Credit/Debit Cards

Platinum Upgrade from American Express

By Jim Bruene Posted on
Categories: American Express, Credit/Debit Cards, Premium-level Products, Service

Despite intense competition from MasterCard and Visa issuers, American Express has been able to maintain a substantial share of the high-end market for credit/charge cards. For the twenty years we’ve followed the company, its marketing has consistently conveyed an upscale image.

Amex_email_premium_serviceCase in point: The email we received today asking us to upgrade from our existing Gold Card to an American Express Platinum (click on inset for a closeup look).

The subject line said it all:

     Upgrade to a card with premium service

The benefits cited included:
* Complimentary airline ticket on any of the 18 participating airline partners
* Airport club access (Continental, Delta, Northwest Airlines)
* Hotels & resort special privileges
* Free Membership Rewards program
* By Invitation Only (privileged access and tickets to events that, in many cases, can’t be purchased through any other source)

Analysis
The American Express solicitation is heavily oriented towards travel and entertainment benefits which plays to the company’s strengths. A bank could do the same by concentrating more on the "premium service" aspect. For example:

  • Front-of-the-line service: Your service request, whether by email or phone, always goes to the front of the queue
  • Branch manager access: If you ever need to go direct to the top for any reason, just call (212) 555-1212 or email branchmanager@yourbank.com
  • Preferred access to product specialists: If you ever have an unusual problem, whether it be accessing your online banking account from your laptop, or how to fund your Roth IRA, we will connect you with a specialist with state-of-the-art knowledge in that area
  • Ft. Knox security: You need not worry about the safety and security of your bank accounts with our upgraded security and authentication algorithms

For more ideas, see "E-Service 2.0" (OBR 105/106).

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Online Balance Poaching: E*Trade’s Mileage Maximizer

By Jim Bruene Posted on
Categories: Best of the Web, Credit/Debit Cards, E*Trade, Loans & Credit

Credit card companies have been poaching revolving balances from each other for years primarily through direct mail. It helped boost the share of early movers, such as Capital One. But once the tactic was widely copied, it dragged margins down for all.

The same technique has been used online with dedicated balance-transfer microsites posted by Bank of America and others beginning in 2003. The online balance transfer is better than paper because it can be interactive, prompting the user to make additional transfers, or to correct errors in the information input. However, it still requires the user to make a trip to the website to make the transfer.

Etrade_mileagemaximizerEnter E*Trade’s new Mileage Maximizer program, launched with a page-dominating color ad in Tuesday’s Wall Street Journal. With the Mileage Maximizer, the bank encourages users to make purchases on their existing non-E*Trade rewards card, then have the balances AUTOMATICALLY swept to an E*Trade 8.9% APR line of credit each month. The bank’s website is used to initiate and maintain the transfer process. But like recurring bill payments, once the sweep is established, it will occur each month with no interaction by the user.

E*Trade may well be the most innovative online financial services company. Here are some of the industry firsts they’ve logged over the years:

  • 2001: MyLoanTeam from E*Trade Mortgage (OBR 73)
  • 2003: Real-time funds transfers (OBR 96/97)
  • 2005: 7-year online transacation archives (OBR 118)
  • 2005 (March): First U.S. bank offering security tokens for online access (NetBanker 2 March 2005)
  • 2005 (December): First virtual rewards card, Mileage Maximizer

—JB

Editor’s Note: Mileage Mazimizer was awarded an "OBR Best of the Web" in our report on online lending published Jan. 31, 2006 (OBR 126).

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EbayBank.com???

By Jim Bruene Posted on
Categories: Credit/Debit Cards, Ebay, Small Business, Strategies

Ebank_ambankerOn the front page of today’s American Banker and on the cover of its Retail Delivery pullout section (see inset), there is an eye-catching EBANK logo presented in eBay’s distinctive font. It’s an intriguing lead-in to an otherwise predictable story on eBay’s PayPal unit and the extent to which it competes with banks. (Note: For American Banker, the cover graphic gave it more "street appeal" so that the paper was more likely to be picked up by the thousands of attendees at BAI’s big technology conference in Orlando.)

This is an old story. PayPal has offered a suite of consumer banking services for more Payment_choices_1than four years (click on table below) including debit cards, bill payment, credit card (issuer), consumer finance loans, credit card processing, ACH processing, money market mutual funds, international payments, interbank transfers, fraud protection, and insurance for funds on deposit. The only new service this year is the credit card payments gateway business it purchased from VeriSign earlier this year; though that is more of a line extension than a new business.

Analysis
Paypal_timelineYes, PayPal competes with bank, primarily in merchant processing, an area most banks got out of more than a decade ago. And we’ll see more ecommerce players, such as domain registration services company GoDaddy, offering integrated PayPal payment options (see inset). However, none of PayPal’s other financial service offerings have a measurable market share, and are unlikely to be causing any lost sleep by execs at Bank of America, Citi, or any other financial institution.

The American Banker article speculated on eBay’s interest in moving further into banking by buying a charter and opening a full-service Internet bank. But no evidence was presented for either side of that argument, nor did the author find any industry analysts to comment.

It reminds me of the "controversy" in the mid-90s about Microsoft competing against banks. Although it was mostly fodder for the trade press, we debunked the notion In the very first issue of Online Banking Report (April 1995). There was no way that a successful software company, accustomed to 50%+ margins, would invite the regulatory scrutiny and compliance hassles of the relatively low-margin banking business.

Although eBay has done some strange things, such as jumping into the telecom business via its recent Skype acquisition, we seriously doubt that the auction giant has any plans to open or even lend its name to a full-service Internet bank. It doesn’t need those regulatory and compliance headaches.

However, the company will continue to exploit areas of ecommerce, like auction payments and auction purchase financing, that are not well-served by existing players. But if you’ve put together a franchise that can hold its own against BofA/MBNA, ING Direct, and Schwab, you have little to fear from eBay or Microsoft. In fact, there are opportunities to leverage these trusted brand names to INCREASE your revenues. For example, PayPal provides developer tools that would allow a bank to integrate with the online payments provider to facilitate financing for bank customers.

Previous articles:

—JB

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E*Trade “Debit Card” on Google

By Jim Bruene Posted on
Categories: Credit/Debit Cards, E*Trade, Google, Search Engine Marketing

As we searched Google today for debit card info, we noticed E*Trade on top of the paid search results with an AdWords listing entitled Platinum Visa Debit Card (it was the first "banner" on the top of the search results).

Etrade_landingpage_debit_on_google_1Interestingly, clicking on the link takes you not to a single-product pitch for a debit card, but to the broker’s E*Trade Complete product which combines brokerage, banking, and lending into a single offering (click on inset for landing page screenshot).

Note: The graphic image appearing in the middle of E*Trade’s landing page features a check, debit card, and security token overlaid on a screenshot of its online banking area.

AnalysisEtrade_complete_1
Showcasing its Complete product on debit card searches shows good mastery of search engine marketing by E*Trade. The online giant figures the type of person searching on debit cards will be intrigued by the total control promised by the package account. The out-of-scale security token also adds a reassuring touch to the image (see inset). 

— JB

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Debit Card Volume Passes Credit Card (or did it?)

By Jim Bruene Posted on
Categories: Credit/Debit Cards

DebitcardFor years it’s been a matter of when, not if, the number of debit card transactions would surpass credit cards for purchases in the United States. Depending on who’s doing the counting and how you define the market, debit surpassed credit:

a) in 2000
b) in late 2004
c) not yet, but by early 2006

Sources:
a) Dove Consulting as announced in its Oct. 25 news release with The American Bankers Association; includes volume of purchases made in-store only; projections built on research with 3000 consumers
b) The Nilson Report, Sept. 2005 (#842); includes any purchase transaction, in-store, phone, or online; projections built on industry data, much of it provided by the major card brands; credit totals include card purchases made with proprietary cards, such as oil or department stores; debit totals include signature- and PIN-based traditional debit card and prepaid cards
c) SourceMedia’s Cards & Payments, Oct. 2005 citing data from its sister publication, ATM & Debit News; projections built on industry data and like Nilson includes proprietary store cards in the credit totals and signature- and PIN-based transactions in debit

The Numbers
The Nilson Report had debit ending the year with 19.7 billion transactions, 600 million more than the 19.1 billion credit card transactions (see note 1). Market share was 51% for debit, 49% for credit. Whereas ATM & Debit News showed credit transactions still running ahead of debit, with 22.1 billion for credit and 17.5 billion for debit (see note 2). For 2005, they project 23.5 billion for credit and 21 billion for debit. Extrapolating from the growth rates, debit should surpass credit in late 2006.

The total dollar volume of charges will continue to be dominated by credit. With more than double the average transaction size, $84 vs. $37 for debit, the share of total dollars spent was nearly 69% for credit vs. 31% for debit, according to Nilson.

It’s helpful to look at these huge numbers on a per household basis. Across all 108 million U.S. households, the average annual number of debit and credit card transactions is 360 per year, or 30 per month.

Looking at debit only, the average across all households is 180 transactions per month. But considering that only about 60% of the country is an active debit user, the average per active household is closer to 300 per year, or almost 1 per day. Unlike credit transactions which are divied up among the 12 cards carried by the average customer, many of the debit transactions occur with plastic from the customer’s primary financial institution. This creates a rich data stream for online banking statements and analytics.

Opportunities
As good as this debit data stream is, it’s only half the picture without the credit card transactions, especially since the larger purchases still tend to go on a credit card. This is one of the places where account aggregation could play a key role by offering a simple way to aggregate all card transactions into one online storage facility. The full picture, incorporating all plastic volume, will create an information stream that is highly valued and difficult for competitors to match. And by knowing you customers card habits, you can make successful pitches to steal the receivables from competitors.

  • Debit rewards: Although debit card spending is not as lucrative as credit cards, especially with the downward trend in debit interchange, major players are still looking to reward spending. Yesterday we looked at Citibank’s ThankYou Points program that offers 1 point for every $2 of spending on signature debit and 1 point for every $3 spent on PIN-based debit. Assuming that two-thirds of debit spending goes to signature, the average customer would earn about 3000 points per year, valued at $25 if redeemed for a gift certificate or $50 if saved and used towards a $400 coach ticket (25,000 points required).
  • Credit line cross-selling: How do you make debit cards as profitable as credit cards? Attaching a line of credit to the account. Overdraft credit lines are extremely popular and are even more desirable with heavy debit users who increased transaction levels increase the chances of overdrafting the account. The increased outstandings could help fund a rewards program, therefore improving retention and increasing interest income at the same time.
  • Alerts and other messages: If you are a typical debit user, racking up 25 transactions per month, and with no 25-day grace period like credit card users, you will have a great appreciation for a bank that keeps you informed of your debit transaction flow. Transaction confirmations are the simplest and most valuable message. But there is also demand for more advanced alerts that would inform users when a debit card transaction appears out of character (possible fraud) or if holds from hotels or gas companies may significantly impact checking account balances. These value-added alerts could be packaged with rewards and lifetime statement archives into a premium online banking program priced from $3.95 to $9.95/mo (or $39 to $99 per year).

For more information:
Online Banking Report #96/97, Account Aggregation v3.0
Online Banking Report #118: Lifetime Statement Archives
Online Banking Report #109: Pricing (premium products)
The Nilson Report, #842, September 2005
Cards & Payments, Debit Card Report, Oct. 2005, pp. 22-26

Notes:
1. The Nilson Report credit card volume includes Visa, MasterCard, American Express, Discover, proprietary store cards, and gas station cards. It does not include proprietary T&E cards such as Diners Club, Universal Air Travel Plan, car rental cards, or phone cards
2. SourceMedia’s debit cards include Visa, MasterCard, and cards issued by financial institution and used through EFT networks.

— JB

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Trendspotting: Capital One’s No Hassle Credit Card Accounts

By Jim Bruene Posted on
Categories: American Express, Capital One, Credit/Debit Cards, Strategies

Capone_nohassle_cardDavid Spade’s "no guy" has helped make Capital One’s No Hassle credit card customer service parody one of the most-recognized consumer advertising campaigns of the year. According to the company, the commercials have helped lift the Capital One’s name recognition to 98% (see note 1).

Along the same lines,Amex_clear_1
American Express is test marketing a no-fee automatic-rewards card called Clear. The card, which is available through its website (click on inset for closeup), features no fees (late, overlimit, annual) and an automatic rewards fulfillment, a $25 cash card every time you spend $2500 on the card. Cardmembers also receive a free credit report and credit score each year.

Finally, Citibank is about to jump on the back-to-basics movement with its no-late-fee Simplicity card expected to debut this week at an event in New York City (note 2). The card will come in three flavors: plain, cash-back, and rewards. The bank’s website does not contain information on the card yet, but there is a separate customer service number listed that features a "press 0" option to be immediately connected to a live service rep.

Analysis
Although many consumers put up with penalty fees, there is always a point where they just won’t take it anymore, especially if lower-cost options are readily available. That’s why Blockbuster, faced with increasing competition from NetFlix, eBay, and WalMart, took a significant revenue hit when it eliminated late fees in its core movie rental business.

Citibank and the others are looking to win back consumers that have migrated to debit cards and/or credit unions to avoid penalty fees and interest charges. The cards also appeal to those with a strong aversion to fees either because they’ve had problems in the past or because they simply cannot stomach bank fees of any type.

—JB

Notes:
1. USA Today, 13 March 2005
2. Citi Simplicty was launched 14 October 2005
    – read the press release
    – see the website, www.citisimplicity.com

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Bank of America’s Unusual Automated Savings Plan

By Jim Bruene Posted on
Categories: Bank of America, Credit/Debit Cards, Deposits, Checking, Savings, CDs

Bankamerica_keepthechange_graphic_1We’re not sure whether this is incredibly brilliant or insanely stupid, but Bank of America gets high marks for creativity with its latest debit card enhancement. The bank’s "Keep the Change" program allows debit card users to round up their purchase transactions to the nearest dollar, with the difference added to a savings account automatically.

To give it a bit more excitement, BofA will add a 5% bonus to each savings deposit. Since the average round-up amount is 50 cents, the bonus costs the bank just 2.5 cents per transaction, a very cost effective incentive program, if it works.

To kick things off, Bank of America will match the round-up amount 100% for the first 3 months. That will be like giving everyone a 50-cent discount on each transaction. That should spur signups for the program.  Bankamerica_keepthechange_math

Analysis
The overall concept of automatic or forced savings is excellent. The bank’s press release tosses out stats on the recent negative savings rate and quotes David Bach, the relatively well-known author of "The Automatic Millionaire," a best-selling book that espouses automated investing.

The webpage touting the program is attractive and well written. There are few items in the fine print that users will find potentially disturbing:

  1. You must visit a branch to enroll (ouch!)
  2. The savings account pays just 0.50% and will likely have a service charge unless a minimum balance is maintained (e.g., $300 minimum for Regular Savings)
  3. The savings account has a $100 minimum opening balance requirement
  4. The bank’s contribution will be made annually, and only if you keep your account open for a year

But despite the fine print landmines, we like how "Keep the Change" introduces consumers to the concept of automatic savings and helps them store away a few bucks a month. However, most people need more than nickels and dimes going into their savings account. To be more effective, this program needs an easy way for consumers to add to their savings amount beyond the monthly debit card cash.

For example, a month-end email detailing the total debit card change deposited could include a mechanism that allows users to designate an additional amount to be transferred into their savings account.

We don’t expect anyone else to copy this program, so it gives BofA a unique selling point for their checking accounts and debit cards. It should make a little money for the bank from increased debit usage and savings account growth, and it will give users a few extra dollars at the end of the year, so what’s the harm. But if you are truly interested in spurring automatic savings among your customers, there are more straightforward approaches that should be equally effective and far less complicated (see Online Banking Report, 120/121 for more on automatic savings).

Ref: Screenshot of Bank of America’s Keep the Change page on 5 Oct 2005

—JB

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American Express Builds City Brands

By Jim Bruene Posted on
Categories: Advertising & Promotion, American Express, Channel Integration, Credit/Debit Cards

Amex_inny_logoFinancial institutions have done amazing things with their websites since Bank of America launched the first major commercial banking site 11 years ago (Sept. 1994). However, other than single-market credit unions and community banks, there hasn’t been much attention paid to localizing the content to appeal to more narrow geographic segments, for example the customers in a single city or neighborhood.

Beginning a year ago, American Express began a campaign to bring specialized city-based cards to major metro areas. The cards are intended for the 25-to-35 year-old hip urbanites. The card design, marketing, and rewards all cater to the dining out, clubbing, and museum-going single scene.

The first card, IN:NYC <innyc.com> launched a year ago (30 Sep 2004) and was discussed in a front-page WSJ article today. The company won’t disclose any results, but did say that 90% of its customers have not previously owned an American Express card, an important statistic for a company worried about cannibalizing its other products.

The IN:NYC card has its own look, website, and rewards program focusing on unique beyond-the-velvet-rope experiences in local clubs and eateries. In an interesting viral marketing strategy, friends are able to pool points in order to qualify for bigger rewards, such as a VIP table in a hot club.

The key cardmember benefits include:

  • 0% Introductory APR for 6 months on purchases and balance transfers
  • No annual fee
  • Option to carry a balance
  • One INSIDE Rewards point for every dollar spent
  • INSIDE Double points on City Essentials

Amex_inchicago_websiteThe second city card was launched this month (19 Sep 2005) in Chicago. The IN:Chicago website is still a static billboard (see inset). Another card is in the works for Los Angeles, IN:LA, which is expected to launch later this year, although the company has yet to secure the rights to the website, inla.com.

Action Items
Many large banks alter their website content by state. However, the customization generally does not extend beyond minor pricing differences.   

To better compete with local institutions, banks should use their websites to deliver highly-customized geographic content. Event calendars, discounts, and other local event marketing could create better brand recognition and more word-of-mouth advertising opportunities. It would also give local branch staff more ownership of "their" website. Banks could use an easily remembered URL such as <ny.wamu.com> to house their local versions.

—JB

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1.4 billion More Credit Card Mailers Hit the Recycle Bin

By Jim Bruene Posted on
Categories: Advertising & Promotion, Credit/Debit Cards, Metrics & Market Research

Junk_mailSome bad habits are harder to kick than others. In banking, the preapproved credit card mailing is apparently as addictive as nicotine. How else can you explain the record 1.4 billion solicitations mailed in Q1 2005 according to researcher Synovate? (">see previous article on 2004 mail volumes)

We can't speak for the economics of the recent mailings. On a macro level, things are going pretty well. Other than the sub-prime specialists, most credit card companies have weathered the economic slowdown of the past years admirably. However, we still think the online channel is vastly underused as a credit marketing vehicle.

Analysis
First, we'll crunch some numbers to compare traditional direct mail (DM) to online marketing (OM):

***DM***
1.5 billion pieces times $1 per piece = $1.5 billion in marketing
Fraud = 0.04% x 1.5 billion = 60,000 bad accounts x $2500 = $150 million
Teaser rate = 3% subsidy x $1.2 billion outstanding = $360,000 million
Total cost of program = $2 billion

===> Response = 0.4% times 1.5 billion = 600,000 good accounts

DM acquisition cost = $333 per good account

***OM***
30 million online banking households x $5 for 90-days of online credit offers = $150 million
Teaser rate = none
Fraud = 0.04% x 30 million =  12,000 bad accounts x $2500 = $30 million
Total cost of program = $180 million

===> Response = 30 million x 2% = 600,000 accounts

OM acquisition cost = $30 per good account

Implications
Depending on a multitude of factors, a credit card issuer can still make an account costing $333 profitable over its lifetime, but it's not going to be easy, especially with costly rewards programs demanded by most good customers these days.

Why not divert some of the direct mail budget to online marketing programs that eliminate the paper from the equation?

Every credit-worthy online banking customer should have preapproved credit available to them at all times. And it should be very visible when they are conducting activities that could indicate a potential need for extra cash, such as paying bills.

Alternatively, preapproved offers could be timed to appear at login when account balances dip below historical levels indicating potential cash flow difficulties for the consumer.

The beauty of this approach is that it's more about timing than price. Consumers needing $500 for the orthodontist today will be more concerned about a fast, convenient advance rather than playing the field to bag a 0% teaser rate and/or maximum rewards points.

The twin benefits of online credit marketing:

  • lower marketing expenses
  • less dependency on teaser rates and rewards programs

For an extended discussion of online credit card and loan originations, see:

Online Banking Report subscribers will receive updates to these reports this fall. 

— JB

 

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New Debit and Credit Card Activation

By Jim Bruene Posted on
Categories: Credit/Debit Cards, Service, US Bank

Usbank_atmcard_activationOur new Visa debit card arrived today from U.S. Bancorp. As we were reaching for the phone to activate it, we noticed a new URL on the holder <usbank.com/activate>.

Curious as to how the bank handled security on the process, we went online for activation. It turns out you must be enrolled for online banking. If so, you simply login, navigate to customer service, choose ATM/debit card options, type in your card number, security code on back, and expiration date (click on the inset to see the full screenshot). .

Analysis
This feature certainly falls into the "nice to have" category rather than "must have." The two-minutes it takes to phone in for ATM card activation once every two years is not on anyone’s pet-peeve list. And doing it online doesn’t even save much time, if any.

But, the bigger issue is making sure that all the routine customer service issues can be handled online, so customers think to go there first to manage their account. Overall, that behavior will save the bank money and if implemented well, improve customer satisfaction.

—JB

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American Express Spruces Up its Email Confirmations

By Jim Bruene Posted on
Categories: Alerts & Messaging, Credit/Debit Cards, Email Marketing

American Express, long one of the savviest financial marketers, recently updated the look of its routine "payment received" email confirmation.

Amex_payment_confirmation_1It’s a nice change from the typical text-only message. Key features include:
– last 5 digits of card number for verification
– account login
– balance transfer offer
– Blue Cash offer

But the "Dear Cardmember" salutation is a mistake.

With all the hysteria about phishing and email fraud, the opening should be personalized, both to differentiate itself from SPAM and to insulate cardmembers (and itself) from phishing attacks. This is especially important in a communication which includes a built-in login button, an inviting target for phishers.

American Express does provide several unique identifiers: the last 5 digits of the card number, the payment date, and payment amount. But those aren’t instantly recognizable to all cardmembers. The combination of account name and the last few digits is much more effective (see Citibank article).

Grades
A  for look & feel
A- for cross sales (two offers might be a bit much)
A for self-service with five links to popular online card management functions
B- for security (last 5 digits included, but no cardholder name, no mention of how to verify the authenticity)
————————–
A- overall

—JB

If you’d like to learn more about the bank and financial services email trends, check out Email Marketing in Financial Services: Leveraging the Inbox from our sister publication, the Online Banking Report.

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RF Technology for Online Banking Login?

By Jim Bruene Posted on
Categories: Credit/Debit Cards, Security & Privacy

Chase_blinkNow that Visa, MasterCard, and American Express and others are actively putting so-called contactless cards into the hands of consumers (Chase’s blink for instance), it’s not such a far-fetched thought that these radio-frequency (RF) cards could be used as the extra factor for online banking login.

PCs equipped with RF card readers could read the user’s plastic, allowing the user to log in securely with just a username/password, or conceivably just a password.

But PC makers aren’t going to add card reading technology, no matter how cheap it is, just for online banking. But if merchants began insisting on the RF readers to cut down on card fraud for online purchases, perhaps with the associations agreeing that a purchase made with a PC-based RF reader qualified as a "card present" transaction, then the technology could take off.

Using contactless cards online could be more beneficial than using them for off-line purchases. In the physical world, the contactless card merely saves a few seconds compared to swiping it through a conventional terminal. But online the savings could be more dramatic, potentially allowing the customer to skip typing their card and verification number into a web forms. 

—JB

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