Samuel Boochever
Dhara Shah
Nicole Kelly

Payment Cards: Provide means to use
"money" to complete a transaction between
merchant and consumer
◦
◦
◦
◦
◦
Charge Cards
Debit Cards
Fleet
Store-Value
Credit Cards
Cash
Checks
Bulky to carry around
Inconvenient to carry
Limited Purchases
with fixed cash
Not easily accepted by
all merchants due to
risk of NSF checks
Easy to steal
Hard to trace
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

Network Joint Venture: “Cooperation among
several independent businesses.”
Four Key Players: Merchants, Consumers,
Financial Intermediaries, Payment Solution
Companies
Complex interaction among players


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Provides consumer funds to purchase goods
and/or services in return for payment at a
later date
Revolving Credit: Can delay repaying balance
in full by paying a minimum monthly
payment
Lending Institution vs. Payment Systems
◦ Financial institution actually lend the credit
◦ (i.e. Visa USA Inc., MasterCard International Inc.,
Kohlberg Kravis Roberts & Co., American Express
Co.) provide payment systems to facilitate
transactions
Advantages
Disadvantages
Purchase Power and Ease of
Purchase
Blowing Your Budget
Protection of Purchases
High Interest Rates and Increased
Debts
Building a Credit Line
Fraud
Emergency Spending
Rewards Programs

All Credit Lending Institutions with their own
card
◦
◦
◦
◦
◦
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27.2%
19.2%
18.9%
17.2%
4.0%
J.P. Morgan Chase & Co.
Bank of America Corporation
Citigroup Inc.
American Express Company
Capital One
CR4: 83.2
HHI: 1810-1850
Total Number of Companies: 192
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Current Revenues: $48.3bn
Current Profit: $3.2bn
5 Year Annual Growth Revenues: -5.1%
5 Year Annual Growth Profits: -28%
Proj. 5 Year Annual Growth Revenues: 5.8%
Proj. 5 Year Annual Growth Profits: 1.3%
Delinquency Rates Increased 14.0% in the Last 5 Yrs.
2011 Expected to Be First Year of Growth since 2005
Market Driver
Movement
Effect on
Industry
Growth
Predicted Movement
Households earning
over $100,000
Increase
Positive
Increase
National
unemployment rate
Increase
Negative
Decrease
Per Capita
Disposable Income
Increase
Positive
Increase
Yield of 10 year
treasury bonds
Increase
Positive
Increase
Aggregate
Household Debt
Increase
Negative
Decrease

Industry consolidation
◦ # of enterprises decreased 2.1% last year
◦ Examples
 B of A acquired Merrill Lynch & Countrywide
 J.P. Morgan Chase acquired WaMu and Bear Stearns

Marginal growth
◦ # of credit card owners increased from $173 to $181mil
in the last 5 years
◦ 17% of households in the US do not own a credit card

Still a large potential for growth
 2/3 of the global transactions are still conducted using cash
 Changing consumer landscape (i.e. ecommerce)

External
◦ Other Payment Forms

Internal
◦ Competing For Market Share





lower annual fees
lower interest rates
rewards programs
incentivized balance transfer programs from other cards
new technology

Young adults 18-26
◦ 84% of college students have credit cards
◦ In 08, half of college students had 4 or more cards

Individual aged 26-60
◦ Used for everyday purchases; wide range of
purchasing behavior

Senior Citizens 60+
◦ Growing market as healthcare costs increase and
social security/retirement savings decrease

Business
◦ Most common source of financing for small
businesses

40% Cardholder Fee
◦ Includes annual fees, cancellation fees, late
payment fees, non-usage charges, and risk-based
fees

40% Interchange Fees
◦ Fees charged by a bank to process transactions
made on a card from another bank.

20% Interest Payments
◦ Interest on outstanding debt
◦ Convenience Users: 55% of consumers pay their
balance in full month; called convenience users.

