On Tuesday, the Federal Reserve confirmed what we have all been thinking for the last couple months – the US economic recovery is weakening. The health of our small businesses is acknowledged as being key to the recovery and many economists agree that the inability of small firms to obtain financing has stifled economic growth. Small businesses need loans to invest in capital and hire employees so that they can begin new projects. We need to have faith in these companies in order to break the negative cycle that is holding back the country.

I was therefore shocked to read in the Mintel Comperemedia Q2 2010 Small Business Lines and Loans Review that just 3% of business panelists had received a business loan offer via direct mail during the quarter; this is down from nearly 40% two years ago.

This fact is particularly alarming when you consider some of the bold statements made recently by banks as they compete to outdo each other with various lending statistics. I take my hat off to those banks that are not just talking-up their lending activities, but are also integrating those efforts with direct marketing campaigns. In other words, reaching out to small businesses, directly, in their time of need.

PNC, BBVA Compass and Chase are doing just that:

– PNC has been promoting its Cash Flow Options program in direct mail. Cash Flow Options encompasses a suite of loan products and the bank is offering a half-point reduction off its daily quoted interest rate plus a 50% reduction off the loan origination fee.

– BBVA Compass has been sending offers to small business owners promoting unsecured lines of credit and business loans. Lines range from $10,000 to $250,000 with interest rates as low as 6.00%. For 5-year term loans of $100,000 or more, small business owners can get a rate as low as 5.18%.

– Chase’s Loan for Hire campaign is the most noteworthy campaign of the national banks. Small businesses can get a half-point rate discount on each employee they hire up to three. Also, if you have a business checking account with Chase, you get another half-point discount on top of that for a total of 2% off the published daily interest rate. We haven’t seen a direct mail campaign promoting Loan for Hire yet, but Chase has blanketed the country with print and radio advertisements and has been promoting the product in its branches.

The PNC, BBVA and Chase examples are encouraging, but clearly it is not enough to keep economic recovery strong. Another positive sign is that small business credit card marketing is up significantly. This will be invaluable for many small firms as they struggle to stay afloat.

It’s time for business lending to follow suit and pull this country clear of the great recession once and for all. Yes, a rallying cry for small business marketers; nothing less than our economic future is at stake.

Further evidence that the “Great Recession” has had a significant effect on consumer behavior:

– In a recent Mintel consumer study, a substantial 76% of respondents state that they are “smarter shoppers” than they were a year ago.

– Almost seven in ten say they are trying to buy only necessary items, such as food (and that last number includes about half of those households earning more than $100k annually).

But price is not the only consideration. Only half of the consumers in the survey say that low price is more important than good customer service, while seven in ten say they only buy brands they trust.
What does this mean? It means that the definition of “smart shopper” is not just about price, it is more and more about value. And the concept of value has been extended to include trust in the brand, as well as good customer service.

These numbers look very much the same as they did a year and even two years ago, when the recession was just beginning to alter consumer behavior. This means that consumers are settling into a “less is more” mindset, while expecting more from their brand and shopping experiences.

Anyone in Financial Services (along with other industries) who is not conducting branding studies and consumer experience research should probably take note.

Thank you to everyone who listened in to my webinar yesterday (July 22): “Beyond the New Normal: The Financial Services Consumer in Today’s Economy.”

I really enjoy presenting Mintel Comperemedia’s information on how people are reacting and changing their habits due to the economy of the last couple years. Many of you asked questions related to consumer trust, which I think is an excellent topic for banks and other financial institutions to think about right now.

If you missed the webinar, you can access the slides and recording here:

- Webinar slides
- Webinar recording

Here are my answers to some of the questions we didn’t get to yesterday:

Q. Is there somewhere that all of the statistics are posted? Some were mentioned that were not on the slides.

A. Please contact your account manager with specific requests for data. I will also be posting some data points from the presentation on the blog over the next few days. If you are not a Mintel Comperemedia client, please contact info@comperemedia.com to learn more about subscribing.

