Since the beginning of this decade the amount consumers owe on bank credit
cards has grown a staggering 163%, while profits have grown less than half as
much. Last year profits on VISA, MasterCard, Discover and American Express
dropped by $100 million compared to 1997. Since the industry's peak in 1996
net pre-tax card profits have declined by 16%.
While this is no longer a gravy train business it still remains lucrative. If
you consider there are 79 million households in the U.S. with at least one
bank credit card, then the average American household owed $5,751 (at year-end),
paid $735 in interest charges, $239 in cardholder fees, and produced $144 in
profits during 1998. This year profits may inch up slightly due to a decline in personal
bankruptcies and a moderation in chargeoffs. But the reality is the bank
credit card business has changed and will continue to change for the foreseeable
future. More cardholders are paying off balances in-full each month to avoid
interest charges. Those that carry balances are chasing the lowest interest
rates. And some consumers are simply fed-up with their bank credit cards,
switching to debit cards.
There is also evidence that a consumer backlash is building over the
aggressive pricing policies of most major issuers. Some issuers have
implemented policies to charge special fees if a payment is a few hours
late or if the cardholder exceeds the credit limit by one dollar. If the cardholder is
caught paying late or going over the credit limit more than once over a six or
twelve month period, then many issuers may impose a punitive interest rate as
high as 30% on the entire outstanding balance. Some top issuers have also
jacked up interest rates on cardholders with perfect payment records because
the credit bureau file showed something negative, such as a late payment on a
loan from a different creditor. Such policies have already attracted lawsuits
from cardholders and shareholders. It is also likely that it will attract the
attention of state and federal lawmakers.
Further squeezing profits is the high cost of acquiring new accounts. This is
a very saturated market. The average household, with at least one bank credit
card, has 6.3 bank credit cards. Essentially most issuers are simply stealing
customers from one another. This is why the main consumer market has been
flooded with come-on interest rates. The only real growth in the bank credit
card industry is in the sub-prime or unbanked segments.
Clearly the bank credit card industry has hit a plateau with sinking profit
margins.
| CARD PROFITS (Net Pre-Tax) |
| 1998 | $11.4 billion | -1% |
| 1997 | $11.5 billion | -15% |
| 1996 | $13.6 billion | +5% |
| 1995 | $12.9 billion | +16% |
| 1994 | $11.1 billion | +56% |
| 1993 | $ 7.1 billion | +13% |
| 1992 | $ 6.3 billion | - 2% |
| 1991 | $ 6.4 billion | NC |
| 1990 | $ 6.4 billion | +7% |
| BANK CREDIT CARD RECEIVABLES |
| 1998 | $454.3 billion | +2.4% |
| 1997 | $443.7 billion | +7.8% |
| 1996 | $411.6 billion | +14.9% |
| 1995 | $358.1 billion | +25.4% |
| 1994 | $285.5 billion | +22.9% |
| 1993 | $232.3 billion | +15.1% |
| 1992 | $201.8 billion | +6.9% |
| 1991 | $188.8 billion | +9.4% |
| 1990 | $172.6 billion | +17.7% |
GROWTH OF CONVENIENCE
USE AMONG BANK CREDIT CARDS
(percentage of cardholders
paying balance off in full each month) |
| 1998 | 42% |
| 1997 | 40% |
| 1996 | 37% |
| 1995 | 34% |
| 1994 | 33% |
| 1993 | 32% |
| 1992 | 30% |
| 1991 | 29% |
| 1990 | 31% |
| BANK CREDIT CARD FEE INCOME |
| 1998 | $18.9 billion | (+28.0%) |
| 1997 | $14.8 billion | (+48.0%) |
| 1996 | $10.0 billion | (+20.5%) |
| 1995 | $8.3 billion | (+13.7%) |
| 1994 | $7.3 billion | (+15.9%) |
| 1993 | $6.3 billion | (+3.3%) |
| 1992 | $6.1 billion | (-10.3%) |
| 1991 | $6.8 billion | (+1.5%) |
| 1990 | $6.7 billion | (+9.8%) |
| BANK CREDIT CARD INTEREST INCOME |
| 1998 | $58.1 billion | (+9.4%) |
| 1997 | $53.1 billion | (+1.5%) |
| 1996 | $52.3 billion | (+23.9%) |
| 1995 | $42.2 billion | (+21.3%) |
| 1994 | $34.8 billion | (+24.7%) |
| 1993 | $27.9 billion | (+17.2%) |
| 1992 | $23.8 billion | (NC) |
| 1991 | $23.8 billion | (+ 8.7%) |
| 1990 | $21.9 billion | (+16.4%) |
Source CardWeb.com, Inc./RAM Research Group Frederick, Maryland
(http//www.cardweb.com)
AMEX GETS SMART
It was gonna happen sooner rather than later, that a major U.S. card issuer
would roll out a smart card for the national marketplace. While issuers of
VISA and MasterCard have been dragging their feet on smart cards, American Express
seized the opportunity last month with the introduction of the Blue smart
credit card. Since most merchants are not smart card ready, the idea of
putting a computer chip on a credit card is mostly a marketing thing. VISA and
MasterCard are conducting a number of pilots on the U.S., but in the minds of
consumers, American Express might be perceived as the first company with a
smart credit card. American Express is offering at least one application of
the new card. The American Express Online Wallet, to be available next month,
enables cardholders to enter their purchase information (such as name, card
account number and shipping address) into the wallet. When the customer is
ready to make an online purchase, all he/she has to do is open the wallet and
click on the "complete purchase" button to automatically fill in the merchant's purchase form. For those cardholders
looking for added online security, Blue from American Express has a smart
chip. Using a smart card reader, which is available for free from American Express,
and connects to the user's PC, cardholders can more securely access their
American Express Online Wallet when making purchases online. The chip
stores a unique digital certificate that acts much like a key. When the card is
inserted into the smart card reader and the cardholder enters his/her PIN
number, the certificate is read and the cardholder can "unlock" the wallet.
