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Chris Zagorski Posts Tagged ‘Credit Cards’
HSBC increases Orchard Bank email marketing, challenges First Premier
Based on preliminary January results, HSBC is on track to become the leading acquisition emailer, toppling First Premier from the spot.
This has only occurred in one other month in the past three years, when Chase took the highest share of acquisition email last July. This latest shift in the pecking order is more significant as HSBC is using its Orchard Bank MasterCard to compete head-to-head with First Premier.
Subprime issuers, particularly First Premier, have been able to integrate email into their acquisition strategies by offering credit to consumers who can’t get it elsewhere.
HSBC began ramping up its email marketing efforts to subprime consumers in Q4 2009 as the economy began to show signs of recovery. The issuer’s January offers, for its Orchard Bank MasterCard, target consumers looking to build or rebuild their credit. Some emails encourage applicants with less than perfect credit histories to apply. The emails promote free online bill pay, online account access, reporting to three credit bureaus and fraud protection. HSBC promises a decision within 30 seconds.
First Premier’s emails continue to focus on the Centennial Classic MasterCard. Many show a photograph of the card along with a ball-and-chain. Some emails promote a low APR on purchases, online credit education and 24-hour account access by phone. First Premier also promises a decision within seconds.
HSBC’s email ramp up means more competition in the subprime space. This can only be a good thing for consumers looking to establish or rebuild credit as it means more choice and potentially better terms.
Card Issuers Adapt to New Fed Rule on Floor Rates
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.
Q&A about 2010 Financial Services Trends
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!