Credit Card Grrl

The 411 on the marketing side of the credit card industry


Nielsen/NetRatings data

- The total number of visitors who have accessed a credit card account online increased 18% in 2005 to 39 million in December 2005. Capital One had the most activity followed by Citi Cards, AmEx, Bank One, and Discover.

- Citibank aggressively marketing credit cards online with 29 million spent online in 2005.

Please note that any links directly to card product offers are provided for informational purposes only. Any descriptions within this post about an offer may not necessarily align with the offer to which these links connect.


WSJ article - People are paying their bills - oh no!

Loss of Balance
Credit-Card Issuers' Problem: People Are Paying Their Bills

As Users Juggle Their Debts, Revenues to Banks Fall;

The Home-Equity Effect

Ms. Bode Seeks a Fresh Start
May 25, 2006; Page A1
The credit-card industry has a problem: Although Americans are deeper in debt than ever, they are paying off bigger portions of their monthly credit-card bills.
For card issuers, which profit by collecting interest on unpaid balances, that's bad news. In the past, when interest rates crept up, as they are doing now, fewer cardholders could afford to pay down balances.
"Normally at this point in the economic cycle, you start to see payment rates decline. But that's not happening," says Richard Srednicki, who runs the credit-card business at J.P. Morgan Chase & Co., the nation's second-largest card issuer. "It is a tougher business if payment rates continue to stay up and consumers continue to pay off more. It's something we've got to understand and work at."
Although consumers are using plastic for more of their daily purchases, they are giving card issuers fits by juggling their debts more shrewdly. When cardholders are hit with high interest rates on one card, they routinely transfer balances to new cards at lower rates. And in recent years, as real-estate values soared and mortgage rates fell sharply, more consumers wiped out credit-card debts altogether by borrowing against their homes.
To make matters worse for card issuers, federal bank regulators issued new guidelines in 2003 meant to ensure that cardholders pay off more each month than just the fees and interest charges that have accumulated. To comply with the rules, many banks have raised minimum-payment requirements, bumping up the payment rate further.
In March, U.S. cardholders paid down 20.6% of total credit-card debt, up from 17.9% a year earlier, according to an analysis by Barclays Capital of one portion of the market -- $400 billion of credit-card debt sold to investors as securities. That was the highest payoff rate in the five years tracked by Barclays. According to the Federal Reserve, during the fourth quarter of 2005, consumer debt, which includes credit-card debt and auto leases, represented 5.71% of total homeowner debt, down from 6.4% in the fourth quarter of 2000. That was the lowest level in a decade.
American consumers have not curbed their appetites for borrowing. During the fourth quarter, 13.86% of disposable personal income of Americans was consumed by debt payments of all kinds, up from 12.77% five years earlier. But an increasing portion of that total went to mortgages and home-equity loans, which ballooned in recent years as rates fell.
Now, rebounding mortgage rates could provide relief to credit-card issuers, because they will make it less advantageous for cardholders to consolidate debts with home-equity loans. But the new credit-card minimum-payment guidelines could negate some of that benefit to card issuers.
Last year, banks notched pretax profits of $30.6 billion on credit-card operations, down 3% from the year-earlier period, the first such decline since 1998, according to, a closely held firm that tracks the industry. The after-tax return on average assets -- one measure of industry profitability -- was 1.21% at year-end, down from 1.48% a year earlier, CardWeb reports.
Card issuers are trying to replace lost interest revenue by increasing late-payment fees and raising interest rates for customers unable to pay their bills in full. In an effort to build customer loyalty and increase spending, issuers have launched a slew of new cards and have introduced new checkout-counter technologies to encourage more card use. They have spent billions of dollars to grow through acquisitions, buying rival card issuers and specialized credit-card portfolios from retailers.
At Citigroup Inc., the world's largest financial-services firm based on market value, credit cards accounted for about 17% of the bank's $24.59 billion of net income last year. Sallie Krawcheck, Citigroup's chief financial officer, told investors and analysts last month that first-quarter revenues fell 6% in its U.S. card business. More consumers are using cards that emphasize rewards programs, which she said are more likely to be paid off each month.
"The part that makes it a little bit tougher in terms of the revenue perspective is the payment rate as a result remains high," she explained. "It remains high for the industry. It remains high for us." Citigroup cardholders paid off 20.3% of their loan balances during the first quarter, on average, up from 18.3% in the year-earlier period, she said.
Ms. Krawcheck said Citigroup was responding by introducing new card products, including some aimed at businesses. She said the bank's credit-card executives are "working to get the growth in receivables and the growth in revenues so that we can have this business be in a healthier and growing state on the top line."
Consumers such as Nadine Bode, a factory worker from New Ulm, Minn., are contributing to the industry's woes. Ms. Bode, 51 years old, had been shelling out more than $300 a month in payments to Citigroup, Capital One Financial Corp. and the finance arm of General Motors Corp. for cards carrying interest rates as high as 25%, she says.
'I Can Breathe Now'
When she inquired recently at a Wells Fargo & Co. branch about a car loan for her 18-year-old daughter, she discovered she could wipe out all her credit-card debt with an $18,000 home-equity loan, at a fixed rate of 12%, she says. She signed on the dotted line. For the next three years, she says, she will owe Wells Fargo just $210 a month. "I can breathe now," Ms. Bode says.
