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Lisa Hronek Posts Tagged ‘Chase’
Make Way for the Smart Chip
The U.S. payments industry is probably the most advanced on the planet when you consider the size of the market, card penetration, the extent of innovation and many other factors. Yet, one development where the U.S. has been seemingly lagging is in the technology required to authenticate credit and debit card transactions. In an effort to reduce card fraud, more than 50 countries have now migrated to EMV enabled cards (named after the developers Europay, MasterCard and Visa) incorporating smart chip technology. In comparison, the U.S. payments industry still relies on the magnetic stripe, invented by IBM back in 1960, to authenticate payments.
The reality is that EMV didn’t catch on in the U.S. because there wasn’t the same need to address fraud as there was in other countries. Factor in the huge cost of changing card terminals at millions of merchants and there has been little justification to make the switch. However, recently, both Visa and MasterCard have outlined their plans to implement EMV enabled terminals by April, 2013. The initiative is being motivated by a desire to usher in the age of mobile payments by equipping merchants with terminals that can accommodate both EMV and NFC (Near Field Communications). NFC facilitates payment at the point-of-sale with a smartphone and is the platform used by two of the leading innovators in mobile payments – Google Wallet and Isis.
One of the first countries to adopt EMV was the United Kingdom – my homeland – which embraced a system branded as “Chip and PIN” back in 2004. As a frequent visitor to the U.K., I have experienced firsthand the blank stares of waiters and sales assistants as I have handed over my U.S. credit card and explained that “I need to swipe” backed up with “I don’t have a PIN” (the machines that accept chip cards can also accept a mag stripe). Usually we get through it, eventually, although occasionally a similarly bemused manager has to be called and the additional delay and uncertainty can be frustrating. The issue will only get worse for travelers given that, in just 4 years, anyone in the U.K. below the age of 30 is unlikely to have any concept of signing a credit card receipt unless they have been specifically trained in how to handle visitors from America.
Recently there has been some movement toward EMV here in the U.S. specifically for cards targeted at international travelers. A handful of issuers now offer EMV enabled cards including Chase and U.S. Bank. As an existing Chase British Airways Visa Signature cardholder I recently received my replacement card with “smart chip technology.” A customer communication followed, encouraging me to “shop like a local everywhere” and explaining that the chip will “avoid inconveniences at the point of purchase when traveling abroad.” To add a little urgency to the situation the communication provided an interesting fact posed as a question: “Did you know that chip cards are required at unattended kiosks on the London Underground?” Next to this question a phone number was provided in case I wanted them to “rush” one to me “for no additional charge.”
U.S. Bank has been communicating to its FlexPerks Travel Rewards Visa Signature cardholders promoting the card as “one of the first ‘smart cards’ in the U.S. that features a traditional magnetic stripe and EMV technology.” The communication highlighted the fact that Forbes recently named the card to its list of “10 Financial Innovations That Make Your Life Easier in 2012” siting “smarter travel-friendly spending.” (Source: Comperemedia)
U.S. card issuers can learn from the experience of their neighbors north of the border when it comes to EMV cardholder communications. Canada began migrating to EMV in 2008 and there is still work to do. Canadian banks continue to educate their customers through statement inserts and other cardholder communications suggesting that it is an on-going effort. RBC mailed customers in May setting expectations that “for several years to come you will experience two types of transactions” and to reassure them that transactions are “just as secure as ever.” The bank also provided a step-by-step guide to using the card. (Source: Comperemedia)
It seems that cards with smart chips are finally on their way to the U.S. International travelers will understand the benefits, but the bulk of consumers will need to be convinced through on-going communication. The U.S. payments industry is gearing up to accommodate multiple transaction methods as it begins the migration towards mobile payments.
It’s beginning to feel a lot like…Earnings Season!
Right now football season is in full swing and the holidays are right around the corner. For banks, however, there seems be little hope of a lot of holiday cheer to look forward to. Why?
Two words: Earnings. Season.
In advance of most banks releasing their earnings, The New York Times stated in an article, “For banks, the situation is likely to get worse before it gets better.”
The scary thing, of course, is that we’ve been saying that for years now.
Chase released its earnings on Friday and posted a 4% profit decline for the third quarter compared to the same quarter of 2010. This doesn’t bode well for the rest of the industry given that Chase is considered one of the best managed banks in the industry. Indeed, according to data from Trepp, overall revenue is expected to fall 4% in the third quarter, slipping back to 2005 levels. Consumers, however, seem to be worse off - household income has reportedly dipped to 1996 levels, when adjusted for inflation…
The banks, of course, are looking for ways to make up the revenue lost due to new federal regulations. It’s no secret that banks are attempting to do this by imposing fees on their customers. Free checking – if it even existed in the first place – has largely been eliminated. And infamously, Bank of America announced a $5 fee in any month in which a customer uses a debit card. Wells Fargo and Chase have been testing debit card fees for some time.
