for the issuers.

The following table is a comparison of different versions of the same card, which have recently been introduced. In most cases, the premium card offers higher reward levels as well as bigger incentives (for their first purchases, reaching spending thresholds, or for anniversaries). And in the case of Citi, there is also variation in the APR for its three ThankYou cards.

As credit card issuers seek to generate additional noninterest income, we should expect to see more credit card versioning. Issuers must carefully set pricing, rewards and incentives for the different versions of the cards, and clearly communicate the benefits of each version to appeal to different cardholder segments.

Growth in middle market commercial lending

April 27, 2011

Recent articles in the Wall Street Journal and American Banker both discuss growth in U.S. banks’ commercial and industrial (C&I) lending. This growth in business lending has come at a time when banks are striving to find ways to catalyze revenue growth.

Banks’ first quarter financials shows particularly strong growth rates in lending to mid-sized commercial clients. The following table shows that for some leading U.S. banks (who break out C&I loan portfolio), middle market lending was stronger than overall C&I lending in the most recent quarter (the exception to this was at U.S. Bank).

Bank	4Q10-1Q11 Change in Average Loan Portfolio
Bank	Middle Market	C&I
Chase	+4.5%	+1.2%
Comerica	+0.8%	+0.1%
Key	+1.0%	-3.4%
U.S. Bank	+3.8%	+4.5%

In addition, banks reported growth in credit line utilization rates in 1Q11, in some cases for the first time in many quarters:

Bank of America reported that its middle market revolver utilization rate rose to 35%
Wells Fargo announced that its wholesale line utilization rate rose by 50 bps in the quarter to 33%
Chase middle market line utilization increased 100 bps in the quarter to 35%