Credit-card companies make most of their money by charging interest to customers who don't pay off their balances each month. Such customers are known as "revolvers." Card issuers, who have raised interest rates in tandem with Federal Reserve increases, now charge an average interest rate of 17.9% on unpaid balances, according to the Nilson Report, which tracks the card industry.
Retailers began offering payment cards to their best customers in the 1920s. The modern general-purpose card took hold in the 1950s, and by the 1980s, the industry was awash in cards and rewards programs. Some banks spun off credit-card operations, giving birth to credit-card powerhouses such as MBNA Corp. and First USA Corp. During the 1990s, strong consumer spending fueled double-digit profit growth.
Over the past several years, the market has become saturated with cards, and consumers are finding it increasingly difficult to see any advantage to using one over another. Nearly 700 million general-purpose credit cards are now in circulation in the U.S., according to the Nilson Report. The average American now has more than five credit cards, according to Celent Inc., a Boston-based research and consulting firm. Consumers also carry charge cards that require full payment each month, debit cards, and pre-paid cards loaded with everything from paychecks to Starbucks coffee money.
"I do think the industry is much more saturated than it has ever been, and that the heyday of double-digit loan growth is long gone," says Mr. Srednicki, J.P. Morgan's credit-card chief.
Jim Raley, a 34-year-old choreographer from Atlanta, says he puts nearly all his monthly expenses on a Delta SkyMiles credit card, issued by American Express Co. Each month, he pays off his entire bill, which runs between $3,000 and $4,000. He pays no interest, he says, and earns substantial frequent-flier rewards, which are funded by American Express.
Mr. Raley, who used to work as a Delta flight attendant, says that after falling $14,000 into debt to three credit-card companies a decade ago, he vowed never again to carry a balance. "I am one of their nightmare customers because I don't let the balance revolve at all," he says.
An American Express spokesman says customers such as Mr. Raley still generate revenue for the company in several ways. He pays an annual fee for his card, for example, and merchants pay American Express a fee on each transaction. "If you have someone who uses their card, is a high spender and pays their bills on time, they are an attractive customer for us," says American Express spokesman Michael O'Neill.
Low-interest home-equity loans have taken a chunk out of total credit-card debt. Debt consolidation is the top reason people take out home-equity loans, followed by home repair and remodeling, according to market researcher J.D. Power & Associates. Interest paid on home-equity loans is tax-deductible, unlike credit-card interest.
"There's always been a group of people who are taking out home-equity loans to pay off other kinds of credit," says J.P. Morgan's Mr. Srednicki. "Between that and the minimum-payment increase, we are concerned about the overall levels of payment rates in the business, and we just have to stay tuned to it and adjust our spending and programs accordingly."
One way banks are maintaining growth in credit-card loan portfolios is by buying independent card companies. Last year, Bank of America bought MBNA, Washington Mutual Inc. purchased Providian Financial Corp., HSBC Holdings PLC bought Metris Cos. and Barclays PLC acquired Juniper Financial Corp. Citigroup bought a $6.6 billion card portfolio from Federated Department Stores Inc.
Banks are also trying to increase portfolio sizes by stealing customers from competitors. They have flooded the mails with offers of zero-percent balance transfers and new cards carrying no interest for one year.
"People take a balance-transfer offer and then move on to the next one, and that translates into a high payment rate over time," says Roger Hochschild, president of Discover Financial Services, a Morgan Stanley subsidiary that issues cards and processes transactions. "One person's growth is someone else's payment rate."
New Rewards
Card issuers are broadening rewards programs, hoping to discourage consumers from jumping from one card to another. One Citigroup program, for example, offers reward points both to credit-card and debit-card users.
"There are a lot of components that add value in the customer relationship and will make people keep their card and stay with you," says Mr. Hochschild. "It's not just price and balance transfers."
Discover, which created the industry's first "cash-back" rewards program in 1986, is now pitching a card that promises zero-percent balance transfers "for life." Its cash-back program has begun offering 5% rebates on gasoline purchases.
The payment guidelines issued by federal regulators in 2003 were intended to discourage banks from carrying credit-card customers who are unable or unwilling to pay off any of their principal balances. Many banks raised minimum-payment requirements, with some doubling them to 4% of unpaid balances.
Some banks are worried the new rules will pinch profits. J.P. Morgan has estimated they will reduce credit-card profits by $500 million in the second half of 2006. The bank attributed the expected reduction to higher payment rates, higher delinquency rates and the cost of providing credit counseling to financially struggling cardholders.
Tiffany Brown, a 29-year-old graphic designer from Tucker, Ga., used to be one of the credit-card industry's best customers. She says she is determined to change that.
By last July, Ms. Brown had amassed nearly $20,000 of debt on five credit cards, she says. She never missed a payment, she says, but couldn't afford to pay off much of the principal. It dawned on her, she recalls, that the roughly $800 she was paying each month to card issuers and for rent could be going toward a home mortgage.
She mapped out an aggressive plan to pay off her debt by slashing expenses ranging from telephone service to restaurant meals to rent. In February, she paid off her $534.91 debt to Bank of America's MBNA unit. She consolidated $17,000 of other debts on a MasterCard issued by Citigroup. An emergency root canal last month, however, raised her card debt by $2,000.
"It's going to take time," she says. "But I'll keep chipping away at it. My goal is to get out of debt -- eventually."

