Issuer Ad Spending Rises as Goals Change
Brankin, Andrea McKenna, American Banker
Byline: Andrea McKenna Brankin
Major credit card issuers have boosted - in some cases, nearly doubling - their advertising spending, bringing it to pre-recession levels.
But with shifts in consumer spending, coupled with regulatory changes, issuers are focusing on different goals than before the economic downturn.
Consumers, who over the past few years had cut back on their credit card use, appear interested again in buying on credit, and card issuers are easing their lending policies to meet the rising demand, according to Federal Reserve Board data.
"Essentially, we're seeing the economy getting stronger, with an easing of credit standards and concurrently an increase in consumer demand for credit, which is great" for the card market, Dennis Moroney, a research director at TowerGroup, said in an interview. Moroney analyzed the Fed's data in a TowerGroup report.
Consumers may be more apt to respond to new advertising for cards, observers say, and issuers are obliging.
JPMorgan Chase & Co. and Capital One Financial Corp., for example, made sizable increases in their advertising spending last year, according to research from Kantar Media Intelligence of New York.
JPMorgan Chase's spending on card advertising jumped 97.3%, to $361 million, in 2010 from the previous year, while Capital One's spending surged 84.7%, to $200.8 million.
Under pressure from the expected reduction in debit card revenue from interchange rate caps under the Durbin amendment to the Dodd-Frank Act, issuers also may be refocusing their advertising efforts to emphasize their credit cards, whose rates are not being capped.
"I talk with a lot of bankers, and there's an appreciation that many are trying to re-energize the credit card market in light of the Durbin amendment," said Mary Beth Sullivan, managing partner of Capital Performance Group.
To protect their portfolios from the massive default rates during the recession, issuers are pursuing the lowest-risk consumers, and are competing more for business from existing cardholders.
That is one reason most ads are focusing on rewards, said Ron Shevlin, senior analyst at Aite Group.
According to company reports, U.S. annual credit and charge card sales volume increased 6.3% last year, to $1.86 trillion, following a 9.3% decrease in 2009, from $1.93 trillion in 2008.
"This is the tail end of a bad time for credit cards, so the fact that spending is up is hardly surprising," Shevlin said.
"But what is really significant is that there is more competition for a smaller segment of cardholders, [and] the focus is not on acquisition of new cardholders, but on competition for the better-risk customers," he said.
Both Capital One, with its Venture card, and JPMorgan Chase, with its Sapphire card, have increased their advertising spending to support new niche rewards products, said Jon Swallen, Kantar Media senior vice president of research.
Capital One earlier this year launched a national television ad campaign featuring Alec Baldwin from the TV sitcom "30 Rock" to promote the Venture card. JPMorgan Chase in one ad features a family that discovers a dinosaur bone on vacation, but the woman listening to the story is more impressed by the card's travel rewards.
Kantar's research also documented a decrease in advertising spending by Visa Inc. and MasterCard Inc. Visa's ad spending in the U.S. dropped 24.9% last year, to $203.5 million. MasterCard's ad spending dropped 66.8%, to $65.7 million.
Neither company would provide comment on these declines, but Swallen said the data may reflect the card brands' view that consumer spending has not recovered enough for them to reinvest in advertising. …