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February 10, 2009

Challenging times call for new strategies

As credit card spending drops and with issuers facing record credit losses, traditional customer acquisition channels such as direct mail are drying up, with volumes falling rapidly

By Verdict Staff

As credit card spending drops and with issuers facing record credit losses, traditional customer acquisition channels such as direct mail are drying up, with volumes falling rapidly. Affiliate marketing is also suffering, as Charles Davis discovered when he looked into the changing face of the industry.

 

The icy grip of the US credit crunch is far from over, and its effects are being felt downstream. Perhaps the most obvious casualty is in card marketing, where experts report a dramatic slowdown.

From the expected – a deep drop-off in direct mail – to the unexpected decline in affiliate marketing traffic and even e-mail marketing messages, the economic slowdown is greatly reducing the amount of marketing aimed at attracting new cardholders.

Analysing credit card direct mail trends, US research consultancy Mintel Comperemedia found that the total estimated volume for credit card acquisition offers reached only 1.34 billion during the third quarter of 2008.

Mail volumes declining

Credit card acquisition mail volume has declined steadily since late 2006, according to Mintel, which reported that the third quarter of 2008 represents a 13 percent decline from the quarter before and a 28 percent drop from one year earlier. In 2005 and 2006, Mintel tracked an average of 2.07 billion credit card acquisition offers quarterly.

As the financial crisis worsened during the third quarter of 2008, card issuers scaled back mailings, noted Lisa Hronek, a senior credit card analyst at Mintel.

“Credit card companies have been cutting back direct mail dollars for years, as they realise that blanketing Americans with credit card offers doesn’t translate to increased sign-up or card usage,” Hronek said. “But now, they’re facing a two-fold problem that is much worse. Not only are consumers tapped out financially, but issuers are also facing record losses. They’re scaling back direct mail to cope with unprecedented financial problems.”

Hronek expects credit card companies to continue reducing acquisition mail throughout 2009. “Card issuers will focus on a narrower target audience, using refined marketing and more precise mailings.”

Serverside, the UK-based firm that sells card marketing and personalisation software to issuers, reports that even in tough times, and perhaps especially in tough times, issuers are keen on marketing only if it presents efficiencies.

Adam Elgar, president of Serverside, said that the entire affinity card market is in flux.

“We’re seeing, particularly in affinity partnerships, a lot of people are parting ways with their issuers, and on the other side, a lot of would-be partners are going wanting for lack of a partner,” Elgar said.

“The costs of acquisition for some of these issuers are not what they used to be, and so they are being much more selective in bringing on new cardholders. That, and the credit crunch, means that everyone is rethinking the game these days.”

Web marketing becomes more targeted

Efficiency becomes key: rather than sending out lots of mail on a contracted basis, Elgar said that “everyone is turning to online channels, and mail is taking a huge hit.”

Serverside’s answer to the affinity puzzle is CardPartner, a web-based platform that allows would-be affinity programmes to get up and running with a newly designed card in a few hours.

Douglas Davis, director of sales and marketing for CardPartner, said that the company can reach further down the affinity market than the larger credit card banks because it offers a suite of proprietary online tools that non-profits and member groups use to design and offer their own Visa Platinum credit card.

“It’s getting harder and harder for the big issuers to do much more in affinity, especially at the smaller end of the scale,” Davis said. “The big issuers – the Bank of Americas of the world – are playing whack-a-mole with all the problems out there. There is a lot of talk from groups of pretty good size groups out there that are moving, or thinking of moving, from their affinity issuer.”

Davis said that having web channels for card marketing is more important than ever, given the fragmentation of the market and the lack of marketing resources in the midst of the economic crisis.

Card issuers are also cutting spending in online affiliate marketing, one of the last avenues of relatively healthy acquisition rates. In November, unique visitors to CreditCards.com, one of the largest card marketing sites, fell 25 percent from a year earlier, to 843,000, according to comScore, which tracks online traffic.

Online affiliate marketing

Online affiliate marketing, which often involves lead generation websites that let consumers browse several issuers’ offerings at once, had been considered a relatively cheap and easy way to sign up cardholders. Issuers often pay the sites only for approved applications, unlike direct mail efforts.

But the affiliate sites have a reputation for attracting less creditworthy applicants, and in tough times, issuers are more geared toward maximising existing cardholder relationships.

Several issuers have removed cards from lead generation sites and online advertising networks in recent weeks, including JPMorgan Chase, HSBC and Bank of America, Citigroup and American Express.

The economics of lead generation sites, which can require issuers to pay either on a per-click basis or for each approved application, are harder to justify in the current environment, when most financial companies are slashing their marketing budgets. Combine that reality with tightening credit, and the affiliate marketing channel is feeling the pain that so many American companies are lamenting.

Marketing

Top 10 mailing credit card issuers

During the third quarter of 2008, Mintel Comperemedia reports that the top 10 mailing credit card issuers for acquisition direct mail were:

1. Chase

2. Capital One Bank

3. American Express

4. Washington Mutual*

5. Bank of America

6. Citibank

7. Barclays Bank

8. Discover

9. HSBC

10. US Bank

*Now owned by Chase Source: Mintel Comperemedia

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