Category Archives: Credit card

Credit card “versioning” to target different user segments

American Express recently launched two versions of its Blue Cash Card.  The Blue Cash Everyday has tiered reward levels (3% at supermarkets, 2% at gas stations and drug stores, and 1% on other purchases) and carries no annual fee.  Blue Cash Preferred features higher reward levels (6% at supermarkets, 3% at gas stations and drug stores, 1% on other purchases), but carries a $75 annual fee.

This continues a trend seen in recent months, with leading credit card issuers launching different versions of the same card, with one version offering greater rewards and/or bonuses, as well as higher annual fees.  These leading issuers believe that heavy credit card users will be willing to pay the annual fee in exchange for the potential to earn the greater rewards.  These heavy spenders generate significant interchange income for the issuers.

The following table is a comparison of different versions of the same card, which have recently been introduced.  In most cases, the premium card offers higher reward levels as well as bigger incentives (for their first purchases, reaching spending thresholds, or for anniversaries).  And in the case of Citi, there is also variation in the APR for its three ThankYou cards.

As credit card issuers seek to generate additional noninterest income, we should expect to see more credit card versioning.  Issuers must carefully set pricing, rewards and incentives for the different versions of the cards, and clearly communicate the benefits of each version to appeal to different cardholder segments.

Credit card issuer quarterly scorecard: improved credit quality; volume growth; lending declines

In the latest quarterly financials, the leading U.S. credit card issuers displayed consistent trends in credit quality, purchase volumes and card loans.

  • Credit quality: issuers continued to report strong yearly and quarterly declines in charge-off rates.  The current rate of decline, as well as the high rates of decline in delinquency rates, indicate that charge-off rates will fall further in the next few quarters.

  • Purchase volume: All leading credit card issuers are growing purchase volumes year-on-year, with four issuers reporting double-digit volume growth. In addition, issuers like Chase and Capital One have accelerated volume growth in recent quarters.  In 1Q11, Citi reported a small y/y rise of 0.3%, which followed a protracted period of volume decline.  The 7 issuers listed in the chart had a combined $321 billion in purchase volume, up 9% y/y.

 

  • Average Outstandings: Although issuers have been effective in growing purchase volume, average outstandings for all leading issuers continued to decline year-on-year in 1Q11.  The 8 issuers combined for $515 billion in average outstandings in the quarter, down 18% from 1Q10.  The rate of decline slowed in 1Q11, with combined outstandings for the 8 issuers down 1.4% from 4Q10.  And Discover reported 1.7% quarterly growth in average outstandings.  Many issuers have reported that they expected outstandings to grow in the second half of 2010.

Internet is now Bank of America’s largest credit card account production channel

Bank of America’s Full Year 2010 Investor Factbook revealed some interesting trends in various channel’s share of credit card account production

  • eCommerce channel accounted for 36% of the bank’s credit card account production in 2010, up significantly from 15% in 2008
  • Bank branch network share fell from 25% to 21% (note that Bank of America was at the forefront in the mid 2000’s in driving credit card sales through branches)
  • Direct mail share rose from 20% to 21%, stemming steady declines in its share of account production in recent years

The findings underscore the growing importance of the Internet as a sales channel.  However, what the Bank of America data does not reflect is the fact that consumers now tend to use multiple channels before making an acquisition.  For example, a consumer could receive a credit card offer in the mail, but submit their application via the Internet.  Therefore, bank credit card issuers need to ensure that these key channels (Internet, branch and DM) are all in synch to optimize sales effectiveness.