Please note that any links directly to card product offers are provided for informational purposes only. Any descriptions within this post about an offer may not necessarily align with the offer to which these links connect.


The fat tax / sin card

I think they should make some sort of a fat tax / sin card to keep us from doing things that are bad for us. Like, say you buy junk food. There's a 10% tax that gets "billed" to your card on top of the junk food SKU and shuttled into a special rewards account that you can only access if you hit a certain personal goal. Maybe your personal goal is to have a net worth of $X. Or maybe you want to fit into size N jeans. Whatever it is, you can't access your booty as in pirate treasure until you've achieved your personal goal.

This wouldn't be too hard to build. That Upromise card already does it with SKUs and you gotta figure there are all sorts of vices you can tack faux taxes onto. Drinking. Smoking. Fatty foods. Porn.

Please note that any links directly to card product offers are provided for informational purposes only. Any descriptions within this post about an offer may not necessarily align with the offer to which these links connect.

Starwood card / AAdvantage card

I got my card plastic in the mail for the Starwood AmEx today (credit line $14,500, cash advance limit $2,900). I was able to activate online which was nice. Nice card art, kind of a muted cadet blue grey.

Got approved instantly for the AAdvantage card as well, credit line around $11,000.

I am nervous about redeeming for travel rewards but I will give it a whirl ...

Please note that any links directly to card product offers are provided for informational purposes only. Any descriptions within this post about an offer may not necessarily align with the offer to which these links connect.

AAdvantage Citi card - great offer

Today only --

5/18/2006 is CitiAA's 25th Anniversary. That means that:
- if you apply today for a CitiAA or CitibusAA card, you can get 25,000 AA miles (enough for free ticket), a companion ticket, and NO annual fee for the first year. This offer can be found on

Feel free to forward to friends and family too!

Please note that any links directly to card product offers are provided for informational purposes only. Any descriptions within this post about an offer may not necessarily align with the offer to which these links connect.


