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Lisa Hronek Posts Tagged ‘citibank’
A Smarter Credit Card Coming to Your Wallet Soon?
In a few months, a new and innovative credit card will likely be tested in the United Kingdom. In particular, this “smarter” credit card will allow customers to manage all of their accounts via one card, including personal and business credit accounts, as well as bank accounts. The card is the same size as a regular credit card, but it has buttons and a screen allowing customers to choose the credit account to charge against. Once the customer has selected the account, the process for charging is exactly the same. Dynamics Inc. manufactures the cards, which contain a miniature, flexible circuit board, a battery that lasts up to three years, and a programmable magnetic stripe – very much like a miniature computer. The technology from Dynamics is currently being utilized and tested by Citibank in the United States, but Dynamics appears to be in advanced talks with other United Kingdom banks regarding trials with this technology.
Dynamics currently manufactures several different innovative types of credit cards, such as a hidden card, a multi-account card, and a dynamic card. The hidden card hides account number information until the cardholders enters a PIN to reveal the full information necessary to complete a transaction. The multi-account card is fairly straight forward in that there are two accounts on the card and the user selects which account to utilize. In addition, the dynamic card helps to prevent fraud by automatically writing a new and unique security code onto its magnetic strip for every purchase, which could cause a problem for stored purchasing options, such as iTunes or a re-occurring Netflix subscription.
The company also manufactures a redemption card that allows the user to use points or credit at the point of sale by pressing the respective button. Comperemedia observed this card back in September 2011 from Citibank, called the Citi ThankYou Preferred 2G Card with Request Rewards (Media ID: 20110920-01191). Citibank employees started testing this card back in May 2011.
One of the most interesting things regarding all of the cards is that they all can utilize the existing magnetic strip technology and infrastructure already in use in the United States. Thus, merchants would not have to upgrade or change point-of-sale machines, as they would have to do so if chip and PIN technology or EMV (Euro MC/Visa) were implemented. However, Dynamics has developed versions of the card that utilize chip and PIN technology if we ever switch to this technology in the United States.
Personally, I have not seen any of the credit cards yet and there might be some kinks to work out prior to widespread usage, such as re-occurring purchases. However, anything that increases convenience and security is a plus in my book. The multi-card is an interesting product to me in that it would eliminate cards (and clutter) within my wallet. Likewise, it would be interesting to see if you could put accounts from different financial institutions on the same card – that would be cool. But let’s see how the trials go first in the UK.
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).
Flying and Banking. More Similar Than You Might Think.
In preparation for my upcoming webinar – The New Checking Landscape: Adapting to Reg E and the Durbin Amendment – my colleague, Julie Lizer, and I were brainstorming ideas and talking about the banking industry. We started to compare it to the airline industry. Granted, banking and flying don’t appear to have much in common. But think Fees, Reward Programs and Status.
From my perspective the banking and airline industries have a lot in common these days. Both are struggling with revenue and profitability. Both keep talking about fees (rather than core business products and services, I might point out.) And both have a lot of customers who are really unhappy with what they get from the company.
I would prefer not to fly these days. It’s just not a pleasant experience, partly because there are so many fees on top of the ticket price. It’s also just plain uncomfortable. And at 5’ 2”, if I’m uncomfortable in the seats, that means the overwhelming majority of passengers are even more uncomfortable than me.
Really? Make your customers pay. Then make them pay some more. Then make them uncomfortable and treat them rudely. I have no status on any airline so I get no rewards, no benefits and no services.
As a result, we try to fly Southwest whenever possible, mainly because they don’t charge to check baggage. When you’re a family of five, those baggage fees add up quickly. Plus the employees just seem happier. For the most part, however, we fly whatever airline is cheapest. We have no loyalty whatsoever.
Julie, on the other hand, has Super Duper Platinum Premier Status on one of the big airlines. She goes out of her way to fly with that airline—including paying more for a ticket—simply because the benefits of the loyalty program make it worth it. She’s somewhat oblivious to the fees, because with her status, the fees are waived.
She asked me what I thought about the fees in the banking industry.
