Friday, February 19, 2016

BankAmeriDeals? How Banks Became Hucksters

Bank of America is now more salesman than bank. This is to be expected.  Click to enlarge.
In a previous posting, I was discussing a reader's frustration with their bank, who summarily closed their account. Why? He was unprofitable. He wasn't playing their game and that's no fun at all - for the bank.

But banks have to make money, and increasingly, it is harder and harder to make money as a bank doing the traditional things banks did - taking in savings and lending money.  In today's weird low-interest world, people shy away from putting money into a low or zero-interest savings account, but instead look for higher yields in the market.

And since you can transfer money pretty effortlessly online, there is little incentive to leave money in savings, when you can put it into higher-yield investments.   Going to a bank for a loan is also a thing of the past, as more and more people go online looking for the best deals, or get financing from their car dealer, or credit card offers online.

So what does that leave the banks?  Marketing.

If they can get you to use them as a conduit for all your spending, not only can they make a little money on fees (from credit cards) they also have valuable marketing data they can sell to others - as well as a platform to sell you to 3rd parties.

Bank of America has gone this route, extolling people to get their "cash rewards" card, which promises all sorts of cash bonuses, at least for the first few months.   3% cash-back may sound like a lot, but most transactions are at the 1% level.   And even if you charge thousands a month, the cash-back may be only tens of dollars - enough to buy a nice meal at a mid-priced chain restaurant once a month.  Whoopee.

So why not take the money?  You could "steal the cheese" from the trap, right?  Well, that is a good plan, provided you never, ever trip the trap, because if you fail to pay off the entire balance every month - even by a day, you could end up with an interest bill in the hundreds of dollars.  And it is all-too-easy to get into trouble with credit cards, believe me.  Most people in America end up in a credit card crises at one point in their lives.  Rewards and cash-back were the bait used to get them to step into this punji-stick filled pit.

I tried this card as an experiment, and well, I will be getting rid of it shortly.   The high interest rate and the risk don't make $30 to $50 a month in "rewards" worthwhile.

Once they have you on the "rewards" bandwagon, they offer you special BankAmeriDeals!  Whoppee!

Oh, wait.  There has to be a catch.   The deals seem odd at first.  You are exhorted by e-mail and when you log on to take advantage of these deals.   You go to the "deals" page and there are some "deals" - 10% off on 1-800 flowers, or the Sports Authority or Autozone.  You have to click on these deals to enable them.  If you then go and shop at the store, the discount will be applied to your rewards account.

Why such a weird way of doing things?  Why not just automatically apply the deals and then let you shop?

Well, it is the same reason companies use coupons.  If coupon discounts were applied automatically to everyone, there is no incentive to shop for a particular product.   The idea is to incentivize the consumer into buying.   So you dangle out a coupon and get the consumer to go play treasure hunt at the grocery store.

Similarly, the act of getting you to click on these "deals" is more than to just activate them (indeed, with a few clicks of a mouse or a few lines of code, BoA could make the "deals" self-activating).   No, they want to make you aware of the deals so you start thinking about using them.   "Hey, I should send flowers to Aunt Hattie!"  or "Gee, I need a new pair of sneakers anyway!" or "Maybe it's time to stock up on motor oil!"

The idea is to get you to consume at the store which has advertised on the Bank of America website.  That's right - advertised.   Bank of America is not selling "deals" - they are selling ad space on their site.  Or more importantly, selling your eyeballs to merchants.   And if you click, they tell the merchant.  And if you buy, they definitely tell the merchant and try to convince the merchant that they are steering business their way.

Of course, you could just click on all the "deals" and if you shop there, take the rebate and if not, don't.   Each "deal" expires however, which acts an incentive to spend - and they send you an e-mail to remind you a "deal" is expiring.

Do people really shop this way?   Yes they do.  Mark went to take a cake decorating class with a friend at Michaels - the craft store.   After the class the friend said, "I have to buy something - I have a 10% off coupon that expires tomorrow!"

Mark replied, "Do you need anything?"

"No," she said, "but I have to use the coupon!"

Mark replied again, "But if you are buying something you don't really need you aren't really saving money!"

As you can imagine, this sage advice fell on deaf ears.

But it illustrates how people feel about coupons and discounts and sales.  "Shop now, before prices go up!" they say, "You might be missing out on a GREAT DEAL!"

But of course, goods don't artificially shoot up in price one day over another.  The car you buy today doesn't "cost more" tomorrow because a sale has ended.  Or put another way, you can buy the same car for the same price - maybe less - at the next sale.  And the closer you get to the end of the year, the more likely it is there will be a sale.

So you see where this is going.  Bank of America (and all the other banks) are turning into marketing machines.   They want to capture all your spending and thus your spending data and demographic information, which combined, is a powerful piece of data for marketing people.   If you buy diapers, they know (or think they know) you have a baby, and will send you offers for parenting magazine or for other infant products.

If you buy dog food, they know (or think they know) you have a dog - and you will get pet offers, or offers for coupons from a pet store, or a pitch for a pet charity, and so forth.   The bank knows how much money you make, where you live, your age and gender, what do you for a living, how much debt you have, and exactly what you spend your money on.  They can sell this information or use it for marketing purposes.

Of course, if you don't play the game then that is no fun at all!  If you have multiple credit cards with different banks, or you have multiple accounts with multiple banks, well, how can they track your spending and get your demographic data?   Hey, this ain't Mint, right?

I am not picking on Bank of America (Although they beat me up on a regular basis!  As an abused child, this is comforting, however) - all the banks and credit card companies seem to be doing this.  It is our brave new world of marketing, where tracking everyone and everything they do is the new norm.  And thanks to the smart phone with GPS, yes, they can literally track where you are, if you let them, and market to you in real-time.

They can tell a lot about you by your buying habits and demographics.  "Gee, it's 3:00 - feeling a little tired?  There is a Starbucks 100 feet ahead of you on the left!"  They know you buy a coffee every afternoon around that time.  Whoever pays the most will get their brand name (and location) suggested to you at the appropriate time.  No shit - this is the brave new world of smart-phone marketing - targeted marketing that is narrow and precise.  Pretty soon, I guess, we'll just wander around letting our phones tell us what to do, what to buy, where to shop, and so forth - if it hasn't happened already.

So far, the AmeriDeals have not been much of a deal, as mostly they are for things I don't want to buy or don't need at the moment.  I check the boxes, of course, on the off-chance I might use the company or service inadvertently.  Unlike Mark's friend, I don't shop for things because a coupon is expiring.  It begs the question, no doubt, whether some subliminal suggestion has been planted in my brain by these "deals" which would then steer me toward those merchants.

But others, no doubt, will jump on these things.   And that is what the Bank is hoping for.  And if you aren't going to play their game, well, they would just assume you went to a credit union or become one of the unbanked.

Welcome to the brave new world of consumer banking! marketing!