Tag Archives: chase

U.S. Card Issuers: 3Q11 Spending and Lending Trends

An analysis of 3Q11 outstanding and volume data for leading U.S. credit card issuers reveals:

  • Signs of growth in outstandings. For the 11 issuers in the study
    • Four reported both year-on-year (y/y) and linked-quarter (q/q) growth in average credit card outstandings.
    • Five reported y/y declines, but q/q increases, indicating a recent transition to growth.
    • Two issuers had both y/y and q/q declines in outstandings.  One is Bank of America, whose high rates of decline are indicative of its particular challenges. The other is Capital One, but it is worth noting that its Domestic Card portfolio includes a run-off installment loan portfolio; excluding this portfolio, Capital One’s credit card outstandings are growing.

 

  • Continued strong volume growth (in this case, we just look at y/y growth for comparison purposes, due to the seasonal nature of spending):
    • Capital One has the strongest y/y growth, but this is part due to its acquisition of the Kohl’s private-label card portfolio.  Excluding this acquisition, Capital One still recorded double-digit volume growth.
    • American Express continues to report very strong volume growth in both consumer and small business spending (growth rate for the latter was 15%).

  • Volume growth rates continue to outstrip outstandings growth, and is indicative of a fundamental shift in the industry following the financial crisis, away from a lend-centric and towards a spend-centric model. This is seen in the persistently high APRs and relative scarcity of balance transfer introductory offers, but also in the very large bonus points/miles offers to drive both initial and ongoing card purchases.

Trends in U.S. Bank 3Q11 Marketing Spend

A scan of U.S. banks’ financial reports for 3Q11 shows that many of the leading banks reported strong year-on-year increases in their marketing spend. Banks reporting double-digit growth rates include:

  • Chase: increase of 42%, to $926 million
  • Citi: up 39%, to $635 million, driven by new consumer marketing campaigns, and sponsorships
  • Capital One: rise of 25% to $312 million
  • Bank of America: growth of 12% to $556 million

However, the rise in marketing spending is not universal, and a number of other leading financial institutions have cut expenditure levels year-over-year. Most notable is American Express, whose marketing and promotion spending fell 14% y/y to $757 million (of course, this follows a significant ramp-up in marketing spending throughout 2010).

In general, banks must balance external and internal forces to determine the appropriate levels of marketing investment:

  • External: banks are looking at capture their share of business in certain segments (e.g., affluents) and/or product categories (e.g., auto lending, credit card, commercial loans).  And this need to invest in growth areas is particular strong at present, given banks’ struggle to generate meaningful revenue growth.  However, if there are strong indicators of deteriorating economic conditions, banks may want to scale back on their marketing spend.
  • Internal: banks must also recognize their own circumstances and challenges and how this impacts on marketing spend.  For example, many banks now have programs in place to reduce expenses (see our recent blog on brand cost containment programs). And marketing is frequently one of the first casualties of a bank-wide crackdown on costs. However, there are also internal forces that may lead to significant increases in marketing spend; for example, a bank may have just completed a significant merger, and will need to invest in marketing to support the overall integration effort.

Spate of small business lending commitments by banks

A meeting yesterday between Vice President Biden and 13 U.S. banks has resulted in a number of these banks announcing or reiterating small business loan commitments.  The banks include:

  • Chase: announced that it was on track to increase small business lending this year by 20% over 2010 levels, to $12 billion
  • Citi: committed to lend $24 billion to small business over the next three years ($7 billion in 2011, rising to $9 billion in 2013)
  • KeyBank: committed to lend $5 billion to small businesses over the next three years
  • M&T Bank: pledged to increase small business lending by $50 million over 2010 levels for each of the next three years

For banks, making such a commitment is important, as it acts as a rallying point around which resources can be concentrated.  Having a specific commitment also implies that the bank’s senior management has approved the objective, another key criterion for success.

However, announcing a specific lending commitment is only a first step.  For banks to achieve a small business lending objective, they need to design and implement an integrated plan that encompasses a wide range of activities, including:

  • Customer and competitive intelligence
  • Segmentation and targeting
  • Data mining
  • Product, service and offer development
  • Marketing communications
  • Merchandising
  • Sales channel optimitization (including structuring, incentives, training, and ongoing sales support)

In addition, these activities needs to be organized around customer needs and bank opportunities at various stages of the customer lifecycle:

  • Acquisition
  • Oonboarding
  • Cross-sell
  • Retention
  • Ongoing relationship development

For more insights in developing effective small business banking operations, see our white paper on The Transformation of Small Business Banking in the Thought Leadership section of the EMI Strategic marketing website.