Q. There seems to be a lot of contradictory information – consumers don’t want a relationship with a bank, but that’s the only way we’ll attract customers. If we need to build trust, how specifically do bank marketers do that?

A. Actually…customers DO want a relationship with banks and other financial services companies. I could write a book (actually several books) on different ways that companies could build trust with their customers, but it begins with a longer term focus, rather short-term strategies designed to maximize quarterly earnings, as well as openness with customers – being forthcoming with information about what to expect from the relationship.

As I mentioned during the webinar, it is not necessarily the fees themselves that are the problem, for example. Instead, the problem is that customers feel like banks are being unfair or even “sneaky” about how they charge fees to their customers. Same thing for privacy and the use of personal information.

The best way to think about it is to think about what factors into maintaining a long-term friendship, since customers are looking for the same things from a personal relationship as from a business relationship.

Q. What was meant by “control” in the characteristics people expect from banks?

A. We didn’t define the concept of control when we asked about the 12 attributes. That would actually be a good focus for future studies – to break down those attributes even further to gain an even better understanding of how customers define “trust”.

The question(s) as they were asked were:

“Thinking about what it means to ‘trust’ another person (financial services company), please indicate on a scale of 1-5 how important each of the following is in establishing that trust”

Top 6 for both:
Honesty
Respect
Loyalty
Fairness
Communication
Commitment

Bottom 6 or both:
Reciprocity (receiving an equal or greater amount in return)
Empathy
Predictability
Usefulness
Empowerment
Control

Q. Where will lower income customers turn for credit, given that alternative lenders (e.g., payday, auto title) are increasingly scrutinized?

A. Lower income customers have definitely borne much of the burden of the declining availability of credit. The regulatory changes will probably only exacerbate that situation. This is a huge market, however, and eventually (as always happens), new ways of mitigating risk, or new ways of offering credit that to these segments that have regulatory approval, will appear.

One way that this market may open up again is through the use of better risk assessment tools – above and beyond the traditional Fico or other type of risk score. That would allow lower income customers, who are not necessarily higher risk, to have access to credit because lenders will have better and more detailed ways of assessing credit worthiness.

Q. How do you see Bank of America’s move to eliminate ODP (overdraft protection) fees in the context of your presentation?

A. One of the best marketing moves a bank can make is to be proactive about eliminating or restricting something ahead of the game. It is a tremendous differentiation strategy that helps establish trust. The same is true for entire industries.

About three years ago I wrote a piece for the Mintel Oxygen website titled “Self regulate or be regulated,” suggesting that the credit card industry, which has historically suffered from a tremendous lack of consumer trust, might want to be proactive in limiting fees across the industry to improve general perceptions of the entire industry. That of course never happened, and sure enough, the CARD Act has accomplished much of that restriction of fees for them.

The result? People are still highly distrustful of credit card companies/issuers/networks, and their fees have been restricted anyway. It might have been better to get ahead of the game and at least have the additional bonus of somewhat improved customer relations.

This relates to my points about a short-term focus on quantifiable returns, rather than the longer term focus on building a relationship that improves perceptions of a brand.

Please join Mintel Comperemedia’s, Susan Menke, Ph. D and Economic Psychologist, on July 22, 2010 for a free webinar entitled “Beyond the New Normal: The Financial Services Consumer in Today’s Economy.” The webinar will start promptly at 2pm CT.

You can register HERE.

Over the last two years, the banking crisis and the “great recession” have caused a dramatic shift in consumer’s attitudes and behaviors. Consumers are now asking for different kinds of products and services from their financial services providers, and the most successful companies will listen to what they are saying and act accordingly.

