Interchange Amendment Could Change Reward Programs

As if we haven't seen enough regulatory changes over the past 12 months with the Card Act and Reg E, now there is the possibility that Washington will limit interchange fees for debit transactions.

As noted in a recent Client Briefing from Celent Research, part of the proposed legislation requires the Fed to determine a “reasonable and proportional” interchange fee, which is no easy task given that interchange fees are there to balance the incentives in the payment system and tend to cover such difficult-to-quantify items as the payment guarantee and convenience.

In other words, the government can't look at just the operational and fraud prevention costs. In addition, current interchange fees differ by sector and are not standardized currently.


As was the case with the other two payments legislations already enacted, the idea behind the interchange amendment is to protect the consumer and lower prices (in this case, the thought that merchants will pass the banking savings on to the consumer). Given the financial times and the narrow margins at many retailers, the passing along of reduced costs is unlikely. In reality, the consumer is likely to lose on many fronts.

If interchange income is legislated at a lower level, banks will most likely raise fees on alternative services to compensate. So instead of the merchant picking up some of the burden, the consumer will be directly impacted. In addition, with more and more banks heavily promoting rewards programs on debit cards, these programs will need to be significantly restructured or eliminated altogether. This may have a bigger impact on smaller banks and credit unions than larger banks where costs can be spread. Some banks may be forced to stop issuing cards which is why community banking associations and CUNA are aggressively fighting this proposed bill.

In the end, banks will most likely be forced to find alternative revenue sources and potentially new ways to structure rewards programs with stronger merchant involvement. New programs such as that offered by Cardlytics (covered on April 29) or fee-supported rewards programs such as the program at KeyBank may be viable alternatives.

New Email Marketing Study Highlights Missed Opportunities for Bankers

As social media channels continue to proliferate and traditional communication channels become more expensive, bankers struggle with how to maximize the effectiveness of the email channel within their marketing mix according to a just released study from SubcriberMail, a Harland Clarke company. The study entitled, Email Marketing Within Financial Services Institutions, surveyed 71 banks and 191 credit unions, finding that email marketing among these organizations to be strong and growing.

But, while many organizations are leveraging email to inform and communicate news and product information (50% for both banks and credit unions) and even cross-sell existing customers (56% of credit unions/42% of banks), a far lower percentage of credit unions and banks use email as part of a multi-channel onboarding and/or activation process (26% and 27% respectively) or use email for delivery of an electronic receipt.

This is a missed opportunity since studies show that new account holders are very open to all channels of communication early in their relationship and that as many as 75% of customers open and read transactional emails. In addition, in working with financial organizations across the country in the development and implementation of onboarding programs, early customer engagement, cross-selling and retention are all positively impacted by adding email marketing to the communications mix.

At some organizations such as Chase, email welcoming messages many times arrive at the customer's home before the customer returns from opening a new account. This communication is used to thank the customer for opening their account, encourage usage of engagement services (online banking, debit cards, direct deposit) and describe future communication the customer will receive from the bank.

So why the hesitation in using email as a communications tool? According to the survey, while the fear of phishing or fraud was a significant concern, the primary controllable challenges to successful email marketing included the effective collection of email addresses in the first place in addition to subscriber churn (or addresses going bad). Roughly 40% of banks and credit unions found both of these issues to be an impediment to success.

To address these concerns, the SubscriberMail study suggested a holistic, company-wide approach to collecting and confirming customer's email addresses at every touch point. This would include collection and verification at the branch level, call center, and even as part of direct mail efforts and at the ATM. The key is to establish the collection and maintenance of an email address database as an overarching corporate initiative that will result in both lower communication costs as well as improved marketing effectiveness.

Unfortunately, senior management support of such an initiative was far from a reality according to the survey, with less than 30% of the bank respondents stating that senior management was supportive of email marketing strategies. With a subscriber email address valuation estimated to be an average of $118 according to a recent DMA Email Experience Council calculator, marketers need to continue to seek managerial support for their email collection initiatives.

Another challenge to keeping a subscriber database up-to-date comes from the customer's perspective, since allowing email communication is directly correlated to the relevancy and value derived from the emails a customer receives. As with traditional direct mail, relevancy depends on effective segmentation of the email database and timely communication of opportunities, events and offers. Again, both banks and credit unions were found to fall short in their efforts to segment customers, with far fewer than 50% segmenting their email database in any manner. Interestingly, only half of the responders had email initiatives planned in the next six months, indicating a less than robust email strategy and the potential for the customer to undervalue email communication from their financial institution.

Overall, the SubscriberMail survey results illustrated a tremendous amount of untapped potential with the email channel and the need for the same type of discipline with email marketing as with other direct channels. With increased focus on the collection and cleansing of email database files, improved segmentation and more consistent use of this communication tool, return on marketing investment can be improved at a time when bank marketing budgets are being reduced.

I am interested in your results and use of email within your bank.

If you are interested in this free survey, simply follow this link to the download.

State of Bank and Credit Union Marketing 2012

Today's bank and credit union marketers are facing a period of big data, increasing devices and more communication channels than ever before. In addition, consumers are challenging the pricing and service levels they receive from their financial institution, and are willing to speak their mind using lightning fast social media channels.


To better understand what bank and credit union marketers are thinking and doing during this period of unprecedented change and opportunity, I partnered with Jeffry Pilcher from The Financial Brand to develop the 2012 Bank and Credit Union Financial Marketing Survey. More than 300 bankers responded from banks and credit unions of all sizes thanks in no small measure to our many friends on Twitter who helped distribute the links to the survey and to ACTON Marketing, who recruited many of their clients and friends.


