Banks' Return to Card Marketing Good News for ARM Industry

As insideARM wraps-up The Credit Card Issue sponsored by IAT SmartDial, I wanted to leave you with a final thought that may suggest the possibility of some light at the end of what has been a pretty dark tunnel for credit card collections since the financial crisis began in the fall of 2008.

A good bit of the content we’ve published from various experts about credit card receivables over the past three weeks has focused on the volatility of the credit card market in the ARM industry. Declining inventories of charged-off accounts and some contraction of vendor networks at issuers, as well as sustained high unemployment, remain an ongoing concern for debt collection companies that work this paper. But a few weeks ago, American Public Media’s Marketplace reported some encouraging news for the debt collection industry about financial institutions’ 2011 advertising expenditures. In short, banks are spending more on ads this year—a lot more as it turns out.

A brief aside: I must admit I cracked a little smile when I heard the Marketplace piece on the radio. In a business meeting the week before the APM story ran, one of my colleagues was told (without irony): everybody knows advertising doesn’t work. I don’t know if you subscribe to that point of view, but here’s a little test. Have you heard of a product called ShamWow? (I’ll bet you have.) Let me raise the stakes a bit: if so, do you know what color a ShamWow is? Now tell me again that advertising doesn’t work. But I digress.

The Marketplace story on September 19 reported that according to Nielsen, all kinds of companies spent $53B on print, radio, and TV ads in the first six months of 2011. That’s a 5 percent increase from the same period in 2010. That’s nice, but here’s the kicker: banks’ advertising purchases jumped 24 percent in the first half of this year, almost five times the amount of other industries’ ad spends. Why? To lure customers back into the financial services fold or, said another way: to make money (and lots of it).

To be fair, many of these ads are targeting credit-worthy customers who may have curtailed their spending in this economic environment or who found the bitter aftertaste of TARP bailouts a little too much to swallow. But once this audience is reconverted through all of those advertising messages being thrown at them, how long will it take for banks and other card issuers to remember that “there’s gold in them hills” where the less-than-credit-worthy folk reside? Or how long will we have to wait until those banks forget what got them (and us) in this economic mess in the first place? I’d be lying if I didn’t say: not too long.

Remember the movie Field of Dreams? “If you build it, they will come.” In this case, the “they” is consumers. And when they come, and once they spend, account delinquencies will inevitably follow. Trust me on this; and let’s talk again in 18-24 months.

Before insideARM puts this Big Issue to bed, I want to acknowledge all of the insight and sharp perspective from those who contributed content to The Credit Card Issue. Smart cookies all around.

And finally, a really big THANK YOU to IAT SmartDial for sponsoring the entire three-week series. The financial support and vision of companies like IAT allow us to bring feature content like The Credit Card Issue to you.

Michael Klozotsky is the managing editor of insideARM.com. He always carries cash.