A few of the questions to be discussed in this webinar include:

– How is the consumer mindset changing as they place more emphasis on asset accumulation and less on consumption?
– What are the similarities and differences in the ways Gen X, Gen Y and Baby Boomers have been affected?
– What specifically is driving the level of trust (or lack thereof) in the financial services industry? How instrumental are concerns about privacy and security?
– What is the current status of financial reform legislation, and what does the consumer think about it?
– What is currently driving consumer satisfaction with the financial services industry? How does this relate to the “emerging under-banked” trend that Mintel has been discussing for the last several years?
– How important will social media be to the future of the industry?

The webinar will last 45 minutes with 15 minutes of Q&A. All attendees will receive a copy of the presentation and the slides following the webinar. Also, you can check back here on the Comperemedia Blog to see answers to questions submitted during the webinar from July 23, 2010 on.

Want to learn more about Susan Menke, VP of Mintel Comperemedia? Read her bio or contact us_marketing@mintel.com to get in touch with her.

I saw a headline for a report that was just released by the NPD Group and thought it was quite interesting…

Director of product development at NPD and author of the report Dori Hickey: “Most consumers have unquestionably felt the sting of tough economic times and have cut back on spending and adopted thriftier behaviors; behaviors that may become entrenched the longer the recession continues. Our findings suggest we may be looking at a new ‘normal’.” Read the story.

There is, of course, a chance that they started covering the New Normal before June 2010, but I couldn’t find a reference to anything they’ve produced about it.

Meanwhile, the first reference I made to the New Normal was in 2008. Since then, Mintel has covered the concept in news pieces, observations, expert blogs, trends, reports, a white paper and a webinar.

Here’s that first piece I wrote, from Mintel Inspire. I hope you enjoy it.

The End of Easy Credit

Every once in a while a major event occurs that can potentially lead to a major societal shift in lifestyles, values or perspectives.

Assessing risk
9/11 was one such occurrence in the U.S. The recent economic “meltdown” is likely another such event. These recent economic events are less tragic of course, but much broader in scope, and more global in their sweep.

In other words, once the current “freeze” of available credit thaws, credit will be available again, but in much more limited quantities and to a much more select group of people. This will likely cause a societal shift of major proportions.

The current state of the economy exists for a number of reasons, but one stands out – that the amount of risk in the system was not assessed and priced accurately.

• Much of the current chaos exists because of the uncertainty about how risk should be priced going forward.
• Financial services companies have historically justified their existence to their shareholders and customers by their willingness to either assume, or provide protections against, much of the risk in the economic system.
• When that level is miscalculated those same financial services companies are the first to feel the impact.
• The impact on the consumer is felt later, but can be even more dramatic and substantial.

Personal risk
At the current time, while financial companies are busy trying to determine the amount of systemic risk and how best to deal with it, the consumer is busy trying to determine their own individual risk. They have pulled in spending and investment until such time as they feel reassured about these institutions and the system overall.

However, unlike much of the rest of the world, ever-optimistic Americans have indicated in recent surveys that they feel that things will return to “normal” in 6 months to a year, and that the economic situation will actually improve from its previous levels over the next five years. And they are conducting themselves accordingly.

However, without the availability of easily available credit, it is likely that what is “normal” has shifted and that consumers in the U.S. and globally will be looking at a new “normal”.

In other words, the upwardly spiraling expectations set up by the prolific use of credit in the last few years will need to be reversed—an occurrence that has no precedence for most living Americans.

For the first time in recent history we will need to make do with less.

Amplification of two trends
What this means is that eventually some form of capitulation must take place. Americans will need to develop a new unique state of mind, new ways of viewing themselves and their place in society, and these economically induced trends will likely intensify major trends already in place. For instance, two trends likely to be accelerated include simplification and the “greening of society”.

Simplification

• In a mobile society it is easy see why conspicuous consumption may gain acceptance, since individuals like to provide instant “cues” as to their place in the social hierarchy.
• This lies in contrast to the less-mobile, small town societies of several generations ago in which everyone knew their place.
• It is likely that recent trends identified as part of the simplicity movement (for instance, work/life balance), will accelerate social pressures against more obvious displays of conspicuous consumption.
• Flaunting designer labels may again be viewed as gauche.
• In other words, there is likely to be a significant shift in what is perceived as acceptable outward symbols of social status.
• The new “status” could be outward displays of frugality.

