Credit card marketing has been one of the banking industry's great success stories in recent years. As banks push into a new type of sales - dealing in mutual funds and other investments - what lessons can they glean from their credit card businesses?
That's the question American Banker put to six executives from banks, a card company, and a consulting firm. They pointed to many parallels between the two businesses - but also noted that selling mutual funds presents some unique challenges.
The credit card business has proved to W. Doug King "that it's possible to sell Wachovia products outside of areas where we have branches."
Mr. King is executive vice president of retail products for Wachovia Corp., a $40 billion-asset banking company in Winston-Salem, N.C., that ranks 17th in credit card outstandings.
Wachovia, which markets its credit cards nationwide, has begun selling shares of its proprietary Biltmore Funds through toll-free telephones lines, as well as through branch-based investment representatives.
"Credit cards are probably more broadly understood than mutual fund products," Mr. King said. "There's the whole matter of suitability and disclosure that makes it much more complex than a credit card solicitation."
Even so, Wachovia has gone ahead with a limited amount of direct mailing, and statement stuffers to credit card holders deemed most likely to want to invest in mutual funds.
* * *
Signet Banking Corp. is borrowing a page from its successful credit card operation as it charges into the mutual fund business.
"The key for us is using the predictive modeling techniques that the credit card unit perfected," said James M. McCoy, vice president and head of product design and distribution for the Richmond, Va., company's brokerage.
Predictive modeling involves soliciting several responses from consumers for a particular product or service and then analyzing those responses. The sales pitch is then changed slightly and the solicitation is repeated until the most efficient pitch is found.
Signet made a name for itself in credit cards through such technology- driven marketing. It spun off its card unit, Capital One Corp., earlier this year.
Signet has been using these techniques in investment services for only a few months, but the response so far has been good, Mr. McCoy said. "Our wrap fund product is striking a chord with people, and it's the one (investment product) that we've most successfully marketed so far."
* * *
If there's one message bank mutual fund executives must learn from the winners of credit card marketing, it's that being a local - or even regional - presence does not spell success.
Bank mutual funds are following credit cards down the road to nationwide distribution, said Anne M. Moore, president of Synergistics, a financial services research and consulting firm in Atlanta.
"The savings and investment area is becoming a national market selling to people" outside an individual bank's branch network, she said.
Ms. Moore urges fund executives to consider direct mail as a sales vehicle for building brand identity and selling funds nationwide. The trend to simplification of prospectuses could shrink the bulky documents and lower mailing costs, she said.
She believes properly targeted direct mail could be especially effective in attracting emerging investors - particularly households with $30,000 to $75,000 in annual income.
"Younger people are willing to do financial service business remotely - away from the branch," she explained.
* * *
Perhaps no company has linked its charge card business with its mutual funds and investment services more explicitly than American Express Co. It has found that monthly card statements are an effective lever for marketing other services.
Customers who start out using the American Express flagship green card frequently "migrate to other parts of the company," said Douglas Lennick, an executive vice president of American Express Financial Advisors, the financial planning arm.
For example, the company will roll out a national campaign this month to market no-load mutual funds to charge card customers. It has already tested the strategy this summer in Philadelphia and Chicago. Mr. Lennick said the program, known as American Express Direct, will steer many customers to the company's 8,054 financial advisers.
"When some of these card members call and find out they have access to a personal financial adviser, they like that," Mr. Lennick said. "A lot of them don't know about us," he said.
* * *
Many credit card units seek to forge early ties to potentially lucrative future customers by targeting college students, noted R. Gregory Knopf, who heads mutual fund marketing at Union Bank, Los Angeles.
And while he's not about to try selling the bank's Stepstone mutual funds to coeds, he would like to use credit card marketing techniques to establish strong ties with the emerging affluent.
Younger investors, who haven't already formed relationships with brokers or other fund providers, represent a large future market, he said.
"They probably need the most assistance and are also the most neglected group," he explained. The key to tapping them is using in-house data and advertising to segment the bank's customer base and to identify qualified mutual fund buyers.
* * *
Its experience with credit cards has shown First of America Bank Corp. how to target potential customers outside the bank, according to Bruce J. McCall, director of marketing at the Kalamazoo, Mich., banking company.
"We think credit cards have three different lessons for the mutual fund business," Mr. McCall said.
First, he said, banks need to offer a broad array of funds. "Our customers look for different investment risks, time horizons, or types of product."
Second, he said, "we need to offer different pricing strategies, so that customers can find the appropriate product to meet their specific needs. Any successful bank mutual fund program, for example, has to include both load and no-load funds."
Finally, Mr. McCall said, "operationally we have to have a flawless execution and aspire to be a low-cost provider."
Reported by William Plasencia, Scott Hensley, Howard Kapiloff, and Cristina Merrill.