Consumers aren’t taking these announcements lightly. One woman – Molly Katchpole – has started a petition asking Bank of America to “stop the debit card usage tax.” Her appeal isn’t to just Bank of America customers. She goes on to write, “Even if you’re not a Bank of America customer, this should matter to you. This campaign will show other banks who are planning to follow suit that the public won’t stand for Wall Street’s newest way to take money from its customers — and that they will take their money somewhere else.“ The petition currently has 224,000 signatures and has received TV, radio, online and print press coverage.
Uh, can you say, “viral?”
Remember Netflix? Remember when they increased their prices by 60%? As a result, the company’s stock lost 60% of its value and lost 1 million customers. The company has also had to backpedal on its plan to split into two services – again because customers were angry.
So what’s a company to do?
Granted, it’s much easier to leave Netflix than it is to leave your bank. Javelin Strategy and Research estimates that only 7% of consumers will switch banks in 2011. An article in the New York Times claims that online banking is the reason that customers don’t switch. But from my perspective, that’s just customers being lazy. It’s also a pain to move, change email addresses, or change phone numbers, but people do it all the time. Can you imagine living in the same place your entire life because it’s too much trouble to change your address?
Perhaps the state of inertia is finally poised to change…November 5th is “Bank Transfer Day” and a Facebook page dedicated to the day has almost 13,000 “likes.” Most likely the day needs a few more supporters to make a difference, but combined with Molly’s petition and the Occupy Wall Street protest, who knows what will happen in the coming weeks.
The irony of the situation is that banks developed debit cards as a replacement for paper checks – debit transactions are cheaper than check processing. Lloyd Constantine – lead counsel in the 1996 antitrust lawsuit against Visa and Mastercard – makes the point that debit transactions are still significantly cheaper than check transactions. If so, aren’t the banks potentially cutting of their now to spite their face, so to speak?
It’s a free country, so banks can charge what they want for their services. But I always wonder about the wisdom of punishing the people who keep them in business – their customers. Isn’t there some merit in having Happy Customers? Surely there’s another way to make money besides charging fees? Until the banks figure this out, expect earnings season to be dismal.
Are you preferred?
The word “preferred” seems to be catching on when it comes to credit card marketing. Using “preferred” to convey a higher level of status isn’t new; however, the increasing number of recent product launches that have the word baked into the card name suggests that a trend is emerging.
Here is a list of preferred cards hitting U.S. mailboxes in 2011. Note that five of these seven products were launched/re-launched since the official end of the recession.
- American Express Blue Cash Preferred
- American Express Blue Sky Preferred
- American Express Starwood Preferred Guest
- Bank of America Business Preferred World MasterCard(charge card)
- Chase Sapphire Preferred
- Citi ThankYou Preferred
- Citi Diamond Preferred
Some history…
There was a time when owning a gold credit card meant something. In the 1990’s, if you owned a gold card, you had financial clout and the cache that went along with it. Then, Visa removed the $5,000 minimum credit limit requirement for gold cards and suddenly they were being offered to the masses. Platinum cards followed the same path – most subprime credit card offers these days are for platinum cards – prompting Visa to launch its Visa Signature card and MasterCard to launch its World and World Elite products, to distinguish premium cards from traditional offerings. These network platforms haven’t disappeared but their use in a marketing campaign is less obvious in today’s environment.
Given the ongoing economic uncertainty, most issuers continue to focus on premium cardholders and competition for new premium cardholders has become particularly intense. Issuers have been looking for new ways to differentiate themselves and the result has been a shift towards a tiered approach, based upon a single product, available with multiple pricing options. For example, there are four versions of the Citi ThankYou card: ThankYou, Preferred, Premier and Prestige, each offering different benefits and fees. Similarly, there are three versions of the new Bank of America Business Charge Card. Both Chase and American Express use the term “preferred” to distinguish the fee-based versions of their products from the no-fee based cards.
A tiered approach to card marketing is becoming more popular, as issuers attempt to carve up the premium segment. As a result I expect that we will see more issuers use the word “preferred” in their marketing materials in the coming months (or at least until something else becomes more popular).
Chase supports the troops
Previously the remit of USAA, Chase has created banking products available only to military personnel. Chase’s new products are more generous than its standard free checking and savings products and include features that are normally available only through premier level products. These products are only available if the service members deposit their base pay (not just allotments) into their Chase accounts, but the products don’t have a minimum balance requirement. Along with the consumer banking products, service members are offered Military Mortgages and special Business Banking products.
How do these compare to the products already offered by USAA?
There isn’t a huge difference between the Chase and USAA consumer banking and mortgage products. Chase and USAA both offer free checking and savings accounts, no out-of-bank ATM fees and pay interest on some checking balances. The mortgage products both have discounts on fees, specialized military-focused consulting and VA loan benefits. Chase added free safety deposit boxes, doesn’t charge additional fees on wire transfers and 1% cashback on mortgage payments (offered on mortgage products to civilians, too). But, Chase is the first mover in offering business products to service members who have their own small business.
The government has spent the last few years repeating that the American people need to support the troops, and that small businesses are the only way out of the recession. Chase is stepping up to the challenge of supporting service members’ complex personal financial needs and found the white space of supporting service members who are both protecting the country and trying to pull us out of the recession.