Interest Expense
◦ ~20% of revenue, borrow from other financial
institutions at low rate and charge consumers higher
rate

Provision For Loan Losses
◦ ~35% of revenue, unpaid debt that are just written off

Wages
◦ ~5.1%

Advertising
◦ ~7.6%, increased slightly as competition has increased
and companies fight to maintain/increase reputation
amid recession

Rewards
◦ ~18%, 70% of all credit cards now offer rewards

Three Main Threats
◦ Fraud
◦ Identity threat
◦ Security of highly personal confidential information.

These threats have always existed but are
likely to increase in severity of the next
couple years as more transactions are taking
place and more data is being stored on the
internet.

The Truth in Lending Act (TILA) of 1968

Credit Card Accountability, Responsibility and
Disclosure (CARD) act in 2009.
◦ Aimed to increase the transparency of credit card
advertising. Direct Mail was the main source of
advertising during that time and the TILA dictated that
the credit offer must disclose certain info in a separate
area called the Schumer Box. Still in effect.
◦ Result of Recession
◦ Aims to reduce deceptive acts by credit cards regarding
contracts.
◦ The major advertising effects will be the limit placed on
marketing directed at the group consisting of 18-26
year olds. Consumers in this age group must have proof
of income or co-sign with an adult.
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TARP
JP Morgan: $25.5bn
Citigroup: $45bn
Bank of America: $45bn

Total Television
Advertising
Expenditures
◦ 2006 - $1,313,292,181
◦ 2010 - $1,047,655,039
(20% decrease)
◦ Caused by the recession
20000000
18000000
16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
WASHINGTON,DC
TAMPA
SOUTH BEND
SAN ANTONIO
RALEIGH
PHILADELPHIA
NEW YORK
MIAMI
LEXINGTON
JACKSON,MS
HARRISBURG
FRESNO
DENVER
COLORADO SPRGS
CHARLESTON,WV
0
BIRMINGHAM
Largest advertising
campaigns were New
York, Los Angeles,
Chicago, San Francisco,
Philadelphia and Boston
ALBANY,NY

Grand Total

Most money was spent on
drama/adventure, situational comedy and
slice-of-life
◦ Professional football advertising increased
significantly in 2010

Targeted because the top 10 most
expensive programs were sports programs
or awards shows


The most money is spent
on Sundays, followed by
Mondays or Thursdays
depending on the year
Most ad dollars were
spent on primetime slot
7-11pm with the most
expensive time slot was
9 pm on Monday
Total Advertising Dollars
250000000
200000000
150000000
100000000
50000000
0
SUN MON TUE
WED
THU
FRI
SAT





American Express
Bank of America
Citigroup
J.P. Morgan Chase
Account for 61% of total television advertising
expenditures within industry
Capital
Other
American
One
Compani
Express
Financial
es
Co
Corp
6%
26%
22%
Bank Of
Discover
Financial
Services
11%
JP
America
Morgan
Corp
Citigroup
8%
Inc
Chase &
Co
24%
3%
2010
2006
Pre-Paid Cards
Pre-Paid Gift
Business
0%
Cards
Credit Cards
Business
Credit
Cards
12%
1%
Credit Cards,
General
Cards
71%
Promotion/S
Multi-Category
ponsorship
13%
k Cards
3%
Credit Cards,
Corporate
Promotion &
Debit/ATM/Chec
Personal Credit
11%
15%
Credit Cards,
Personal
General
Credit Cards
Promotion &
63%
MultiCategory
4%
Debit/ATM/C
heck Cards
7%

Search
◦ Attributes consumers can determine before
purchasing the product

Experience
◦ Attributes consumers can determine before or after
use

Credence
◦ Attributes consumers cannot personally evaluate
even after service

Credit Cards can be in all three categories
depending on the knowledge of the consumer

Persuasive
◦ Creates product differentiation by creating a reputation
for a company
◦ Important for products with experience attributes and
most important for products with credence attributes

Complementary
◦ Appeals to the preferences of the consumer, usually
aiming to create a social prestige through advertising

Informative advertising
◦ Means by which to convey information to consumers.