The way Julie feels about flying is similar to how I feel about my bank. As a customer, I could care less what my bank decides to charge me. The number and the size of my products with my bank ensures that I’ll never be charged fees. And like Julie, I’d probably be somewhat inclined to pay a bit more to stay with my bank. It would be a complete hassle to move everything. And I like that fact that having everything at one place gives me preferential treatment. In other words – I. Have. Status.
As a market research professional, however, I think eventually the pendulum will swing the other way. When TCF started offering free checking in the mid 80s, everyone eventually followed suit. Not that long ago, TCF announced that it would charge $9.95 on accounts that didn’t maintain a balance of at least $500 or use direct deposit. By May, the company lost 250,000 accounts – basically all the accounts they had gained since 2004. The company changed course slightly and eliminated the minimum balance requirement for accounts that have at least 10 transactions a month.
Checking accounts are simply another commodity at this point. Consumers need them and there’s not much difference between them. I certainly like my bank, but I don’t love my bank. If we moved, I would evaluate the banks available in our new area.
In other words, although I enjoy the preferential treatment I get with my bank, they haven’t done anything to establish strong brand loyalty.
Many banks advertise convenience and ATM availability. In a Mintel survey, among people who had switched banks, 38% of those surveyed indicated the reason was because they moved or convenience. Of course, convenience means different things to different people. For me it’s about online banking, online bill pay tools and mobile banking. Quite frankly, I could care less if there was an ATM on every corner. I pay for everything – including my $1.69 cup of Starbucks coffee – with my debit card.
I think it’s interesting that banks are doing away with debit rewards, a tool that can actually increase loyalty. Even more interestingly is that Citibank, which offers the ThankYou Network rewards program, has not announced any plans to eliminate its reward programs. The bank has the most extensive loyalty program in the industry, and rewards customers for all their banking activity.
Airlines have some of the oldest, most successful loyalty programs in existence. But they’re not necessarily routed in tangible material rewards. The true value, at least according to Julie, is the fringe benefits – free baggage check, early boarding, upgrades, a special customer service number, beverage tickets, etc.
Rewards won’t resonate with every customer. But neither will convenience or the number of ATMs. The banking industry is doing very little to instill loyalty in customers and is instead focused on short-term revenue goals.
Perhaps, however, a longer term focus on loyalty and cross-sell efforts would be more beneficial. A more extensive rewards program – one that incorporates more than just material goods and incorporates status and services into the program – might achieve just that.
Your Average Banking Customer Isn’t An IT Professional…
Our banks and credit card companies are always looking for ways to deepen their relationships with us: Have a checking account, why not get a credit card? Have a credit card, link all your bills right to it! Beyond the standard products, they are also trying to replace cash in day-to-day interactions. American Express is promoting Serve, its P2P payments service. Bank of America, Chase and Wells Fargo teamed up to create clearXchange, another P2P platform. Transactions just take an email or text message. Citibank hooked up with Google to create Google wallet with Near-Field Communications payments – you don’t even need to open your wallet or phone to make a payment. Just wave your phone (which is probably already in your hand anyway). These transfer and payment systems are meant to make transactions faster, easier and safer. No cash, no lost cards, and easy to use technology.
Then Citibank has a security breach which puts 200,000 email addresses at risk.
Electronic security is, in all honesty, over most of our heads. The FTC says that 9 million Americans have their identities stolen every year. It is a frightening number. And, if I listen to popular opinion, I’m always a dumpster dive or email away from my life being a kafka-esque tragedy.
I have never been a victim of identity theft, nor have I known anyone who has been. I believe Citibank when it says that the details stolen on Wednesday can’t be used on their own, that the real danger for those 200,000 customers is more sophisticated phishing. But, I don’t really know how encryption works, why personal information is stored separately in databases, and I really don’t know how I can send a text message and it pays my brother back for lunch. So, I’m wary.
I would like for my bank, and my brother’s bank, to make it clear how and why these new technologies are safe. And to explain it so my mom can understand. The value of most of these services is universal acceptance. If I want to use a P2P platform but my brother just wants cash, it has to be a cash-only transaction. For all of us (non-tech nerds) to benefit from new technologies, we need our banks to hold our hands a little.