Green movement

• Green marketing has fallen by the wayside in the last few months as people have dealt with more immediate issues, but will likely return with a vengeance when consumers feel more secure with their personal circumstances.
• Concurrent with the simplicity movement discussed above, people are likely to turn their attention from consumption to other issues.
• Being environmentally conscious could very well define the new “cool”.

The new normal
So then, how will this “new normal” impact the financial services industry?

As we all know, opportunity comes from chaos, and the current situation is no exception. Financial services companies need to step back and monitor how society is reacting to these fast-paced developments, while reassuring their customers that they are doing everything they can to insure their future financial security.

One way to show they care is to reflect the values of simplicity, as they will likely be enhanced by a return to diminished expectations for consumption, and a more conservative view of how money is to be managed.

There may ultimately be new product opportunities created as people begin to save more and spend less, but companies need to anticipate how best to speak to these changes in cultural values.

Thanks to all who listened in on my webinar with Nielsen’s Brian Schlessinger last Thursday (June 10). We experienced audio issues during Brian’s portion of the webinar, so I apologize for any inconvenience.

To make the recording better quality, we’ve re-recorded the webinar (minus the Q&A session). You can access the new recording and the slides here: http://tinyurl.com/2duguqf.

We did have many great questions asked during the webinar and I’ve responded to all of them below. Please contact me at ADavidson@Mintel.com or visit www.comperemedia.com if you have any questions.

Q. I’m curious as to how “Revolvers” were defined by Mintel.
A. Revolvers were defined as those who typically carry a balance from month to month on their primary credit card.

Q. What triggered consumer suspicion about a decrease in teaser rate offers and balance transfer offers? What was different in actual CARD Act that negated those concerns?
A. The new payment allocation rule in which payments, above the minimum due, are allocated to the highest APR balances first caused many to suggest that the industry would not be able to make money from teaser rates and we would see a reduction of teaser rate offers in the mail. This didn’t materialize and, in fact, most offers tracked by Comperemedia promote either a teaser rate for purchases or balance transfers. Issuers have navigated the payment allocation rule by increasing fees for balance transfers with many now charging 4% or 5% of the check amount. They have also increased APRs for purchases despite the low prime rate.

Q. Once these new regulations are fully digested, what do you see as new potential loopholes issuers may take advantage of?
A. In its relatively short history, the card industry has adapted to change successfully. We have already discussed the increase in go-to purchase APRs and BT fees. During the past two years, the industry as a whole scaled back to focus on only the most profitable customers. As competition increases, card issuers will need to continue to be creative to find new ways to promote their products while increasing revenues. Comperemedia will be assessing how they do this in direct mail, email, online and print advertising during the coming months. (Learn more: www.comperemedia.com.)

Q. What do consumers need to watch out for?
A. Consumers will start seeing more offers in the mail as the competition heats up. Terms are more transparent and it is easier to compare one offer with another due to the new Schumer Box format. If they are looking to transfer a balance, they should pay close attention to BT fees and not just the duration of the intro period. In a post-CARD Act world, the better the offer, the higher the BT fee.

Q. What has been the impact of the CARD Act on Small Business cardholders, considering those cards are exempt?
A. Small business cards are exempt and there was some speculation last year that issuers would redirect their efforts towards the small business market. This didn’t happen on a significant scale and volume levels remained comparatively low. Activity did start to pick up towards the end of the year although the pattern in business cards lags behind what we see in consumer. Capital One has been a key driver in recent months along with Chase and American Express. At some point we may expect legislation regarding small business cards.

