OBSERVATIONS OF THE FINTECH SNARK TANK
The Wall Street Journal reported that JPMorgan Chase:
Assembled the parts to launch a full-service travel company where customers can plan and book trips ranging from a simple domestic flight to an extravagant safari. It bought a booking system, a restaurant rating company and a luxury travel agency. It builds its own airport lounges and thousands of travel agencies. A new website will be launched in the coming months.”
The big question, of course, is “Why?” According to the article:
“The idea is that JPMorgan manages the entire shopping and buying experience for a purchase that customers are passionate about. Cars and homes may be next, executives said.
What is JPMorgan Chase thinking here?
Allison Beer, the bank’s head of cards, explained:
“These are huge circles of customer spend where we have a real opportunity to differentiate what it means to use Chase products.”
Yes, of course, but the amount of money Chase has spent — and will continue to charge from the bank — building a full-service travel business isn’t just about serving existing customers. It’s about acquiring new customers and changing the nature of competition in credit cards.
Today, the big card issuers are competing for the big issuers with rewards. Rewards is a huge differentiator and motivator in the credit card field, and Chase will certainly continue to battle it out with the other major issuers on the rewards fronts.
However, an integrated travel company is changing the nature of how Chase can reach potential customers and provide a more targeted credit card offering.
Chase has co-branded credit card relationships with travel-related companies, including airlines Southwest, United, Aer Lingus, British Airways and Iberia. In addition, it offers cards for hotel chains such as IHG, Marriott, Hyatt and Disney.
Taking (and making) consumer travel reservations gives Chase the ability to make instant offers for their co-branded card portfolio at the point of sale.
For existing Chase cardholders, the travel company would theoretically be able to offer smart buy now, pay later (BNPL) offers based on past purchase and refund behavior.
The Bigger Picture: Activity-Based Marketing
In 2019, I published a report titled Point-of-Sale: The New Battleground for Bank Marketers. The premise of the report was that the debate between the superiority of inbound marketing versus outbound marketing missed the emergence of a new type of marketing:activity-based marketing-defined as:
“Marketing in the context of the research, shopping and/or purchasing activity performed by a customer or prospect.”
Activity-based marketing is a necessity for banks because for many categories of purchases, decisions are based on shopping (or research) processes and not on past relationships.
As the report noted:
“Activity-based marketing is changing consumer behavior and the process by which they make their product and provider choices. It changes the point of interaction for banks, bringing that point much closer to identifying the need for the product or service. In addition, it provides education in the context of the activity about which the consumer is being trained.”
The benefits of activity-based marketing include:
- Brand awareness and affinity. Anyone, not just existing customers, can use the activity-based marketing apps of the financial institutions mentioned above. In fact, the apps are a form of advertising that creates brand awareness and positive affinity with those companies.
- Early involvement in the buying cycle. The well-known challenge that banks have with many credit products, especially cars and homes, is that the choice of the lender is usually not considered before selecting the product. By providing a tool to aid in the product selection process, a bank that provides an activity-based marketing app engages prospects earlier in the buying cycle than they could have done in the past.
- Customer feedback. McKinsey & Co.’s recipe for marketers to develop personalization capabilities includes: 1) assembling a rich real-time picture of customer engagement, and 2) collecting data to identify consumer signals along the customer journey. One problem with this recipe is that bank marketers don’t have that data. Activity-based marketing helps address that problem by identifying the activities and processes that create the data.
- Tender steering. With activity-based marketing, banks can help customers use their debit and credit cards with rewards and/or discount offers or be there when a customer needs point-of-sale financing (POSF).
I expected banks to start buying houses and cars (as the USAA and Commonwealth Bank of Australia have already done), not the travel experience.
But with his portfolio of travel-related co-branded credit cards, the travel industry is a smart place for Chase to disrupt.
Chase may not call what it does “activity-based marketing” (he prefers the term “connected commerce”), but the bank continues to show that it is willing to make big bets and take big risks to bring the world of change financial services.