Tag Archives: Capital One

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).

Banks are slow to develop a social media presence

As social media usage has achieved critical mass, many businesses have begun to incorporate social media into their marketing, sales, customer service and other activities.  However, many of the leading U.S. banks have yet to establish a comprehensive social media presence.  This is due to a number of factors, including privacy and security concerns, as well as established organizational structures and processes that can be hostile to new ways of doing business.

A topline scan of the websites of the top 20 U.S. consumer banks (based on their consumer loan portfolios) shows that:

  • Some leading banks have no discernible social media presence
  • Many banks have developed Facebook and Twitter pages, but operate these in a reactive mode (i.e., do not run initiatives to drive traffic to these sites).
  • Some of the banks are much more proactive, driving large volumes of traffic to the social media pages with advertising, contests, forums, etc.  These typically include banks that lack any retail branch presence (e.g., American Express and Discover), or banks like Capital One whose retail presence is dwarfed by its national lending operations.
  • Some of the other banks do appear to have a social media vision.  For example, SunTrust has extended its “Live Solid. Bank Solid” tagline into the socialsphere.  Wells Fargo has developed multiple Facebook, Twitter and Blog pages to cover different audiences or areas of interest.

For banks to fully leverage the potential of social media, they need to:

  • Get top management buy-in and support
  • Assign an executive to own the social media function at the bank
  • Incorporate social media into marketing, sales, customer service, and HR structures, strategies and initiatives
  • Gather and incorporate feedback from customers and employees into social media initiatives; track the performance of these social media initiatives

Volumes for Leading Card Issuers Are Recovering

In their most recent quarterly financials, the leading U.S. credit card issuers continued to show improvement in spending volumes. Credit card volumes were significantly hit in 2009, as consumers pulled back on discretionary spending, and as credit card issuers retrenched and reduced account numbers.

The following chart shows that most leading issuers returned to year-on-year growth in credit card volume in 2010, and that the rate of growth has steadily improved.

The reasons for the recent improvement in card volume are:

  • Overall economic recovery, with corresponding growth in consumer spending
  • Issuers’ promotion of card spending as a source of revenue, in particular as outstandings growth has been largely absent

A number of card issuers recently predicted that card outstandings should grow in the second half of 2011, but we expect that issuers will continue to push card volume, and aim for a good balance between spending and lending.