Global Warming Has Issuers Thinking Green

  The environment continues to climb the charts of American popular concerns. And as with many pop-culture trends, the payments industry is keen to tap into the sentiment.
  Now, instead of spending rewards on free flights, cardholders can donate point values to environmental nonprofits. Cardholders also can cash in rewards on such "green" goodies as personal solar-power packs or battery-free flashlights.
  It is not entirely clear how much issuers' environmental campaigns will improve either their card-portfolio profits or the air their cardholders breathe. But even environmental organizations that criticize banks for some of their more controversial investments welcome some eco-friendly card reward and donation campaigns. And marketers say adding green rewards to card portfolios can help reach additional demographics.
  "It's still too early to really know how well these programs are going to perform," says Kelly Hlavinka, director of Cincinnati-based marketing research firm Colloquy. "Ultimately, what the consumer's getting out of it is an additional choice."
  Hlavinka says cardholders generally respond positively to options to donate rewards points or money through their card issuers. However, the "'what's in it for me?' factor still drives rewards," and cardholders overwhelmingly spend rather than donate their points, she says.
  Rewards donations tend to increase "when there is a crisis in the news, such as right after 9/11, the tsunami in southeast Asia or Hurricane Katrina, when issuers allowed cardholders to convert rewards points into donations to various relief groups," Hlavinka notes.
  Of course, global warming did not cause the 2001 terrorist attacks on the World Trade Center and the Pentagon, or the undersea earthquake in 2004 that triggered the tsunami that devastated miles of coastlines in southeast Asia.
  But Hurricane Katrina in 2005 heightened public concern about possible human causes of powerful storms. And in the months since the 2007 Oscar win of "An Inconvenient Truth," the documentary that features Al Gore's traveling climate-change lecture, each extreme-weather event has become not just another tragedy but more fuel for public sentiment that ongoing efforts must address climate change, even small ones such as "green" credit card rewards.
  "We know from consumer research that green issues are important," says Nancy Gordon, executive vice president in charge of Citigroup Inc.'s Thank You Network rewards program. "Al Gore definitely has had an influence on that."
  Events such as the Live Earth concerts that were held around the world on July 7 to draw attention to climate change will continue to keep environmental issues high on public priority lists, Gordon says.
  GREEN REDEMPTIONS, DONATIONS
  In July, Citi was preparing to add an environmental rewards and donations section to its Web site. In addition to donating Thank You Network rewards points to certain environmental organizations, cardholders can redeem points for green merchandise such as battery-free flashlights or solar personal power chargers. Purchases from numerous organic and "self-declared eco-friendly" merchants will earn cardholders four to seven rewards points per dollar spent, Gordon says.
  Cardholders also can spend Citi Thank You Points on wind-energy credits from Renewable Choice Energy. The Boulder, Colo.-based company sells the credits to individual and business power users. Based on the number of credits customers purchase and the kilowatts they use, Renewable Choice directs utilities across the United States to replace a certain amount of electricity to the national power grid using wind power instead of coal, oil or nuclear power.
  In July, GE Money was preparing to announce details of its new GE Money Earth Rewards credit card. Details of the card were not yet available at C&P press time, but a GE statement says the card will offer "rewards dedicated to reducing cardholders' carbon emissions and fighting climate change."
  Environmental-improvement ideas rated highly in American Express Co.'s The Members Project, which allowed cardholders to propose pet projects, one of which will receive from AmEx a donation of $1 for each cardholder who joins the initiative, up to $5 million. As of mid-July, some 1,200 of the 7,000 messages discussing proposals involved the environment or wildlife.
  The Members Project gets kudos from Hlavinka for engaging cardholders beyond enabling donations to predetermined nonprofits. "They're really allowing the cardholders to get involved in a deeper way to nominate the causes that are most important to them," she says.
  HSBC, Citi, Sovereign Bank and other issuers now donate funds to plant trees whenever card-, deposit- or investment-account holders agree to stop receiving paper statements and instead view and manage their accounts electronically. (See sidebar, page 23.)
  The latest environmental campaigns of credit and debit card issuers are not solely altruistic. Besides the damper on card use that increasingly apocalyptic weather might cause, many financial institutions publicly note the havoc it could wreak on operations.
  "Citigroup corporate buildings and campuses could be affected by severe-weather events or sea level rise," Citi representatives wrote in answer to a May 2006 questionnaire by the Carbon Disclosure Project, a United Kingdom-based organization that helps participating corporations calculate, report and plan to reduce their greenhouse-gas emissions. "Citigroup employees could be affected by health-related impacts of climate change."
  Furthermore, some environmental organizations for years have taken large banks to task for the ecological impacts of their investments in such industries as power generation, logging and mining. Though mostly focused on the commercial banking divisions that directly fund those industries, many pressure campaigns have encouraged public protest directed at consumer banking operations, including payment card divisions, of large banks.
  San Francisco-based Rainforest Action Network, for example, has been conducting public-pressure campaigns to try to convince banks, including BofA, Wells Fargo and Citigroup, to stop lending money to corporations that build new coal-fired power plants or that mine and log in environmentally vulnerable areas.
  Rainforest Action says its campaign targeting Citi, which began in 2000 and included branch sit-ins and celebrity-spokesperson advertisements, encouraged cardholders to cut up their Citi cards in protest.
