Double JeopardyTheodore Iacobuzio |
You don’t have to answer in the form of a question. Who wrote to F.A. Hayek on the publication of The Road to Serfdom, “Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement”? J.M. Keynes, of course—supposedly Professor Moriarity to Hayek’s Sherlock Holmes—so keep an open mind.
On Saturday, October 22, The Wall Street Journal (subscription required) published a remarkable story about U.S. consumers’ changed buying, spending, and borrowing behaviors post-crisis, something MasterCard’s Global Insights team spotted two years ago and has been calling “the shift to thrift” for 18 months now.
The Journal uses the story to illustrate Keynes’s paradox: In a recession, consumers’ propensity to save—in itself not a bad thing—slows recovery. (For a fuller understanding of the great man’s take on savings and investment, see the first chapter of The Economic Consequences of the Peace.)
So can card issuers make money in an environment neatly characterized as illustrating Keynes’s paradox? The first thing to do in formulating a strategy is to take inventory of current conditions on the ground:
- - U.S. consumers are spending less
- - They have not, however, ceased spending
- - They are spending differently (and, just as important, saving differently)
- - Different groups of consumers are characterized precisely by that difference
Connecting the dots between these empirically verifiable propositions indicates pretty clearly that segmentation of existing portfolios (for current issuers) and careful construction of product offerings based on similar segmentation strategies (for new issuers) is the path forward. Is anybody going to make money the way the industry did 1992-2008? It remains to be seen. But do cards continue to represent a valuable tool for consumers who are looking for answers in a difficult environment? The question answers itself.