By Justine Rivero, Communications Manager for CreditKarma.com
With consumers’ increasing use of credit cards, financial marketers will be aggressively pursuing new cardholders. But these days, we won’t see many of the tricks and tactics used in years past, whether that be generous 2% cash back offers (carrots) or punitive 79.9% APRs (sticks). When 80% of the complaints filed with the Consumer Financial Protection Bureau (CFPB) are tied to credit cards, it’s no surprise that we’ll be seeing some significant shifts in the market.
As the CFPB moves to muzzle predatory practices, banks can also learn a lesson from the fallout over BofA’s $5 debit fee: it’s clear that consumers will no longer swallow new fees for services that were previously free. As a result, profit margins are getting tighter, which means issuers can no longer afford standout deals, as PenFed cardholders painfully realized.
One trend that will endure throughout the recession is risk reduction: marketers will continue to concentrate on those consumers with the best credit ratings. The credit card industry is healthier this year than last, so we’ll see more marketing and a few shiny new offers in 2012, but for the most part credit cards will be targeted at consumers with excellent credit — a 720 credit score or higher. The average credit score nationwide is 660.
This dynamic and changing credit card landscape is reshaping how marketers are courting consumers. Here’s a few tips to help you stay abreast with changes in the marketplace.
#1 Less pizzazz, more practical marketing
What not to do: Financial marketers shouldn’t be using celebrity spokespeople like Lil Wayne to woo consumers. In fact, they should avoid using any celebrity, diva, singer, rapper, fashionista — basically anyone with a 90210 ZIP code (or equivalent) — in their marketing efforts. Criticism from the media around Suze Orman’s recent prepaid card offers marketers a clear-cut lesson: dressing up not-so-great product with great marketing doesn’t cut it anymore.
What to do: Market practicality, not pizzazz. Consumers demand financial products and service that are straightforward, easy, intuitive and transparent. The emergence of “consumer-friendly” products with “we-are-on-your-side” messages will be a growing trend in the financial industry.
The CFPB is also busy reforming the credit card industry, pushing issuers to adopt a simplified format for credit card agreements so that terms and details are easier to understand. More impending regulations from government watchdogs will continue to tip card marketing towards consumer interests.
For example, Citi’s Simplicity credit card relies on clear and concise messaging that emphasizes no annual fee, no late fees, and no penalty rates. It quickly communicates that the card is the go-to alternative to the typical pain points of credit cards. Credit unions, which have always had historically lower interest rates and less fees, should likewise realign marketing messaging to emphasize their natural advantages over banks. You already have it, why not flaunt it?
Take Affinty FCU’s credit card copy: “What you see is absolutely positively what you get. Low rates, no hidden fees, and no surprises. No bank could ever give you these.”
How can your marketing messages and in-branch conversations reflect the new, simple, customer-friendly approach consumers are looking for in credit card products these days?
#2 New technologies = new products
What not to do: Be slow to adapt to emerging technology and trends. For example, EMV chip technology is fast becoming a standard in the credit card marketplace. First there was Visa in August 2011, then in January 2012, MasterCard became the second major issuer to announce its transition from magnetic strips to EMV chips in the U.S.
What to do: Play catch-up faster than your competitors. As EMV chip cards begin to hit the mainstream, having innovative technologies like this gives you a competitive edge.
If EMV technology has yet to be implemented into your plan, your bank or credit union can still offer innovation in the form of truly valuable features. For example, at CreditKarma.com, we feature credit cards according to credit score range. Positioning credit cards according to a relevant parameter — credit scores — is valuable because it’s one of the most important aspects to know before applying. Credit Karma has also partnered with other financial institutions, including UW Credit Union and A+ Federal Credit Union, to provide credit scores to members as a way to enrich product offerings and aim the right credit card offers to the right consumer.
Other examples include Capital One’s Journey student credit card, which offers a credit education and monitoring program, and Citi’s Forward card, which rewards cardholders with lower interest for maintaining good credit.
What truly valuable and innovative services can you add to your credit card offers?
So be prepared for an era of EMV-chipped cards with CFPB-friendly terms popping up, but only aimed at the small segment of credit-healthy consumers.
#3 The New Marketplace
What not to do: Keep doing the same ol’ same ol’.
Credit card direct mail offers surged last year, jumping 69% in 2011 vs. 2010. But stuffing mailboxes didn’t seem to pay off. Consumers use of revolving credit had actually seen one of the biggest decreases.
What to do: Go to where your consumers and their friends are hanging out. One in four cardholders has become a fan, friend or follower of their credit card brand or issuer, reports Synergistics Research Corp. Facebook or Twitter doesn’t seem like the primary place to shop for financial products, but take a look at any of the major issuers’ Facebook fanpage, from Discover’s Facebook page to Capital One’s page for “Card Finder.” You’ll see social media becoming an accepted platform for cross-selling.
Marketing to consumers who are already fans or followers of your brand is a perfect channel to cross-sell and promote special offers. In fact, the primary reason people connect with credit card brands via social media is to give them access to special promotions, rewards or financial offers. Why don’t more financial institutions follow this practice?
A look at one of the most popular credit union Facebook pages illustrates a trend consistent across many financial institutions social media efforts: a lack of cross-selling. If your consumers went to your company’s Facebook page, would they find a few semi-interesting Wall posts, or hear about your latest and greatest product?
Justine Rivero is the Communications Manager for CreditKarma.com, a free credit management website that helps nearly 4 million consumers access their truly free credit score.