Q. What forms of media would be best to get the positive PR about the CARD Act out to consumers?
A. Education needs to be on-going and some media are better at communicating on-going messages than others. More recently, financial institutions have turned to blogs to develop an on-going dialogue with consumers. Citi established a new blog (http://new.citi.com) to help rebuild its image in the wake of the financial crisis. Wells Fargo has been cautiously navigating the Wachovia integration through various tools including a dedicated blog (http://blog.wellsfargo.com/wachovia). A more traditional format is newsletters. Statement inserts should also play a key role. As a result of the CARD Act, more consumers are paying attention to their statements and this presents an opportunity for dialogue.

Q. What is the estimated financial loss to the credit card industry as a result of the CARD Act?
A. This will be difficult to calculate. The new regulations came at a time when the industry was already at a low point due to the recession. Signs indicate a return to profits for many industry players.

Q. Will mail volume continue to grow related to the CARD Act?
A. Yes. The recent increase in mail volume is being driven primarily by Chase. Some issuers, such as Bank of America and Discover, are still mailing at relatively low levels which means there is plenty of slack to be taken up. We anticipate acquisition mail volume reaching 3-4 billion this year, up from around 2 billion last year, but still much lower than the 7-8 billion seen during the boom years.

Hi everyone. Tomorrow, with the help of Brian Schlessinger, Vice President of Industry Solutions at Nielsen, Mintel Comperemedia will host a webinar:

“One Year Later: The Impact of the CARD Act”
Thursday, June 9, 2010
2:00-3:00pm CT

It’s been one year since Congress signed the CARD Act into law, forever changing the face of credit card lending in the US. Though many of the new regulations didn’t take effect until 2010, card issuers began communicating rate, fee and plan changes to customers as early as Summer 2009. Despite this communication, many consumers still worry about credit card rates and fees, and many feel underwhelmed by the benefits of the CARD Act.

This presentation will examine:

- How card issuers communicated CARD Act changes to their customers, including which issuers were most successful in getting their messages across
- New trends in credit card acquisition direct mail and email campaigns as a result of CARD Act regulations
- The influence of online buzz and its ability to drive opinions related to the CARD Act
- Consumer awareness and their latest opinions regarding the new rules

I hope you can join us! I’ll be posting the recording and slides here after the webinar, as well as answers to the Q&A. Register for the webinar with this link: http://bit.ly/bKV30m

The CARD Act mandates that consumers must be given the right to opt in for over limit fees. Until now we have not seen how the card industry will address the new rule within acquisition direct marketing. However in March, U.S. Bank made the first move by including an over limit opt in check box on application forms so that prospective cardholders can authorize future over limit transactions.

The U.S. Bank check box is shown on the application form under the heading “Overlimit transaction opt in right.” U.S. Bank (and Elan Financial Services) application forms are attached to the letter or, in some cases, included as a separate acceptance certificate. The fine print for the opt in states that “you will pay one fee per billing cycle even if you go over your credit limit multiple times.” It goes on to disclose that the bank “may still decline transactions that go over your Credit Limit, such as if you are past due or significantly over your Credit Limit.” The bank charges $39 for an over limit transaction.

U.S. Bank also communicated with customers during February and March regarding the opt in, presenting an option to sign up for “overlimit coverage.” Customers can sign up online or by calling Cardmember Service.

HSBC has been the only other issuer mentioning the opt in in its acquisition direct marketing efforts. In March, it outlined the requirement in its “Solicitation Disclosures” insert. Like the U.S. Bank communication, HSBC’s insert describes over limit “coverage,” but unlike U.S. Bank it does not provide applicants with the ability to physically opt in at the point of application. HSBC charges $19 on balances over limit but less than $250 and $30 for balances over $250.

U.S. Bank has taken the lead by adding a check box to its acquisition mail and we are now seeing the new language of “over limit coverage” from both U.S. Bank and HSBC. It is likely that others in the industry will follow as we continue to navigate the ongoing impact of the CARD Act.

