Historically, credit card debt is not a reliable indicator for economic
forecasts. American consumers tend to downshift on credit card debt about
mid-cycle in a full blown recession. However, if you analyze the latest
credit card industry stats you might conclude we are in the midst of
another recession. Since last summer, bank credit card debt has only grown
8.4%, from $404.5 billion to $438.3 billion, based on card issuer data
gathered by CardWeb's CardData service. This is about half the growth rate
of the previous year. Between 1993 and 1997 bank credit card debt grew more
than 21% annually. The last time growth rates dipped in the single digits
was 1991 and 1992 . . . recessionary years! The slowdown also extends to
other credit cards such as store cards or retail cards. According to
figures released by the Federal Reserve this month, total revolving credit
(bank credit cards + other credit cards) has increased by a measly 5.1%,
from $516.2 billion last June to $542.4 billion this June.
Has the credit card bubble burst ?
To some extent it has.
More American consumers are paying off their VISA, MasterCard, Discover and American Express card bills each month than ever before. Six years ago 29% of cardholders paid balances off each month. Today that number has grown to 42%. This trend has been largely attributed to baby boomers who have migrated to using credit cards only for convenience. The reality is consumers are using the heck out of their cards. The amount charged to bank credit cards is growing 16.6% annually, based on mid-year data collected by CardData. Card usage remains very strong as consumers are now charging groceries, doctor bills, utility bills, and taxes. In the first six months of 1998, cardholders charged $428.5 billion to bank credit cards (excluding American Express charge cards) compared to $367.5 billion during the first half of 1997. As a matter of fact, American cardholders will most likely rack up a record $1 trillion worth of charges this year, if you count VISA/MasterCard debit cards and all American Express cards.
This migration to convenience use of credit cards is depressing profits for the card industry.
To make matters worse for bank card issuers, the credit quality of those consumers who carry balances from month-to-month is deteriorating. Delinquency, charge-offs and bankruptcies remain historically high. About 6% of all accounts fall behind each month and banks are writing off about 5.5% of their credit card loans each year. According to government figures released this month, personal bankruptcy hit a new record. More than 1,380,000 personal bankruptcies were filed between July 1, 1997 and June 30, 1998.
The net effect is a real profit squeeze for card issuers. The best customers don't pay interest while many just do not pay. The days of fat and happy bankers collecting juicy profits from ignorant and lazy cardholders are over.
As the party ends, look for the return of annual fees and the invention of new fees. Grace periods are already slipping from 25 days to 20 days and may slip further. If card issuers could abolish the free, grace period ride on credit cards, the party would return. With the current bank mega-mergers and the concentration developing among card issuers, the elimination of the grace period on credit cards is not a pipe dream.
Mirror, mirror on the wall: Who is the biggest of them all?
With the purchase of the AT&T Universal Card, Citibank remains top dog in
the bank credit card business. Based on mid-year data, the top five issuers
control more than 48% of the card industry. Providian, based in San
Francisco and the king of secured credit cards, is now a top issuer.
Providian purchased more than $2 billion worth of card loans from First
Union Bank. The fastest growing top 10 issuer, discounting acquisitions, is
Banc One/First USA.
U.S. TOP TEN BANK CREDIT CARD ISSUERS
RANKED BY CARD LOANS
LOANS MARKETSHARE
1. Citibank/Universal $60.3billion 13.8%
2. MBNA America $46.0billion 10.5%
3. Banc One/First USA $39.8billion 9.1%
4. Discover $34.1billion 7.8%
5. Chase Manhattan $31.4billion 7.2%
6. Household $17.2billion 3.9%
7. First Chicago NBD $17.1billion 3.9%
8. Fleet $14.8billion 3.4%
9. Capital One $13.1billion 3.0%
10. Providian $11.5billion 2.6%
Source: CardWeb's CardData (www.carddata.com or CD-ROM) 717-338-1885
The First True Internet VISA, NextCard, launched two major
program upgrades this month. Cardholders now have the option of upgrading to
'NextCard Rewards' and to the 'Platinum Card'. 'NextCard' is the only
'VISA' card offered with 30-second online approvals and online
customization of terms and
enhancements by the cardholder. 'NextCard Rewards' enables cardholders
to earn up to two airline miles for every dollar spent, with no annual fee.
'NextCard Rewards' may be
redeemed for airline miles with seven domestic and international airlines,
including
Alaska, Northwest, TWA, and British Airways, as well as merchandise from
The Sharper
Image, The Gap, Barnes & Noble, MCI, 1-800-FLOWERS and many other online
and offline merchants. In addition to the 'NextCard Rewards Program', many
cardholders now have the opportunity to choose a 'Platinum VISA' design
with their upgrade. For more information:
www.bestcreditcard.com.