  Rebecca Tarbotton, Rainforest Action global finance campaign director, praises Citi for many of its environmental initiatives since then. These include carbon-reduction goals and disclosures, certain restrictions on its utility and mining borrowers, and commitments to only finance forestry projects that do not log illegally or in environmentally fragile areas. "The environmental and social policy Citi released in 2004 and 2005 was one of the first of its kind and laudable," Tarbotton says.
  In addition to Citi's efforts to reduce emissions of its own buildings and operations, "we now engage our clients on their own carbon-reduction efforts," adds Citi environmental spokesperson Christina Pretto.
  Still, when Citi announced in May it would invest $50 billion in the next decade in alternative-energy technologies, donations and other efforts to address global-climate change, Rainforest Action criticized Citi for its continued funding of projects such as the building of three new coal-fired power plants in Florida, one of which is located in the Everglades.
  "Fifty billion dollars from Citi is a very good thing, but at the same time, Citi is continuing to finance projects that are harmful to the environment," Tarbotton says. "A lot of banks are doing interesting things on the consumer side of banking, and that's exciting stuff. But we're continuing to hammer away at the fact that, ultimately, where we need to see change is where a huge amount of their capital is going."
  DIRECT MAIL DILEMMA
  Citi does not comment on the operations of its industrial clients, but Citi engages in ongoing discussions with environmental organizations, including Rainforest Action. "We talk to a whole host of groups and have for years," Pretto says. "We find this dialogue very constructive."
  One environmental challenge card issuers and environmental organizations share is direct-mail solicitations, with issuers seeking new card accounts and eco-nonprofits seeking donations.
  American pop culture, from fictional movies to articles and blogs about paper-waste reduction, demonizes postal solicitations of all types as tree-killing junk mail, much of which goes unopened or, increasingly, is shredded to avoid identity theft.
  But direct-mail response rates, while low and dropping, still are higher than the response rates to other types of outreach, according to card-marketing analysts.
  Tarrytown, N.Y.-based Synovate Mail Monitor estimates that credit card issuers mailed 5.8 billion paper solicitations to cardholders in 2006, down slightly from 6.1 billion in 2005 but up slightly from 5.2 billion on 2004 (see chart, page 22).
  The response rates to those mailings, 0.5% in 2006, for example, hardly would seem worth the trouble to the uninitiated. But a majority of American respondents to a survey published in June by Westbury, N.Y.-based Auriemma Consulting Group said they applied for their most-recently acquired credit card based on preapproved offers they received in the mail.
  Of 400 respondents to the survey, 42% said they applied for their most-recent cards based on preapproval letters, up slightly from 39% in December 2005. Another 17% applied using applications they picked up at bank branches or events, up from 13% in 2005.
  The Auriemma survey found 12% of respondents sought out an application, down from 13% in 2005. Only 6% said they applied for cards following general mail solicitations, down from 13% in 2005. Another 5% of respondents said they applied for cards based on e-mail solicitations and Internet ads, up from 4% of respondents in 2005.
  ATTENTION GETTERS
  Despite the reported effectiveness of preapproval letters, it took a lot of letters to get the attention of survey respondents, with 48% saying they do not open any credit card solicitations they receive in the mail, up from 41% in 2005.
  "Billions and billions of solicitations are sent in the mail every year, says Megan Bramlette, an Auriemma associate. "So there is this consumer expectation that if every week I'm getting three or four pieces of mail, I'll only open an envelope after I've seen it a second or third time."
  What is a marketing department caught between an environmental/fiscal rock and a new-account-acquisition hard place to do? Constantly re-evaluate marketing methods using new and old channels, marketing experts say.
  For example, issuers can cross-sell to existing customers who view account statements online. "They have all these buildings filled with people stuffing envelopes," Bramlette says. "With more online statements, they can cut much finer demographics and target marketing much more closely than they can with paper statements. And they can cut costs by shutting those buildings down."
  Bramlette suggests issuers at least reduce the size of solicitation mailings. "Instead of sending out huge mailers, they could say, 'Hey, you're preapproved. Go to this secure Web site and log in,'" she says. "Instead of sending eight-page mailers, they could send one-page letters or post cards. You're starting to see that already."
  American Express mailed 871 million card solicitations in 2006, down from 916 million in 2005, according to Chicago-based Mintel Comperemedia.
  "We are an active mailer because it is still something customers respond to," AmEx spokesperson Judy Tenzer says. "But we're doing things like decreasing the weight of the paper that we use for a lot of our mailers and using more recycled content in our mailings."
  Citi mailed 872 million card solicitations in 2006, according to Mintel, down from 917 million in 2005. "The percentage of our cards that are generated on the Web is rising every year," says Rob Rosenblatt, Citi executive vice president.
  Rosenblatt agrees that the card industry is far from killing off direct mail, but he adds that issuers are attempting to make count each of the "hundreds and hundreds" of communications they send to existing and prospective customers, via paper, e-mail or the Internet. "The name of the game is to be more targeted and more efficient," he says.
  Perhaps more issuers can improve the climate and their card-portfolio profits with donations, green rewards and changes in their industrial-financing policies. And perhaps cardholders will change their card choice and rewards-points redemption habits based on those issuer activities.
  As the saying goes, everyone likes to complain about the weather. The question is, how much issuers and their cardholders will do about it.
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