Category Archives: Commercial Banking

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.

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.

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: