More predictions for the banking industry in 2010

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Monday, Feb 8, 2010 •  Posted by


With the turn of the New Year and news about potential banking legislation, I’ve been thinking about how the banking industry will change this year. We just put out a press release with five of my predictions, but here are some more things I’ve been thinking about for banking in 2010:

Prepaid cards could be a good alternative to checking accounts
The prepaid industry claims that, for some lower-income consumers, prepaid cards can be cheaper than traditional bank accounts with overdraft protection. This will certainly be true if banks begin to institute monthly fees or fees for bill payments and other types of transactions that are currently free. In a sign that there is more interest in prepaid cards, MasterCard reported it is looking at ways to market prepaid cards to the affluent.

Banks will seek to create “financially literate” customers
Much has been said about how the ongoing economic situation was caused—in part—by a lack of consumer knowledge about financial matters. The “Great Recession” been a wake-up call for every generation. According to Mintel consumer surveys, each generation is reacting differently, but young Echo Boomers have a strong desire to learn more about financial matters. Wells Fargo is tapping into this with its Virtual Island on Facebook.

Mobile banking is here to stay
The success and ubiquity of smart phones is driving banks and investment firms to develop applications that allow mobile banking and payments. User demand will be the reason that mobile banking succeeds. With teenagers and young adults relying on their phones in ways never imagined, mobile banking will become an expected service for the younger generations. At the same time, banks must carefully consider how they’ll engage mobile banking customers to ensure a long-term relationship.

Banks will begin to figure out social networking
Banks have struggled with how to embrace social networking sites such as Twitter, Facebook and You Tube, but 2010 will see them finding new and better ways to get involved. Jwaala, for example, recently announced technology that allows customers to receive alerts through social networking sites rather than through email.

Overall however, 2010 won’t be about financial services companies setting up pages and groups on social networking sites. Instead, banks will start developing applications for use in social media and creating a presence that says something about their brand. They will begin to use social media to network with new groups of customers.

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Medicare direct mail up 23% in Q4 2009

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Friday, Feb 5, 2010 •  Posted by


There are two months to go in the open enrollment period for Medicare policyholders. Medicare acquisition direct mail volumes for the last quarter of 2009 increased a strong 23% over the same quarter in 2008. This is a little more than we forecasted in a recent press release on Medicare enrollment.

Looking over what direct mail is being sent to consumers this year, most companies are using close derivations of what they sent last year. Some are using almost identical creative with only small changes to the text. This allows them to send full campaigns without the added cost of extensive design work.

Coventry Health Care Group, for example, is running a similar direct marketing campaign to last year. Letters seen in early 2009 had the text “1 – Be Healthy, 2 – Save Money, 3 – Be Independent” on the envelope, on a good-sized sidebar, and as icons for paragraph headers. These letters also included a “1-2-3 Comparison Quiz” so the consumer could think about how his or her plan measured up.

This year, Coventry is using much of the same creative, but they’ve moved things around to keep their direct mail fresh. A one-piece mailer we’ve seen features a “Medicare Plan Check List” that is similar to the quiz of last year. The mailing also repeats the 1-2-3 theme but it’s briefer and more straight-forward, better suited to the one-piece mailer format.

AARP/United Healthcare similarly uses the same letter as last year for its Medicare Complete product.

Aetna, as another example of this year’s campaigns, features lists and a worksheet in its Medicare letter. The direct mail campaign directs recipients to informational meetings to learn more about Medicare open enrollment.

Medicare’s regulated enrollment period does make testing new creative a challenge and a risk. With a limited amount of time to put mail out and approval required before a mail piece can be used, there are many constraints on testing a mail piece’s effectiveness. I imagine that’s why we see so many companies playing it safe with small modifications to last year’s direct mail campaigns.

Mintel Comperemedia forecasts more mail this quarter than what was sent out last year in the first quarter. I would anticipate roughly a 10% increase in Medicare acquisition mail, largely driven by the open enrollment solicitation effort and with modest changes to the creative used last year.

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Card Issuers Adapt to New Fed Rule on Floor Rates

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Thursday, Feb 4, 2010 •  Posted by


On January 12th, the Federal Reserve Board approved a final rule amending Regulation Z (Truth in Lending) to “protect consumers who use credit cards from a number of costly practices.” The majority of the final rule, implementing the CARD Act of 2009, becomes effective February 22, 2010.

