Don’t Confuse Credit Card Marketing With Steering

by Ken Paterson 0

It was perhaps inevitable. Last week’sheadlines announced “BofA Steers Some Clients From Debit To Credit”(http://www.bloomberg.com/news/2011-09-19/bank-of-america-steers-brokerage-clients-to-credit-for-rewards.html)and “Debit or Credit? Citi Places Its Bet”(http://online.wsj.com/article/SB10001424053111903374004576581084218444302.html?mod=googlenews_wsj).The themes suggest banks will simply convert their debit users tocredit users in order to access unregulated credit card interchangerevenues. Ah, were it that easy…

Clearly consumer incentives are shifting in the post-Durbin era,with debit-related fees increasing and debit rewards disappearing.And issuers with the ability to shift marketing dollars and rewardsspending to their credit card programs would certainly have aneconomically defensible case for doing so.

But let’s not forget why consumers have made debit their overallcard of choice in today’s troubled economic environment: it’sreally hard to overspend your debit/DDA account (at least withoutincurring the reinforcement of overdraft fees). There are somegreat debit alternatives out there for those with discipline(charge cards, credit cards with self-selected spending controlsand monthly auto-payment), but for those who don’t trustthemselves, debit makes sense. And according to our consumerresearch, consumers are still gravitating to the discipline ofdebit in order to avoid building their credit card balances. Willnew debit-related fees dissuade consumers from using debit? Atreasonable pricing levels, we strongly suspect they will not.

So let’s avoid calling issuers’ shift in marketing emphasis”steering.” Many consumers are in no mood to be “steered” away fromthe value they perceive in debit to the risk they see in credit.And if the cost of using debit becomes too high? Wary consumers arelikely to steer themselves to the ultimate in discipline:cash.