Credit card reform legislation is impacting not only the revenues of credit card companies, but ad expenditures and messaging, according to a Kantar Media study.
Even as the economy shows signs of strengthening and troubled financial companies return to profitability, the outlook for credit cards remains challenging due to The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), approved by Congress last year. CARD makes it more difficult for the banks that issue consumer credit and debit cards to charge penalty fees or raise interest rates, two major revenue streams.
For the study, Kantar looked at historical marketing data stretching back five-plus years and covering TV, internet, magazine, newspaper, radio and outdoor.
After peaking in 2005 at $2.17 billion, category ad spending declined by more than 35% during the next four years and finished 2009 at $1.40 billion. While total category spending has started to rebound and has posted two consecutive quarters of solid growth, it is due to two major advertisers: American Express and Chase. For the six months ending March 2010, Amex and Chase more than tripled their ad budgets versus the year-ago period and accounted for nearly 40% of total category spend. New credit card product launches contributed to the hikes.
However, several major marketers have yet to restore their media budgets, according to Kantar. Most of the major card issuers continue to focus on rewards programs as the key selling point in their TV commercials.
The 2009 meltdown in category advertising was primarily attributable to budget slashing by Capital One and Citigroup. Combined, these two companies lowered their card spending by a total of $290 million as part of larger cost-containment initiatives within their organizations. Reductions at Visa and MasterCard took out another $98 million of spending but these were offset by a total gain of $78 million from American Express, JPMorgan Chase and Bank of America. Citigroup and Capital One continued to reduce media spending even further from their already low levels of a year ago, although the study notes a pickup by Capital One at the end of first quarter of this year, which has continued into Q2.
The impact of reform legislation on new card programs and product innovations is most apparent in some recent TV spots from JPMorgan Chase, according to the study. In September 2009 it launched Sapphire, a new personal credit card targeted at affluent consumers, a market segment that is more attractive to issuers under the new protective legislation. Through March 2010, measured ad spending was $55 million and the core ad message has been centered on rewards.
During the same time period, Chase introduced an adjunct product named Blueprint. This is an online tool that helps Chase cardholders manage their spending and borrowing. A core feature is the development of an individualized plan for paying down balances over time (a behavior that generates interest income for the bank). From launch through March 2010, Chase has spent $59 million in measured media to promote Blueprint.
Blueprint's proposition is consumer control and greater transparency regarding interest payments to help customers reduce the total amount of interest they pay on revolving balances. Yet the CARD Act already mandates that monthly billing statements provide more disclosure on finance charges and show the savings from paying off the balance more quickly. While Blueprint goes a bit further, Chase has essentially taken a legal requirement and cleverly turned it into a marketing sales point, Kantar notes in the study.