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The Credit Card Industry. Ryan Burkard, Giampiero Giunta, AND Ruchi nanda. Why Credit Cards?. Complex industry Well-known advertising campaigns Relevant to everyone . A card association earns revenue from a merchant fee and an interchange fee.

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the credit card industry

The Credit Card Industry

Ryan Burkard, Giampiero Giunta, AND Ruchi nanda

why credit cards
Why Credit Cards?
  • Complex industry
  • Well-known advertising campaigns
  • Relevant to everyone
a card association earns revenue from a merchant fee and an interchange fee
A card association earns revenue from a merchant fee and an interchange fee

Merchant bank gives payment to retailer minus fees


Cardholder Purchase ($100)




Merchant Bank /


Card network submits payment minus a fee (%) back to merchant bank ($98)

Submit charge to merchant bank and then on to card association

Card Association

Card association forwards charge to card’s issuing bank



Issuing bank forwards the original charge to the consumer who pays the balance due ($100)

Issuing bank submits payment back to association minus an interchange fee (% of transaction) ($99)

porter s five forces
Porter’s Five Forces

An industry framework used to determine attractiveness and competitive intensity of an industry

the c redit card issuer follows a top dog s trategy in o rder to survive
The credit card issuer follows a TOP DOG strategy in order to survive

Aggressive Behaviors




Barriers Ex-Ante


Source: Ibisworld

Suppliers and consumers in the industry have medium bargaining power, putting downward pressure on profitability

Source: Ibisworld


The credit card issuer industry is HIGHLY PROTIABLE due to the upward pressure on profits from these five forces

the credit card association plays the role of a fat cat1
The credit card association plays the role of a FAT CAT

Aggressive Behaviors




Barriers Ex-Ante


Source: Ibisworld

Suppliers have low bargaining power and consumers have medium bargaining power, putting insignificant pressure on profitability

Source: Ibisworld


Together, the credit card industry is very lucrative and, unsurprisingly, was heavily regulated by Credit Card Act of 2009 and Dodd Frank Wall Street Reform

Dodd Frank Wall Street Reform

-16% in credit card issuing

Source: Ibisworld, Bloomberg, Seeking Alpha


After the financial crisis, there has been a significant decrease in consumer spending and advertising allocation…

…resulting in more practical marketing choices

Effects of financial crisis realized

Source: Bloomberg: Company 10-Ks

total ad expenditures of each firm
Total Ad Expenditures of Each Firm

American Express and Capital One have remained with high expenditures.

MasterCard and Visa have dropped significantly in their ad expenditures

We will look further into this.

number of ads for each firm
Number of Ads for Each Firm

American Express airs the most ads


Cheapest ads

Visa and MasterCard spent a lot in 2006, however they aired much fewer ads compared with Am EX

Higher profile events?

Olympics, Super Bowl

Visa and MasterCard’s ad expenditures and airings declined a lot

empowered consumers expect marketers to support them on demand
Empowered consumers expect marketers to support them “on demand”
  • The average American household has 10 active credit cards, the average American has 4 active credit cards
  • The internet allows consumers to easily compare interest rates, rewards, etc. from the comfort of their home
  • 80% of complaints filed with the Consumer Bureau are tied to credit cards

Source: Consumer Bureau

iconic advertising
Iconic Advertising

Source: Mastercard 10-K (2002)

card appeal
Card appeal


Personal pictures

Exclusive groups

social media mobile advertising
Social Media/Mobile Advertising

One in four cardholders has become a fan, friend or follower of their credit card brand or issuer

Source: Synergistics Research Corp.


Narrow customer base

Large transactions > fewer customers > better customer service

High price point

Low price point

Many small transactions > connection with banks (no vertical integration)

Broad customer base

capital one treats credit cards as information data drives its business strategy
Capital One treats credit cards as information, data drives its business strategy

Makes key acquisitions in the information technology market: Bundle

Performs about 30, 000 credit card experiments a year

Uses every client interaction, including ads, as an opportunity to cross-sell

Its advertising strategy is a paradox, but not really

Source: Bloomberg News

what types of programs does capital one advertise on
What types of Programs does Capital One Advertise On?

Sports heavy, especially College sports

March Madness

Capital One Bowl

Capital One has a low price point  target the college aged person

Drama and Adventure TV series

for american express being a customer is not just a transactional mechanism but a lifestyle choice
For American Express, being a customer is not just a transactional mechanism, but a lifestyle choice

Caters to the lifestyle of the customer with the ideal credit score of 760

Entices with exclusive memberships, and shared reputation i.e. gold and black cards

Its advertising strategy is purely complementary

Source: American Express

where does american express advertise
Where does American Express Advertise?

Mostly on Drama/Adventure TV series

Major network TV shows to reach a large number of people.

Reinforces signaling advertising strategy

monthly advertising of american express
Monthly Advertising of American Express

Strong correlation between years

Heavier advertising towards the later part of the year

Holiday season: remind shoppers to use their American Express cards to buy the gifts!


MasterCard and Visa attract the largest audience by being very involved in all American events and using memorable advertising strategies

where does mastercard advertise

MasterCard Advertising Program Distribution

Where does MasterCard Advertise?

Obviously major cuts in ad spending across the board, except for golf

Why did MasterCard cut spending?

Went public in 2006, possibly advertised very heavily to gain investors’ interest initially

Now taking a similar path to Discover  less advertising

Increased profits with similar revenues. The stock has performed very well

mastercard monthly advertising distribution
MasterCard Monthly Advertising Distribution

Drastic changes in overall advertising efforts across all months

Minimal ads in 2010 compared to 2006

Arnold Palmer Invitational presented by MasterCard in March

Overall, not much of a trend in month-to-month spending

where does visa advertise
Where does Visa Advertise?

Very heavy focus in sports



Slow decline in all other program types

Why such a drop in Spending from ‘06 to ’10?

MasterCard is their main competitor, maybe they don’t need to advertise as much because MasterCard is not.

Prisoner’s Dilemma

visa s olympic ad campaign
Visa’s Olympic Ad Campaign

Drop in ad expenditures while consist number of ads

Lower cost for each ad

Still a strong effort in 2010 despite less spending

Less Olympic ad spending contributes to the overall spending reduction of Visa

visa s monthly advertising distribution
Visa’s Monthly Advertising Distribution

Significant overall decline in Ad Expenditures

Largest Months:


October through January

February expenditures are so much higher because of the Olympic ad campaigns

Oct. – Jan. high due to NFL season

investment and advertising recommendations
Investment and Advertising Recommendations

‡ Giunta, Nanda, & Burkard

The credit card industry should advertise new technologies to connect with young consumers on a new level