Nothing annoys consumers more than paying for things that used to be free or feeling that they are being nickel and dimed. As the banking industry struggles with how to recoup money lost to overdraft fee income, they are wise to take some lessons from the airline industry.

The airline industry attempted to stem huge financial losses by charging a wide variety of fees. Flyers now pay to book the ticket, redeem frequent flyer miles, make a particular seat choice, change a ticket, check bags, obtain a pillow or blanket, and for food and drinks.

Unfortunately, added fees haven’t propelled the travel industry into profitability. AMR, parent of American Airlines, posted a $1.5 billion loss. US Air, Continental, United and Delta also posted losses. Combined, the industry lost $3.4 billion in 2009.

Southwest, however, was one airline to post a sizeable profit. The company heavily advertised “Bags Fly Free,” and that strategy may have paid off. The company’s Chairman and Chief Executive Gary Kelly attributes the success, in part, to the fees that its competitors are assessing. In a January conference call with Wall Street analysts, he was quoted as saying, “I hope they charge $100 a bag. That would be terrific. We’ll have 100 percent load factors.”

Going beyond the fee

With customer satisfaction, loyalty, and brand image on the decline over the past few years, banks can hardly afford to alienate customers. Rather than focusing on what fees to charge, the industry should focus instead on innovating services and products that give people confidence. It’s not that fees are never justified – it just might not be wise to assess fees on previously free services. In fact, a recent JD Power study indicates that high customer satisfaction rates are possible to maintain as long as consumers perceive that they are receiving sufficient value in exchange.

At the end of the day, customers know that it’s their deposits that fund the banks other, more profitable, activities. So while consumers need a place to bank, the banks need consumers just as much. Shouldn’t there be recognition of the mutual need from both parties?

Day two of Card Forum in Orlando, Florida and Joe Purzycki, Chief Operating Officer for Barclaycard US, takes the field with “Enhancing Every Step of the Customer Experience.”

His Keynote Session focused on how an effort to create the ideal customer experience has been fundamental to the growth of Barclaycard in the U.S. over the past ten years. It is a fascinating story which takes us from the launch of Juniper in 2000, to its acquisition by Barclays in 2004 and its subsequent break through into being one of the top ten card issuers in the country. At the same time Barclaycard is now consistently one of the top ten acquisition mailers in the US, according to Mintel Comperemedia.

Barclaycard’s strategy has been to focus on co-brand and affinity partnerships, which is not surprising given the background of its senior leadership. Joe managed co-brand and affinity operations at both Chase and MBNA prior to joining the company and has therefore been a key player in this segment for two decades. The company now has more than sixty partnerships including U.S. Airways, Barnes & Noble and L.L. Bean.

The question on my mind though is whether we will start to see Barclaycard emerge as a brand in its own right. Many US consumers are unaware of the company, but in the UK, where it was launched in 1966, the brand is synonymous with credit cards. Joe showed the recently launched Barclaycard “Rollercoaster” ad:

He also showed the much acclaimed 2008 “Waterslide” ad:

Both ads aired in the UK only, but they were also launched on YouTube and Facebook (Waterslide has received more than 500,000 hits on YouTube). Both promote the use of contactless payments as they follow an inner-city commuter on his imaginary route to work via waterslide or rollercoaster. The Waterslide ad was subsequently launched as a game on the iPhone and has reportedly attracted 10 million downloads worldwide.

In March, Barclays quietly broke ground on a new 18,000 seat basketball stadium in Brooklyn, New York that will provide an alternative to Madison Square Garden. The stadium, named the Barclays Centre, cost the British bank $200 million. The move demonstrates a clear intent to build the Barclays brand slowly and steadily in the coming years. It is a smart move as it sends a clear message that Barclays is here to stay. I wouldn’t be surprised if the company was eyeing up an east coast retail bank too and then, one day, we may see offers in the mail for a Barclaycard branded Barclaycard.