By Sabrina Wong
Major credit card issuers such as Capital One and American Express are increasing social media ad spending over traditional mailbox campaigns in the midst of a slowing credit card issuance season.
Capital One and American Express spent an estimated $18.6 million and $13.5 million in 2018 on Facebook ad marketing with the aim of signing up new credit card holders. This represents 148% and 109% increases from 2017. Direct mail marketing is simply no longer proving to be an effective promotion method. Traditional tactics like mail ads and phone calls accounted for only 48% of credit card sign-ups in 2018, falling from 57% in 2016.
Even though companies are making the shift towards social media ads, digital ad spending still pales in comparison to mail ad spending, which accounts for hundreds of millions of dollars in ad budgets. It will take time for firms to adjust as they grapple with technological conversion, not only in the promotional space, but also the explosion of the broader financial technology space at large.
Credit card issuers are concerned about the slowdown in credit card issuance as customers have figured out how to take advantage of credit card offers. In their attempt to increase credit card spending by customers, credit card issuers face the problem of an increasing pseudo-customer base sending just enough to collect extravagant sign-up bonuses only to repeat the process with new cards.
This represents a great failure on the part of card issuers to identify the risk of rewards program exploitation by cardholders. At first, issuers believed that the attractive awards would increase spending, thus boosting revenue from credit card interest payments. However, their models underestimated the extent to which customers would be able to take advantage of the bonus system. Furthermore, banks are finding themselves put in a problematic position because these programs are proving incredibly difficult to reverse. They cannot simply cut back on rewards because, in doing so, they would risk compromising their relationships with customers.
Thus, firms have begun the great push into younger spenders, specifically with the strategy of discouraging customers from carrying of multiple cards to in an attempt to correct the mistakes made in the past. The hope with targeting a younger demographic is that new customers will eventually become more valuable in the future as their incomes expand. With the help of rewards programs, once customer loyalty is established, banks can easily market other financial services to these clients. There still remains much unrealized value in rewards and points programs. The challenge moving forward will be for card issuers to strike the delicate balance between making the perks attractive enough without sacrificing profitability and sustainability.