The results of the survey underscore the primary challenges facing financial institution marketers today:

• The need for better measurement of marketing results during a time of constrained budgets and limited human resources.
• The importance of expanding share of wallet through cross-selling, especially with credit products
• Changing the media mix used for integrated customer communication - with a greater emphasis on less familiar online and social media channels

    View Entire Survey Results   


Participants

Over 300 financial organizations participated in The 2012 Bank and Credit Union Financial Marketing Survey, including 101 banks (33%), 143 credit unions (47%), 33 community banks (11%) and 26 other types of financial organizations (9%). All asset sizes were well represented.

SURVEY HIGHLIGHTS

Majority of Challenges For Marketers Are Internal

With all of the external challenges facing financial organizations over the past several years, ranging from new regulations that impact fee revenues to the continued distrust of the financial services industry in general, it is interesting that marketers viewed the majority of their challenges in 2012 as being internal in nature. Even though 84% of respondents mentioned that their budgets would either increase (45%) or remain the same (39%), 46% of marketers believed the primary challenge would be insufficient budget or manpower. As could be expected, this challenge was less prevalent at the largest banks.  

As has been noted in various studies and covered in a recent Bank Marketing Strategy post, difficulty in measuring results was also a significant challenge, but this was inversely correlated to the size of organization, with more than 40% of banks under $1 billion noting measurement as a challenge and less than 25% of organizations over 10 billion noting this as a challenge (my travels indicate that measurement is better at the larger banks, but by no means considered adequate). Conversely, the challenge of 'silos', I.T. inflexibility and  regulatory issues were much more challenging at the larger organizations than is noted by the consolidated results.

Many of the internal challenges shown above could be reduced if marketing departments could better align with other C level players within their organization. By providing better analysis of results from an ROI perspective and through better marketing planning, marketing would be invited more often to the strategic planning table, allowing them access to the players who could partner for improved departmental integration.

Customer Acquisition and Organic Growth are Job #1

When asked about the top priorities over the next 12-24 months, there was significant consistency between large and small institutions, with the majority of respondents agreeing that there is a need to acquire and cross-sell additional products and services. This makes sense due to the focus on fees and revenues in 2012 and beyond (and with the public highly sensitized to any fee changes). Bottom line, the only way to improve margins will be to make every relationship count and to improve on acquisition program effectiveness.

There was consistency as well around the fact that loan products (especially mortgages) would be of primary importance in 2012 from both large and small organizations. As can be expected, there was a disparity in the responses around the importance of free checking, with the smaller community banks and credit unions placing more emphasis on these products than the larger organizations. The desire for auto loans and the refinancing of autos was also the domain of smaller financial organizations. Interestingly, there was also a reverse correlation between the desire to promote online banking/bill pay and the size of the financial institution. This may be the result of larger banks believing that these are services sold at the new accounts desk and don't require additional promotion.

Communication Channel Shift Impacting Marketing Emphasis

The 2012 Bank and Credit Union Financial Marketing Study shows that financial organizations of all sizes are responding to the public's use of digital and social media in their shifting of dollars away from traditional channels such as print, radio and TV. What is interesting is that the shift is occurring much more dramatically in larger organizations than in smaller firms. In addition, while direct mail use is either staying the same or increasing at small and mid-sized firms, the largest organizations are definitely reducing their use of this channel. 

Finally, if the survey results are any indication, onboarding at banks of all sizes will become mainstream in 2012, with more than 50% of banks in all asset ranges placing a greater emphasis on new customer welcome programs this coming year.

In 2010, The Financial Brand conducted an online marketing survey to measure the use of digital and online channels. In that study, only 69% of banks and credit unions said they utilized email. In this year's study, that number increased by 10%. Similarly, 68% now indicate that they pay for online banner ads compared to only 54% in the 2010 study. Those pursuing an SEO strategy also grew by 13 percentage points since 2010. It is anticipated that these shifts will continue as more people consume information electronically.

	Yes	No	No, But Plan To	Not Sure
Email marketing	79%	9%	12%	-
Banner ads (paid)	68%	24%	7%	1%
Social media	68%	21%	11%	-
eStatement ads	63%	28%	8%	1%
SEO	57%	27%	13%	3%
Search engine ads	53%	31%	15%	1%
Smart phone app	42%	30%	27%	1%
Microsites	38%	50%	10%	2%
Full online account opening	37%	40%	23%	-
Online switch kit	28%	54%	17%	1%
Live online chat	22%	59%	18%	1%
iPad/tablet app	19%	48%	31%	2%
Online PR/media center	17%	70%	7%	6%

Finally, almost three-quarters of the banks responding indicated they used Facebook for marketing, a dramatic increase from the 2010 study when only 46% used the most popular social channel. The change in use of Twitter increased by 19% since 2010, while the use of YouTube increased by 24%. In both the 2010 and 2012 surveys, virtually the same number of banks and credit unions said they had a blog (18%), while several of the other channels were just coming into existence in 2010.

	Use	Don’t Use	No, But Plan To	Not Sure
Blog	18%	57%	20%	5%
Twitter	54%	34%	10%	2%
Facebook	72%	17%	10%	1%
YouTube	49%	32%	17%	2%
LinkedIn	48%	36%	13%	3%
Discussion forum	6%	76%	10%	8%
Foursquare	14%	69%	9%	8%
Google+	11%	59%	20%	9%

More to Come

In the next several weeks, more insight from the 2012 Bank and Credit Union Financial Marketing Survey will be analyzed and shared, highlighting more variations found between types of organizations, sizes of firms, etc. In addition, we hope to use the findings from this survey to provide strategic recommendations around where banks and credit unions could best allocate time and resources for the greatest impact.

In the meantime, if you have any thoughts on the survey, please share them with us in the comment section below. In addition, if there is a section of the research that you would like us to dig into quickly, let us know.

    View Entire Survey Results