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Direct Mail
Television
Print
Internet
• Detail the
terms and
conditions of
the card
• Most used in the industry
• Differentiating card companies from each
other
"Bank of America Cash Rewards"
"Citibank Identity Theft"
"Chase Fraud Alert"
• American Express
• Ranked #1 most trusted company
• 24th best global brand
• Targets consumers with $100,000 to $1
million annual income
• Consumers see card as a luxury
• Gold Card, Platinum Card
• Other companies are competing with
"metallic" or "gem" cards




American Express mostly uses “My Life. My
Card” campaign
Celebrities to build luxury image
Consumer wants to feel part of celebrity class
"Tina Fey American Express"


"American Express Delta Skymiles“
Each company partners with travel industry
◦ Airlines
◦ Hotels


Charity Sponsors
Tapping into social responsibility

Student Credit Cards
◦ Encouraging students to begin building credit
history
◦ Reinforcing potential and importance of market
◦ 15% of market consists of 18-26 year olds
Brand Name
Rank
Country
of Origin
Brand Value
($m)
Change in
Brand
Value
American
Express
24
US
13,944
-7%
J.P. Morgan
29
US
12314
+29%
Citigroup
40
US
8887
-13%
Uniformity
Accessibility
Chase
B of A
Citi
Variety
American
Express
Selectivity
35.00%
30.00%
Percentage
25.00%
Bank of America
20.00%
JP Morgan Chase
15.00%
Citigroup
American Express
10.00%
Industry
5.00%
0.00%
2010
2009
2008
2007
2006
Year
• Industry Average is 7.6% and has grown
over the last few years

2006 -$246,878,428
◦ Similar program distribution to the market –
except in 2010 the 2nd highest category was
news forum/interview/varied format
◦ 89% of advertising was for national campaigns

2010 - $224,948,793 (decrease of 8.9%)
◦ 90% for national campaigns

2006 - $8,224,079
◦ Spent 2/3 of their advertising dollars on the
Olympics
◦ 82% was national ad campaigns
◦ Spent significantly more than their competitors
per ad in Chicago, New York and Los Angeles

2010 - $71,158,966 (increase of 765.25%)
◦ Spent 1/3 of their ad dollars on professional
football ads, the rest followed the market

2006 - $94,440,669
◦ Almost 100% was spent on national campaigns but
they did have campaigns in Seattle and Pittsburgh

2010 - $21,709,528 (decrease of 77%)
◦ 36% on national campaigns
◦ Spent 1/3 of ad $ on college football, also a large
percentage on professional football
◦ Spent an average of over $300,000 per ad (average
$4,000) for national campaigns, which based on
decrease in overall advertising shows that they are
targeting ads to prime markets/timeslots

2006 - $150,207,895
◦ 81% on national campaigns

2010 - $207,777,213 (increase of 38.33%)
◦ More spending in Texas than rest of market
50,000,000
Grand Total
45,000,000
40,000,000
150,000,000
JP Morgan Chase & Co
10,000,000
0
5,000,000
DOW
0
SUN MON TUE WED THU
FRI
SAT
•Sunday was the most expensive for advertising, Friday the least
SAT
15,000,000
FRI
Citigroup Inc
THU
20,000,000
50,000,000
WED
Bank Of America Corp
TUE
25,000,000
100,000,000
MON
American Express Co
30,000,000
SUN
35,000,000

Venture Capitalist Perspective

Stock Market Analyst
◦
◦
◦
◦
◦
◦
Poor investment
Highly Saturated
Consolidated
Maturity Stage
Low Growth Potential
Regulation
◦
◦
◦
◦
◦
◦
Good investment
Strong brand valuations
Value is greater than revenues
Strong P/E Ratios
Further consolidation expected
Stocks still on the up from recession

Integrate more combative advertising
◦ Especially applies to JPMorgan & Chase, Bank of America,
and Citigroup
◦ Highly saturated= difficult to attract new customers

Focus on customer service
◦ New differentiating characteristics

Focus on reputation, smart investing
◦ Build back trust


Expand partnerships in terms of niche
advertising
Cannot give specific recommendations
◦ Lack of homogeneity in product line