This added level of security helps prevent unauthorized access to the wallet.
The new Blue card offers a six month introductory rate of 0%, followed by a
fixed rate as low as 9.99%. There is no annual fee for the card. The only
major drawback is you cannot link the card to the American Express Membership
Rewards program. For more information
http//www.americanexpress.com/blue.
PRE-XMAS CARDS
Joining American Express in rolling out new cards ahead of the holiday season
is Discover, Security First Network Bank, NextCard, and Principal Bank.
Discover Financial Services announced during September the launch of the
Discover Educators Card which rewards teachers with a 5% special Cashback
Bonus award for purchases made at merchant partners in the Discover Educators Card
network. The reward is in addition to the annual Cashback Bonus award of up to 1%. Charter partners include Zany Brainy and Ramada hotels. Other partners will be announced shortly. Zany Brainy is an 8-year old multimedia educational superstore for kids with 95 stores in 25 states. As part of the new program, Discover will donate a portion of each Discover Educators Card transaction to Communities In Schools, Inc. For more information visit
www.discovercard.com.
Security First Network Bank unveiled its a new Internet-based VISA
card last month. The new card offers instant online approvals and is a multi-featured credit card
with bill presentment/payment options. The SFNB VISA Gold and Classic credit cards feature an
electronic bill due reminder, balance transfer and bill consolidation, and membership to the SFNB
exclusive SecureMiles travel program. Cardholders receive one SecureMile for every purchase dollar
spent and SFNB will give each new customer 500 SecureMiles at no cost. In addition, the first
time a cardholder uses the card, he or she automatically receives 2,500 SecureMiles. SecureMiles
can be redeemed on any major U.S. airline with no blackout periods. The new no-annual-fee
Gold and Classic VISA cards offer an intro rate of 3.9% for the first six months, followed by a
9.9% APR and 12.9% APR, respectively. For more information visit
www.sfnb.com
or call 1-800-SFNB-321.
NextCard, the pioneer of Internet cards, and United Media officially rolled out the new DILBERT NextCard VISA in September. The new VISA card is available in three designs 'Corporate Platinum', 'Cyber Classic' and the personalized 'PictureCard' for which cardholders select their
favorite character from a gallery of custom images online. Cardholders may
choose their own official card titles such as "Supreme Ruler" or "Evil Director of
HR." The most unique feature is the option to not receive a paper credit card
statement. Instead, DILBERT cardholders will be able to view their eStatement and
pay their bill online at the NextCard web site. In return NextCard will issue a $0.50 credit each month to cardholders. Other features of the new DILBERT NextCard VISA include the option to set automatic email alerts to notify you of account activity; review online statements daily; check account balance, pay your bill, and design customized reports online; chat online with a customer service representative about account questions; 100% Safe Online Shopping Guarantee; and an
exclusive "No Fee/Reverse Fee" feature with no annual late or overlimit fees. Applicants are also offered a choice of a
Dogbert Gund Doll, Dogbert's Top Secret Management Handbook, or the Dilbert travel mug and Cell Mates cube magnet, if approved. To apply or for more information visit www.dilbert.com.
The Principal Bank, a unit of the Principal Financial Group, also unleashed a
new VISA card last month. The 'Principal Bank VISA' credit card enables
cardholders to earn cash rewards and then apply them towards various financial products from the Principal Financial Group. The 'Principal Classic VISA' card offers a 0.75% cash reward on all purchases while the 'Principal Platinum VISA' offers a 1.25% cash reward on all purchases.
Redemption options include mutual funds; deposit accounts; variable annuity
contracts; variable life policies; and loans. Principal is offering the card with a prime +6%
interest rate and no-annual-fee. Principal Bank also offers services including free
electronic bill pay; free Internet access to accounts; free checking and savings accounts; no
ATM fees; and no transaction fees. Principal Bank is one of a new breed of banks called
virtual banks. Call 800-986-3343 for more information.
POST-XMAS FUN
When the ball drops in Times Square on New Year's Eve someone will discover a
million bucks. The Discover card is giving away $1 million to one
winner on New Year's Eve in the middle of Times Square in New York City.
All Discover cardholders are eligible for a chance to win in the Cashback Bonus Countdown Sweepstakes. Cardholders are entered in the sweepstakes with every purchase made through December 10. Other forms of entry include cash advances, balance transfers and new Discover Card applications. Discover will begin announcing 2,000 qualifiers on Saturday, October 9, one for each hour remaining in 1999. These 2000 qualifiers
will each win a $100 Cashback Bonus award and will be announced on the Discover
Card sign in Times Square as well as on Discover's web site. From the pool
of 2000 qualifiers, five finalists will receive an all-expenses paid trip to
Times Square for New Year's Eve. Four of the finalists will win $25,000 and one will
leave the Big Apple a millionaire. On New Year's Eve, Discover Card will announce the grand-prize winner on the Discover Card sign atop One Times Square.
Discover Card's 55'x55' electronic billboard is directly below the spot where
the famous New Year's Eve ball descends. Visit
www.discovercard.com for more
information.
