Aug 5 Wells Fargo & Co, the
fourth-largest U.S. bank, is trying to grow its relatively small
credit-card business with an unusual strategy: appealing to its
customers' distaste for debt.
In 2007, Wells Fargo debuted the Home Rebate Card, which
offers a 1 percent rebate that automatically goes toward paying
down principal on a Wells Fargo home loan. In the coming months,
the bank has plans to roll out cards that provide similar
benefits to customers who have taken out student loans, auto
loans and other types of consumer debt from the bank.
"The real thing customers wanted was to pay down their
mortgage," Tom Wolfe, Wells Fargo's executive vice president for
consumer credit solutions, said in a recent interview. "That
created a thought process where we asked, 'Why don't we offer
that service for all our products?'"
Wells Fargo believes offering such rewards cards is one of
its best bets for boosting the credit card business at a time
when consumers remain wary of taking on debt. Outstanding
balances on credit cards and other types of revolving debt in
the United States have remained flat over the past three years,
Fed data show.
Only about one-third of Wells Fargo's customers carry the
bank's own credit cards - a relatively small number for a bank
that controls roughly 10 percent of all U.S. deposits and prides
itself on selling customers multiple products. It is ranked
eighth among U.S. credit card issuers, with purchase volume of
$66 billion in 2012, compared to $566 billion at top-ranked
American Express Co and $416 billion at second-place
JPMorgan Chase & Co, according to the Nilson Report.
The success of Wells Fargo's strategy remains to be seen.
The bank is not the first to cater to customer frugality. Credit
card companies like American Express and Discover Financial
Services have long allowed customers to use reward
points to pay down card balances, said Scott Valentin, an
analyst at FBR Capital Markets.
Its reward program may also not be the best value for
customers who prefer to get cash-back rewards to use as they
wish, said Odysseas Papadimitrious, chief executive of Evolution
Finance, the parent company of CardHub.com, and a former
executive at Capital One Financial Corp.
Wells Fargo declined to say how many customers have a Home
Rebate Card. But it said more customers pay their balances in
full each month on the Home Rebate Card than on the bank's other
cards, and fewer customers default on their loans compared to
similar card products, according to Wells Fargo.
The bank estimates a customer with a $150,000 home loan who
spends $1,500 a month using the card could shorten their payment
schedule by over one year. In May, the bank said customers had
paid down $50 million in mortgage balances since the card's 2007
In adopting the strategy, Wells Fargo is counting on its
ability to deepen its relationship with consumers across many
different types of products.
"Wells Fargo puts its claws in you," said Tom Jalics, a
senior investment analyst with Key Private Bank in Cleveland,
Ohio. "They give you a mortgage and cross-sell you on every
other product they sell. They've really been able to
differentiate themselves there."