|
 It had three different possible base interest rates, depending on
whether money was borrowed for balance transfers, cash advances, or
purchases, plus penalty fees and possible higher interest rates if
payments were late. Customers that did not want a Simplicity card
could instead choose from 10 different versions of rewards cards.
The array of cards was dizzying, and marketing so many possibilities
was expensive for Citigroup.
Linville, 58, has spent four years simplifying products like
Simplicity as part of an effort to turn around the bank's credit
card business, which in the late 90s was second biggest in the U.S.
by spending, but a decade later fell to fourth biggest, according to
data from The Nilson Report. He is showing signs of stabilizing the
business: annual spending on Citi-branded cards in the United States
has climbed nearly 7 percent since Linville took over.
While Linville has been turning his group around, credit cards have
become one of Citigroup's most important businesses. Linville's
unit, combined with another that runs cards for retailers, was
responsible for a third of the bank's profits from its main
businesses last year, a figure that would have been closer to about
one-fourth before the crisis. The bank is the biggest issuer in the
world by loans and number of credit cards.
To be sure, even with Linville's success, rivals have been speeding
ahead. Citi's 7 percent gain in U.S. branded card spending compares
with a 38 percent increase at JPMorgan Chase & Co and a 32 percent
increase at American Express, according to Nilson data. JPMorgan's
business has been overhauled by Gordon Smith and Eileen Serra, who,
like Linville, used to work at American Express, and have followed a
similar playbook.
For Citigroup, the credit card unit has particular importance. The
bank has some $50 billion of tax credits, many from losses in the
financial crisis, which it can only take advantage of if it
generates enough U.S. income. Those credits generally came from
losses that the bank recognized in the financial statements that it
reported to investors, but that can’t be used for tax purposes until
the bank earns more taxable income in the United States, which
credit cards can provide.
In addition to credit card loans the bank makes to customers, it can
market other products, such as mortgages and savings accounts, to
them, which could boost U.S. revenue even more. Most of its rivals
have lower tax credits from the crisis and more sources of U.S.
income.
"The card business is a powerful asset to help restore the Citi
brand," Linville said in an interview.
Linville's efforts to boost the bank's credit card unit over the
last four years mirror the struggles of Citigroup as a whole, which
has been trying to find its way for more than a decade.
Built up through a series of acquisitions starting in the 1980s,
Citigroup has struggled to integrate its businesses, harmonize and
update its computer systems globally, and figure out how to best
profit from its broad array of international businesses. The bank
required three rescues during the financial crisis after it found
itself heavily exposed to bonds linked to U.S. subprime mortgages.
Going forward, Citigroup can be a formidable force in credit cards,
said David Robertson, publisher of The Nilson Report, an industry
newsletter.
"A lean, meaner, tougher Citi being recommitted to cards is going to
be a much more forceful competitor in the U.S. market than it has
been over the last decade," said Robertson. "They want to get that
brand out there again before the American public."
For Citigroup's investors, its ability to gain ground on rivals in
businesses like credit cards is one of its biggest opportunities to
boost its share price valuation, which lags many rivals. Citigroup's
shares trade at about 0.8 times their book value, or the accounting
value of the bank's assets minus its liabilities, while its peers
tend to trade around, or even above their book value.
[to top of second column] |
A PHD IN PSYCHOLOGY
For credit cards, Citigroup's next step for boosting profit is its
international business. The bank has 11 different rewards programs
around the world, which Linville is boiling down into one. Having a
single program should make it more efficient to strike promotional
deals with more than more than 100 assorted vendors around the
world, including Hilton hotels, Singapore Airlines and Cathay
Pacific. One program should also enable more customers to redeem
rewards on web sites instead of by phone, as half of international
cardholders now must do.
Linville had similar simplifying and updating to do when he joined
Citigroup in 2010, becoming the fifth head of the bank's credit card
business in six years. Parts of the bank's information systems for
things like fraud detection and marketing analytics were more than
20 years old. To cut costs, Citigroup had closed its call centers
for credit card rewards on Sundays, one of the busiest days of the
week for point redemption. When the bank asked customers if they
would recommend their credit cards to someone else, just as many
said "no" as "yes."
The bank was an industry leader in the 1980s and 1990s, and was
early to understand how plastic could become a critical part of the
personal finance landscape.
"They were the first nationwide marketer who went full bore in the
early 1980s and offered credit cards to consumers with whom they had
no other banking relationship," Robertson said.
Linville has fixed many of the obvious problems in the U.S.
business—he's opened the rewards call centers on Sundays, reduced
the number of U.S. rewards cards to three from 10, and eliminated
the late fees and penalty rates on the Simplicity card.
Linville, who has a doctorate in psychology, wants his cards to
appeal emotionally to customers. For example, in August, the bank
issued a cash-back card, which according to credit card research
site NerdWallet offers one of the highest cash-back bonuses in the
industry, at 2 percent.
The card offers a reward of 1 percent when the consumer buys an
item, and, more important, another 1 percent when the customer pays
their bill. The bank's research shows that offering an extra reward
for paying strikes a chord with customers who occasionally carry a
balance, and thus are some of the most profitable clients.
"To me," Linville told Reuters, "it is recognizing and rewarding
people who say, 'I am going to find a way to pay.'"
(Reporting by David Henry; editing by Dan Wilchins and John
Pickering)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