One provision of the rule prohibits credit card issuers from increasing rates on new charges and existing balances. However, variable rate cards are excluded from this rule which means the APR on variable rate cards, such as those linked to the Prime rate, will be permitted to increase when the Prime rate increases.

Some of the details regarding this exception for variable rate cards have been known for sometime and, as a result, the majority of direct mail offers for new credit cards now promote variable go-to purchase APRs tied to the Prime rate.

The final rule has surprised a number of issuers by adding a requirement that variable rate APRs must be allowed to decrease as well as increase. This impacts those issuers promoting variable rate plans with a “floor” or minimum rate whereby an APR can fluctuate, based on Prime, but can’t be reduced any lower than a specified rate.

Only a handful of issuers utilize a floor rate pricing strategy. Some of the larger proponents of floor rate pricing in 2009 included U.S. Bank, via its Elan Financial Services unit, HSBC, GE, USAA and Wells Fargo/Wachovia.

Each of these issuers promote a variable go-to purchase APR that varies with the Prime rate. In each case, the minimum rate matches the promoted go-to APR. The most frequently mailed offer in 2009 was for HSBC’s Platinum MasterCard promoting a “Variable Customary APR” that matched the “Minimum Customary APR.”

Issuers with floor rate strategies are likely to have their CARD Act compliance plans in place ahead of the February 22nd deadline. They will now have to adapt those plans to accommodate the new rule. The most likely outcome is that the change will drive further increases to go-to purchase APRs as issuers look cover any risk associated with dropping the minimum rate.

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Q&A about 2010 Financial Services Trends

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Monday, Feb 1, 2010 •  Posted by


I spent the weekend crafting answers to the many great questions people sent during and after our “2010 Financial Services Trends” webinar. If you’d still like to check out the presentation slides or watch the webinar recording, click here.

Also, please don’t hesitate to use the comments field below to post more questions or to add to my answers. I’m very eager to hear what you think about our predictions and to get a dialogue started about major financial services trends for this year.

Without further ado… the answers.

Q1: Why do you equate saving with simplification?

This is a continuation of discussion we had in webinars last summer about how consumers are simplifying their lives. The basic premise is that saving money = buying less stuff = simpler lifestyle. Consumers generally save more during recessions, but in this case, it is part of a more general and longer-term trend that encompasses simplification.

Q2: Please expand on how social marketing provides “highly measurable ROI?”

Social and digital media tracking can provide a tremendous amount of behavioral data that can be used to determine ROI (return on investment). In terms of measurability, social marketing compares favorably to other marketing channels, such as TV or direct mail. For example, online data like click trails can show how well the social media strategy is driving visitors to the company website.

Q3: What was presented as a reasonable alternative to traditional banking during your research?

We often use examples in our survey questions, but in this case we didn’t. We simply wanted to measure the degree of consumer dissatisfaction with banks, not the degree of attraction to specific banking alternatives. However, some alternatives we could have mentioned would be accounts at brokerage or mutual fund firms, or perhaps prepaid cards with online bill pay services.

In a survey Mintel conducted in September of 2009, 5% of respondents said they “would leave my current bank if Walmart offered all the same financial services that my bank does”. In this case, Walmart could be considered a bank alternative.

Q4: Can you further explain Blippy? We do not understand the way it works.

Check out their website at http://blippy.com/. The site is basically a social media site that posts financial transactions so that everyone can see what you are buying. You can either designate a primary credit card or you can share your information at Amazon.com or iTunes for instance. People are calling it the “Twitter of personal finance.” This indicates that the trend of all our behavior being shared online is continuing.

Q5: Isn’t P2P lending a legalized version of loan sharking?

It is if the fee structure is exorbitantly high. However, our data indicates that many consumers don’t pay as much attention to fees as one would think. And the convenience of P2P will probably be a draw for a certain portion of consumers.

Q6: You indicated that 29% of people tend to ignore FS companies on social networking sites. How does this compare to other industries?

That’s a very interesting question, and it will certainly be included in our next round of consumer surveys on the subject of social media. Stay tuned!

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