[Posted by Ed Kountz]
In my last blog post, I sketched out the e-Business ramifications of the pressures that were mounting on credit card fees and operational structure, both from the legislative/ regulatory front as well as from merchants, who had just launched a website dedicated to mobilizing consumers against the “unfair and hidden” credit card fee of interchange.
Since that posting, several other developments have occurred on the legislative front, all of which validate the observations I made previously. These include:
Card Bill Advances in the US House.
My previous entry noted the passage, in the Senate Banking Committee, of credit card industry rules changes designed to revamp permissible practices and fees. On April 22, 2009, the House Financial Services Committee itself passed, by a vote of 48-19, a bill that would reduce rates and fees as part of a “Credit Cardholder’s Bill of Rights.”, A full House vote is expected shortly. While the idea of a Credit Cardholder’s Bill of Rights stalled in Congress in 2008, the passage of the Fed’s rule changes and current attention have buoyed the concept in this session of Congress
Administration Involvement Expanding as Interest Grows.
Last Thursday, the day after the House Financial Services Committee vote, President Obama and leading administration officials met at the White House with execs from more than a dozen leading credit card issuers. After that meeting, the President spoke with reporters, reiterating his support for the rate increase and late-term penalty limits that Congressional action and the Federal Reserve rule changes would work to curb. “We want clarity and transparency” in the credit cards industry, the President said. He also noted that card issuers who break the rules will, moving forward, “feel the full weight of the law.”
The Administration supports both House and Senate moves, and has indicated support to bring forward the effective date of the Fed rules changes, as well. Where the President stands on the issue of interchange reform is not clear…but given the minefield that interchange reform represents I expect him to avoid entering this fight, for now. But what is clear is that the pressure for bringing change to the credit cards industry has now reached critical mass.
How should eBusiness executives respond? Forrester has long spoken of the need for financial institutions to align more effectively with the cardholder–adopting a position of “Customer Advocacy,” in which they act in the relative best interests of the end-user…even if such moves aren’t legally mandated. It is worth noting that many of the calls being made of the credit cards industry are ones which mandate that eBusiness executives consider, earlier and in more depth, the need and perspective of the cardholder.
In sum, there are four principles that marketers at issuing banks should embrace:
- Simplicity. Make it easier for the cardholder to navigate, understand and resolve issues.
- Benevolence. Align with the cardholder, and try to approach provlems from the cardholder's perspective. Don't spring hidden surprises.
- Transparency. Issuers should make rates and fees clear and easy to digest, and seek to eliminate the hidden "Gotchas!" that so many stories about the industry reference today.
- Trustworthiness. Institutions should take the approach that they will deal with customers honestly and openly, and will do what's right from the customer's perspective, when possible, even if not legally regulated or mandated.
Upcoming research will consider these factors at greater length, as well as the “must-have” tactics that will resonate most directly with key groups of clients or prospects. But given the lack of resolution around these issues and interchange, such an approach also has important political considerations that, while ancillary to the benefits, must also not be overlooked.