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 issuer quarterly scorecard: improved credit quality; volume growth; lending declines

April 21, 2011

In the latest quarterly financials, the leading U.S. credit card issuers displayed consistent trends in credit quality, purchase volumes and card loans.

Credit quality: issuers continued to report strong yearly and quarterly declines in charge-off rates. The current rate of decline, as well as the high rates of decline in delinquency rates, indicate that charge-off rates will fall further in the next few quarters.

Purchase volume: All leading credit card issuers are growing purchase volumes year-on-year, with four issuers reporting double-digit volume growth. In addition, issuers like Chase and Capital One have accelerated volume growth in recent quarters. In 1Q11, Citi reported a small y/y rise of 0.3%, which followed a protracted period of volume decline. The 7 issuers listed in the chart had a combined $321 billion in purchase volume, up 9% y/y.

Average Outstandings: Although issuers have been effective in growing purchase volume, average outstandings for all leading issuers continued to decline year-on-year in 1Q11. The 8 issuers combined for $515 billion in average outstandings in the quarter, down 18% from 1Q10. The rate of decline slowed in 1Q11, with combined outstandings for the 8 issuers down 1.4% from 4Q10. And Discover reported 1.7% quarterly growth in average outstandings. Many issuers have reported that they expected outstandings to grow in the second half of 2010.

PNC revamps credit card portfolio to focus on relationship rewards

March 4, 2011

Earlier this week, PNC introduced three new rewards credit cards, with bonus rewards tiers for cardholders who also have specific PNC checking accounts. This relationship rewards approach builds on PNC’s existing PNC Points program, which enables customers to combine points earned on credit card and debit card spending, as well as on various banking activities. Two of the three new cards are also in the PNC Points program; the other offers a cash rebate.

While Citi’s ThankYou Network is frequently cited as the archetypal relationship rewards program, PNC’s bonus rewards concept has more in common with the Chase Exclusives program. Both programs provide bonus earnings for their checking account customers, and underscore the primacy of the checking account as the key relationship product for banks. It is also notable that all three banks have built their relationship rewards programs using a card-based points architecture.

With the Federal Reserve’s proposed cap on debit card interchange, many leading banks have announced the discontinuation of rewards on debit card spending. From a relationship perspective, this means that some banks are refocusing attention on the checking account itself, rather than the plastic attached to it. In the case of PNC, it is telling that the level of bonus reward is based on the checking product owned, each with different minimum balance requirements (e.g., 50% bonus with PNC Performance Checking Account; 75% bonus with PNC Performance Select Checking Account).