AmEx Starwood card

I got approved instantly with a credit line of $14,500.

I've never redeemed points on any card for airline tickets. Is it hard? Is it worth it on a point for point basis? How complicated is it?

Please note that any links directly to card product offers are provided for informational purposes only. Any descriptions within this post about an offer may not necessarily align with the offer to which these links connect.


Starwood Preferred Guest card

Okay, so, now that I am moving on up like the Jeffersons, I have decided to transition out of using my credit card points (ThankYou and Membership Rewards) for gift cards (Target and Home Depot) and into experiential rewards like free airline tickets and hotel stays (or upgraded stays). A coworker gave rave reviews about the Starwood Preferred whatever card, and so I am going to apply for it. I'll let you know.


Please note that any links directly to card product offers are provided for informational purposes only. Any descriptions within this post about an offer may not necessarily align with the offer to which these links connect.


Industry Updates

- Several Issuers Introduce New Specialty Card Products
- American Express Adds iTunes Redemptions for IN:Rewards Cardholders
- Capital One Revamps its Card Menus Page

*** Citi rolling out payment fobs? ***

Citibank appears to be ready to distribute its contact-less Payment Tag key fobs to all users, only weeks after they first became available. While initially offered to select cardholders via a private site request page, Citi has recently mailed a promotional booklet indicating a Payment Tag "is on its way" to cardmembers, regardless of whether the customer has requested it. This would seem to be a bold move, considering the expense of making and mailing the fobs. It is, however, similar to the model followed by Chase, which began unsolicited mailing of its Blink-brand contact-less enabled products earlier this year. (Note: Chase utilizes embedded-chip cards for contact-less payments in lieu of key fobs.)

*** Issuer promotions ***

- B of A running 'May is for Museums' promo. All B of A and MBNA cardholders get free admission to more than 50 cultural institutions in the Northeast.
- Citibank running 'Spring 2006 AAdvantage Card savings and Miles earning specials'.
- MBNA offering $75 per person savings on Mexico trips booked through America West Vacations. Only for Visa card users.
- U.S. Bank running "How Many Stars" Trivia Challenge Sweepstakes

*** American Express ***

IN:NYC, IN:Chicago, and IN:LA city affinity cards have a new reward opportunity; cardmembers can redeem points for iTunes Music Store gift certificates.

*** Bank of America ***

B of A added Pet Reward Visa to the General Rewards card menu.

- 0% APR on purchases & BT for 6 months, Prime + 2.99% thereafter
- 2 pts/$ at participating pet stores and vets
- 1 pt/$ all else
- 500 bonus points with first purchase
- Cardholders may personalize their cards with a picture of their own pet(s)

B of A also offered low BT rate with no transfer fees. P-2% to existing CMs.

*** Capital One ***

Browse Our Cards card selection page has been modified to help users self-select creditworthiness.

Public contacts page modified.

*** Discover ***

Eddie Bauer and Kohl's added to list of Cashback Rewards Partners, whereby CMs can redeem their $N reward for an $(N+x) gift certificate from a Cashback Rewards Partner.

*** Juniper ***

Juniper launched a new affinity card product recently, the China Airlines MasterCard. This card, which is available in both World and Platinum card levels, is the fifth new product to be launched by Juniper since the start of 2006. The new offering continues the trend of card issuers promoting niche products as a way to increase market share in a saturated marketplace. Simultaneously, Juniper has altered its other card offerings in recent months by removing three cards from its website, and by revising the features and rewards of five others. While some amount of attrition and innovation is expected among affinity cards at every issuer, Juniper seems to have an especially high rate of change.

*** MBNA ***

Casino-branded affinity card, the Venetian MasterCard, introduced.

- No annual fee
- Free membership in the World Points rewards program
- 3 pts/$ at Venetian and its affiliates
- 1 pt/$ all else
- Redeem for hotel rewards at the Venetian or for World Points rewards
- 0% on BT 12 mos
- 7.9% APR for Plat; 13.99% APR for Preferred
- One free room upgrade when booking a room at the Venetian with the card

Please note that any links directly to card product offers are provided for informational purposes only. Any descriptions within this post about an offer may not necessarily align with the offer to which these links connect.