The annual report on the world's most valuable ... - Brand Finance

When south
dakota saved
citibank and
iTunes Becomes
a Bank
By William e Barker, Managing director, Brand Finance usa
Did you know that South Dakota once saved
Citibank? In 1980 low national caps on interest rates
were preventing Citibank from making a profit. In
response, Citi convinced the American state of South
Dakota to eliminate its law capping interest rates
in exchange for relocating the bank’s credit card
operations (and plenty of jobs) to the state.
Though the turmoil in the banking industry today
also involves credit cards, it can’t be solved as easily
as Citi’s strategic move to South Dakota.
strength of credit cards, For now…
Against a bleak background for US financial firms,
banking brands associated with credit cards
performed well on the 2011 BrandFinance®
Banking 500, but it isn’t clear how long this trend
will continue.
While American Express, the largest company
closely associated with credit cards, saw its brand
increase in value by 17%, HSBC has gotten out
of the sector, selling its US credit card division to
Capital One.
What’s going on? Brand managers can
look back at a fairly successful –
if unpredictable – year, but there are a variety
of challenges ahead.
regulation and its unintended consequences
Since the new Dodd Frank act puts a cap
on large transactions fees, banks can no longer
subsidize smaller ones with lower fees (as had been
common). Businesses are already seeing fees on
their smaller transactions increase. How will brand
managers prevent their brand being associated
with raising fees on small businesses?
<strong>The</strong> rise of Prepaid cards
Some predict further segmentation and
competitiveness in the credit card space through
a spike in usage of prepaid cards (US$460 billion
in 2011 vs approx. US$790 billion in credit card
debt). <strong>The</strong>se undermine banking loyalty as they
are not associated with a bank account. American
Express, for example, has launched a prepaid debit
card with Target.
<strong>The</strong> internet
<strong>The</strong> Internet offers both opportunities and
challenges to banking brands. Each year new
smart phones with integrated payment systems
allow more and more consumers to avoid traditional
credit cards. Will branded banks become a B2B
business by providing wholesale credit to phone
companies, utilities, and other networks which
can pass that credit along through a preexisting
relationship? With many predicting the demise of
TV as we know it, perhaps we should be expecting
Apple to distribute credit through iTunes; but let’s
not go there just yet!
While credit cards are not going to disappear,
brand managers for credit cards must work hard to
understand how their market is rapidly transforming.
…and Weakness of Broad – Based Banks
Few banking brands want to emphasize
“investments” or “mortgages” as a part of their
brand equity. <strong>The</strong> BrandFinance® Banking 500
study shows that some of the worst performers
were investment-heavy Bank of America (-33%),
Goldman Sachs (-30%) and JPMorgan (-12%).
<strong>The</strong> issues confronting credit card issuers are in
fact larger banking challenges; both regulation, the
Internet, and other market developments represent
as much or more risk than opportunity, it seems.
Treading carefully in 2012
<strong>The</strong> coming years will be challenging for brand
managers, With a slow economic recovery,
the risk of a double-dip recession, and lasting
public antipathy towards anger adding to the
forces described above, the situation will not be
improving soon.
Brand Finance asked CalibraxKPITM,
who specializes in researching Internet visibility
as brand strength, to comment on our findings.
“We found some interesting observations”, says
Brian Cusick, a co-founder of CalibraxKPI. “As your
article suggests…we see financial organizations
focused on credit cards and retail are more likely
to have high and growing brand value, whereas
those focused on investments are more likely to be
declining in brand value.”
“Digging a bit deeper we see that the most universal
challenge for building a banking brand isn’t which
service to focus on but how to overcome the crisis
of confidence”, Cusick continued. “Our research
suggests that brands that are able to discuss and
engage with the topic of ethics are considerably
more likely to be increasing in brand value”,
he concludes.
a new dawn in dakota
<strong>The</strong>se times may require a willingness on the part of
banks to publicly discuss ethics and other subjects
that they would have recently viewed as useless or
even harmful. Banks don’t only need to convince
customers that they are providing a valuable
service, but that they are trustworthy and ethical
businesses that cannot be tarred by the brush
of anti-banker prejudice. If so, then extreme
discretion and subtlety will be increasingly valued
in creating brand value for the banking world.
61 © Brand Finance plc 2012
© Brand Finance plc 2012
62