Navigating from Marketing Investment to Receivables Growth for the Credit Card Banks


Navigator Edition: June 2015
By: Frank Martien and Michael Hong

From 2010 to 2014, a positive correlation has existed between marketing1 and managed credit card receivables2 for “credit card banks3” with a fairly high R-squared of 78%. We have recently completed a fifth consecutive year of marketing expenditure increases as shown in Figure 1 with annual marketing spend for these banks approaching $7 billion in 2014.

Figure 1: Marketing Expenditures to Receivables

Fig-1_-Marketing-Expenditures-to-ReceivablesSource: First Annapolis Consulting analysis of “Credit Card Banks” as defined in FDIC Quarterly Banking Profiles as banks and savings institutions for which managed credit card loans exceed 50% of total assets.

 On average, marketing has ranged between 1.25% to about 2.5% of credit card receivables over the past five years. To analyze potential correlations, First Annapolis compared marketing with year-over-year growth rates in managed credit card receivables. Figure 2 plots this on a receivables weighted basis (i.e., larger credit card issuers are more heavily weighted). Figure 3 depicts a simple average across the credit card banks.

Figure 2: Credit Card Banks Growth v. Marketing
(receivables weighted)

Fig-2_-Credit-Card-Banks-Growth-v-Marketing_-receivables-weightedSource: First Annapolis Consulting analysis of “Credit Card Banks” as defined in FDIC Quarterly Banking Profiles as banks and savings institutions for which managed credit card loans exceed 50% of total assets.

Figure 3: Credit Card Banks Growth v. Marketing
(simple average across these banks)

Fig-3_-Credit-Card-Banks-Growth-v-Marketing_-averageSource: First Annapolis Consulting analysis of “Credit Card Banks” as defined in FDIC Quarterly Banking Profiles as banks and savings institutions for which managed credit card loans exceed 50% of total assets.

As shown in these two graphs, a positive correlation exists between marketing and credit card receivables growth; albeit, the R-squared for each graph is relatively low, which underscores the role several other factors can play in influencing receivables growth. In any case, the trend line in Figure 2 would illustrate for the overall market that maintaining a marketing expenditure of ±1.3% of receivables is required to offset attrition; while the trend line in Figure 3 may suggest that the threshold to hold receivables steady for smaller banks could be meaningfully less than 1.3%. Looking at both Figure 2 and Figure 3, the trend line slopes would imply that each incremental 0.5% of marketing expenditure may drive 3 to 5% of annual credit card receivables growth.

What are some of the non-marketing expenditure factors that influence receivables growth? Our experience working with multiple banks on credit card growth strategy assignments would suggest several:

  • Effective use of cardholder relationship data in the underwriting process can be extraordinarily powerful in identifying good credits among applicants with mid-range external credit bureau risk scores.
  • Fitting new customers with the right credit lines at the time of account origination can help promote primary card in wallet status.
  • An automated approach to proactive and reactive credit line increases can help maintain relevance of any given cardholders’ credit card.
  • Good customer service, including achieving call center timeliness and effectiveness, can help build cardholder loyalty for their card.

Finally, allocation of a budget among multiple channels, including facilitating multiple prospective cardholder paths through the product research and application process, coupled with close tracking of performance by product, channel pathing, and customer segment are keys as well to investing marketing dollars efficiently to achieve receivables growth.

1 Marketing investment pursuant to an SNL-sourced FDIC call report field called “Oth NIE: Advertising & Marketing Expenses.”
2 Managed credit card receivables pursuant to an SNL-sourced FDIC call report field called “Mngd Rec: Credit Cards.”
3 As defined by the FDIC, credit card banks are those that have credit-card loans that exceed 50% of total assets. These banks include: 1st Financial Bank USA; American Express Bank, FSB; American Express Centurion Bank; Barclays Bank Delaware; Capital One Bank (USA), National Association; Chase Bank USA, National Association; Comenity Bank; Comenity Capital Bank; Discover Bank; Merrick Bank Corporation; Nordstrom FSB; Synchrony Bank; TCM Bank, National Association; Wells Fargo Financial National Bank; and World’s Foremost Bank. These banks represent a substantial portion of the overall U.S. credit card market. Nordstrom FSB and Wells Fargo Financial National Bank did not report any amounts in the Oth NIE: Advertising & Marketing Expenses SNL field for the timeframe of this analysis; consequently, these two banks are excluded from the analysis herein.

For more information, please contact Frank Martien, Partner, frank.martien@firstannapolis.com, specializing in Bankcard Issuing.  Michael Hong, Summer Intern, also contributed to this article.

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