Today’s WSJ talks about how credit card acquisitions shifted to digital channels; a topic Mercator recently covered regarding digital engagements growth. Between Capital One and American Express alone, marketing budgets surged by 500% between 2017 and 2018 for Facebook advertising that pushes potential credit card applications to the issuer’s website.
- Capital One Financial COF -0.07% and American Express Co. AXP +0.35% spent an estimated $18.6 million and $13.5 million, respectively, on Facebook ads meant to sign up new consumer-credit-card holders in 2018, according to Mintel Comperemedia’s analysis of data from digital marketing intelligence firm Pathmatics, up from $2.8 million and $4 million in 2017.
- Discover Financial Services DFS -0.31% spent over $1 million on consumer-credit-card ads aimed at prospective new borrowers on Facebook in 2018, up from $426,000 a year earlier, according to Mintel and Pathmatics.
- Last year marked the first 12 months of significant spending on consumer-credit-card acquisition ads on Facebook by card issuers. While growing, the ad money is still significantly smaller than what several issuers spend on traditional mail pitches.
The United States is a mature credit card market, which is natural for the home of four prominent credit card brands, American Express, Discover, Mastercard, and Visa. Each household has an average of 4 credit card relationships and slightly more than one debit card account.
Credit card issuers need to fend off attrition, that is accounts shifting from one brand to another, in pursuit of better reward programs or due to involuntary closure that might come from delinquency. When attrition hits 15%, an issuer with 1 million accounts needs to book 150,000 new accounts just to stay even. And, if they want to grow, there is a bogey on top of the attrition number.
- Direct mail, phone calls, and in-branch pitches, which accounted for an estimated 57% of credit-card sign-ups in 2016, fell to 48% in 2018, according to Mercator Advisory Group Inc. Banks mailed 3.7 billion credit-card solicitations in 2018.
Direct mail keeps coming, but that is not what is generating new credit card accounts. It is the digital channel.
With direct mail response rates well under 1%, more typically half that, only 1 out of one hundred apps respond to underwriters.
More commonly, it is one credit card acceptance out of 200 pieces of mail. That is highly inefficient when you consider the cost of getting a slick marketing document in the hands of consumers can be more than $3.00.
Direct mail can be more precise in selecting a potential customer like a rifle shot; the internet channel tends to have the accuracy of a shotgun. With direct mail, issuers can select a FICO score range, geographic location, and imputed salary/debt burden to craft an offer. With banners and social media, it is less concise but you can target more millennials.
It is always nice to get mail, but when it comes to credit cards, digital engagement is where the action is.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group