The wait is over/ that dreaded ‘r’ word is already among us

It’s unofficial, but financial pundits and research confirm that recession has hit home, and credit card firms can’t keep up their carefree ways

Staute%20of%20LibertyOver the past few years, from soon after the beginning of the Iraq war, the US government has called on the American consumer to go out and spend, spend, spend to keep the economy motoring through difficult times. And Americans responded well. Why wouldn’t they? The job market was healthy, house prices were rising, inflation was low and stable and most important of all, credit was cheap.

But as we know now, this combination of factors helped drive ordinary consumers to new heights of excessive consumption and optimism – a similar trend was seen in the UK.

Warren%20BuffettThough we haven’t had the official word from the National Bureau of Economic Research or seen two consecutive quarters of gross domestic product (GDP) reversal, super investor Warren Buffett said this week the US is effectively in a recession. What the “Sage of Omaha” says about the US economy is good enough for most of Wall Street and for this writer.

The drivers of the consumer gravy train over the past few years have been the financial institutions, those of both the Main Street and Wall Street variety, working in conjunction on marketing cheap credit products and services to consumers.

At the top of the pile of cheap products was mortgages. It has been well documented that the selling of these got so out of hand that the US housing sector has been left reeling and looking for bailouts from the government and its agencies. But it wasn’t just mortgages that were sold cheaply. Loans and credit cards have also been marketed aggressively. As in the UK, there was a rampant proliferation of “zero per cent” and “balance transfer” offers.

The database sale game

In just over two years since I’ve opened a bank account here, I have had all manner of credit cards marketed to me through direct mail – as my bank seems to have sold on my details to competing financial institutions almost immediately after I signed up. A quick look through a recent pile has names such as Washington Mutual, American Express and Citi, and I have apparently been “pre-screened” or, in other words, pre-approved and offered the usual additional Platinum offers.

One positive is that recent regulatory changes mean I can opt out of “pre-screened” offers from all of these credit card companies by calling just one free number rather than having to call each company. Of course, this doesn’t mean my details can’t be resold under some other marketing scheme.

Being relatively new to the databases of US marketers and having a relatively uncommon name that attracts misspellings, it’s been easier to work out how my name has moved through the system. And banks will try most methods within legal boundaries to reach consumers, but sometimes those boundaries are crossed.

For example, the New York State attorney-general Andrew Cuomo is investigating whether credit card marketers offered payments or other incentives to colleges in exchange for exclusive access to the institutions’ students. At least one college, Dartmouth College, confirmed to the New York Times it had been subpoenaed by Cuomo’s office asking questions about the credit card arrangement Dartmouth has with Bank of America, including marketing practices.

As the economy slows down and financial services marketers try to reach more consumers more quickly and for less cost, they’re probably more likely to make simple mistakes with a name on a database or even cut corners, which might lead to a branding faux pas. I heard a case of this recently which involved three different financial services companies who had each used exactly the same stock library image for their respective websites. The companies, Bank of America, Chase and Capital One, all used a picture of the same couple cosying up on a sofa with a credit card and laptop (presumably to check their balance or do some online shopping).

Aside from the “whoops” factor, it makes a company look sloppy, to say the least. But as these were company websites rather than an advertising billboard, there’s less chance of the same consumer going to each site.

Slave to generics

“Banks and financial services companies do seem to have this problem more frequently than companies in other industries, probably due to the generic nature of their marketing efforts, which results in selecting similar types of imagery,” says David Norris, chief executive of OnRequest Images, a provider of brand custom imagery. Perhaps they should follow the lead of the two big card payment partners Visa and MasterCard. These two seem to have done a good job of developing their brand image and messages in the US, especially as they’ve gone from being private companies to being publicly listed.

MasterCard’s most recent spots were to be seen during the Academy Awards TV coverage under its “Priceless” banner. It was one of many sponsors relieved that the Hollywood screenwriters strike came to end in time for one of the big TV advertising nights of the year after Super Bowl. MasterCard ran one spot called “Studious Pupil” to promote a contest to reward MasterCard customers with “priceless” experiences, including meals with a famous chef and a portrait painted by Oscar-nominated best director Julian Schnabel (The Diving Bell and the Butterfly). The ad was the lynchpin of a push that includes Condé Nast magazines and online ads on high-end sites as well as MasterCard’s promotional site,

While MasterCard’s campaign is clearly targeting wealthier customers, it is also effectively taking a bet that US consumers overall won’t stop spending, or at least will keep using their cards in some form – including debit.

This might be one of the reasons why Visa went ahead with its $19bn (£9.6bn) initial public offering plan last month in spite of the current turmoil in the financial market. As Visa sees it, the card processor companies are in a good place no matter what happens; after all, they take no credit risk on consumers, and cards are displacing cash and cheques at a rapid pace. Visa’s record-setting IPO is also one of the few bright spots for the financial services industry this year, as those banks that own a stake in it stand to share in a $10bn (£5bn) bonanza from the float.

Visa continues to advertise with its “Life Takes Visa” slogan, which it launched two years ago and comes out pretty well in recall tests with consumers, including a recent test with digital video recorders.

Yet even with these strong players, there is little doubt that the world of credit cards is going to take a severe hit over the coming months. Last week the Wall Street Journal ran a piece pointing out that the financial landscape is shifting greatly in the US as credit card delinquencies are on the rise, while banks are reversing years of easy credit and reducing options for consumers who have “maxed out” their cards. By the end of December, Americans had up to $944bn (£479bn) in debt, mostly on credit cards, which the WSJ says represents an annualised increase of 2.7% according to the Federal Reserve. This compares poorly to growth rates of 13.7% in November and 11.1% in October and could reflect the volatility in consumers’ spending habits as economic growth grinds to a halt.

Tightening the purse strings

According to monthly research Discover, one of the major credit card and electronics payments companies, Americans are planning to spend less in the coming months, especially when it comes to discretionary items.

The Discover US Spending Monitor recorded its third consecutive monthly decline in January, falling more than four points to 86.1 as economic concern continued to grow and post-holiday spending intentions moderated. Its research showed more than 70% of consumers now think the economy is in decline and 48% feel the same way about their personal finances.

Margo Georgiadis, Discover Financial Services executive vice-president and chief marketing officer, says: “Expected household expense pressures remain high with consumers seeing little relief at the gas pump or grocery store. Over the past four months, we have seen a steady increase in the number of consumers who are not only moderating their spending, but intending to spend less to compensate for household expense pressures.”


Yinka Adegoke is a New York-based business journalist.


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