The Colorado State Bank Commissioner closed sub-prime VISA credit card
issuer BestBank this month and appointed the FDIC as receiver. According to
the Bank
Commissioner, BestBank, based in Boulder, CO, was out-of-control and
critically undercapitalized. The FDIC is now looking for someone to buy
BestBank's 500,000 credit card
accounts. The cards remain in-force with the good faith of the FDIC and
VISA behind them. BestBank grew too fast for bank regulators. The bank
specialized in sub-prime and secured credit cards on a nationwide basis. In
the first six months of 1998, BestBank's card loans surged 52%. Reportedly, a
criminal investigation has been launched.
CardGame is back. The new version of 'CardGame' (www.cardgame.com) offers
consumer visitors the chance to win more than $20,000 in prizes annually.
'CardGame' participants simply answer ten demographic questions and
complete a ten question quiz on credit card-related items. The quiz is
based on recent
information published via the 'CardTrak' news and survey channel. A new
contest is
offered each month, with one grand prize of $10,000 cash to be awarded to
one of the
monthly winners next July. 'CardGame' previously had a two-year run between
September 1995 and November 1997, awarding more than $50,000 in prizes. The
information
gathered from 'CardGame' is used to update Web site demographics for
current and potential advertisers. CardWeb's current advertising clients
include Chase Manhattan, NationsBank, First USA,
People's Bank, Commerce Bank, Wachovia, Beneficial National
Bank and NextCard. The ad slots were sold out this month. CardWeb's
comprehensive Web site, offering more than 10,000 payment card documents to
consumers and executives, draws more than 250,000 unique visitors each
month, generating more than two million document requests per month.
Citibank's replacement for its 'Ford VISA/MasterCard' program is being
upgraded with more options to give cardholders a longer period to earn
rebates toward the
purchase or lease of any new car. The 'Citibank Driver's Edge' credit card
program, launched in
January as the Ford program terminated, added "Driver's Edge Options" this
month. Cardholders
who choose the new 'Driver's Edge Options' rebates will be allowed five
years, from the
end of the year in which the rebates were earned, to redeem them.
Additionally, 'Driver's Edge
Options' rebates have a 'CashBack Option' to insure that cardmembers can
receive full value for
earned rebates. This feature allows a cardholder who has not yet made a
purchase or lease
decision, but has rebates that are expiring, to redeem those expiring
rebates for their full cash
value. 'Driver's Edge Options' rebates accumulate at 1% on eligible
purchases, up to $500 in rebates per year, with a maximum of $2,500 on any
one vehicle that is purchased or leased. Rebates may be
applied toward a new car from any manufacturer (foreign or domestic) when
purchased or leased from authorized dealers in the U.S.
The rebates come directly from Citibank after the purchase is made.
Citibank has also formed a partnership with Penske Auto Centers to offer
cardholders a 10% discount at over 800 Penske Auto Centers nationwide.
NationsBank and US Airways also upgraded their airline carrier-based,
co-branded program this month to 'Platinum'. The 'Dividend Miles Visa
Platinum Card'
now offers cardholders a 20% monthly mileage dividend or 1.2 air miles for
each dollar
spent in purchases. The program becomes the first carrier-based airline
credit card
program to offer the accelerated mileage. The 'American Express Delta
SkyMiles Optima Card'
requires cardholders to revolve their balance to earn a 20% mileage bonus. US
Airways and NationsBank are also offering cardholders a 5,000 mile bonus
with the first
use of the card, double miles on US Airways ticket purchases, and unlimited
mileage-earning
potential. The program is also one of the few airlines programs offering
air mileage that
does not expire. Other exclusive benefits of the Dividend Miles Visa
Platinum card include
$99 companion tickets annually after members' anniversary date, $75 off a
new membership
to the 26 US Airways Clubs, as well as dedicated 24-hour, 7-day customer
service, a
year-end account summary and $1 million travel accident insurance. For more
information call 1-800-428-4322.
American Express and 1-800-LIMO-CENTER announced a new benefit for
American Express enabling cardholders to earn free limousine rides.
1-800-LIMO-CENTER provides a convenient transportation reservation service
which cardholders can use in most cities throughout the United States and
Canada and major European cities, 24-hours
a day, seven days a week. By calling 1-800-LIMO-CENTER within 48 hours of
their trip, Cardmembers can avoid long taxi lines and shuttle buses by arranging a private chauffeured car to take
them to where they need to go. Eligible Cardmembers
will have the opportunity to earn one ride credit for every $50 spent with
1-800-LIMO-CENTER, paid for with the American Express Card. When
accumulating ride credits, 'Gold Card' and 'Platinum Card' holders will get
one free limousine ride for 20 ride credits; 'Green Card' holders will get one
free ride for 25 ride credits.
