Tags: credit | card | affluent | rich

Credit-Card Firms Try to Lure Only the Rich

Wednesday, 02 Dec 2009 10:00 AM

U.S. credit-card companies are targeting affluent consumers in a resurgence of marketing campaigns, as they recover from massive defaults by subprime borrowers in the past year.

"We have seen almost the entire mailbox skew toward prime and superprime consumers," said Andrew Davidson, senior vice president of research company Mintel Comperemedia.

Credit-card promotional mail volume rose 34 percent in October from September, to 180 million pieces, the highest level since December 2008, according to a recent study by Mintel Comperemedia.

That was the largest month-to-month increase in credit-card mail volume since 2004, when the industry was starting to recover from the 2001 recession.

A recent drop in credit-card defaults from record highs may have made banks more comfortable with recruiting new clients, analysts said.

"We are seeing more spending in marketing initiatives now that signs of credit deterioration have eased somewhat," said Brad Ball, an analyst at Ladenburg Thalmann. "You've got more credit stability, less need for significant increases in loan-loss provisions, and therefore more capital available to invest in new account acquisitions."

However, mail volume is still down 74 percent year-to-date, and is expected to end 2009 at the lowest level in at least 10 years, Credit Suisse analyst said in a recent note to clients.

The offers are not available to everyone. Unlike recent years when credit-card offers were mailed to households of all income levels, lenders now target only affluent customers who are considered less risky.

"Chase and American Express are the two that really increased their activity," Davidson said.

JPMorgan Chase & Co ranked first in credit card mail offers in October — more than doubling its volume from September — as the largest U.S. issuer of Visa-branded credit cards promoted its new Sapphire card to the top 15 percent of households by income.

American Express Co ranked second, as the largest credit-card company by purchase volume increased credit-card and charge-card promotions, aggressively competing with Chase for wealthy customers.

Together, JPMorgan and American Express issued two out of five credit card offers by mail. Both have also been advertising aggressively on television and in newspapers.

Chase's TV commercials show a young woman who spent all the reward points on a dress, while her husband was thinking of using them for a vacation. American Express is promoting its cards with dozens of original happy faces created with bags, umbrellas, or sofas.

American Express spent $150 million more in marketing and advertising in the third quarter than the second quarter, and has said it expects to keep investing in marketing as loan losses decline.

But even some smaller rivals have started offering more credit cards. HSBC, hurt by its exposure to subprime borrowers, increased mail offers by almost 50 percent in October from September, while U.S. Bancorp doubled its promotions.

"There has been some abatement of pressures from credit, which has made some issuers a bit more comfortable originating in certain segments of the market," said Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods. "It's a starting point."

Credit-card companies have been tightening lending in the last year as loan losses soared in the worst financial crisis since the Great Depression.

The industry, which quickly expanded from 2003 to 2007 among borrowers with weak credit ratings, was caught with billions of dollars of losses as the housing meltdown hit Main Street.

In the last 12 months, major credit-card lenders have eliminated at least 20 million accounts, cut lending limits, and slashed membership rewards programs to cushion losses.

They have also raised fees and interest rates ahead of regulations that would limit them in three months. Zero percent balance transfer teaser rates are disappearing, and many companies are again starting to charge annual fees.

Such moves could backfire for some card issuers, though, as consumers may dump some plastic rather than pay for the privilege of carrying unused cards in their wallets.

"You are fighting for market share. It's all about being the No. 1 card in the wallet. The battle will intensify because you will only use one or two cards with the fee. You are not going to have four or five cards," Davidson said.

In this fight, rewards that are easy to cash in may be the key to court customers. For example, Capital One Financial Corp and Discover Financial Services are offering cash back at gas stations and groceries shops.

"It's all about offering compelling rewards. Consumers are more interested these days in more accessible rewards as opposed to VIP tickets," Davidson said.

© 2017 Thomson/Reuters. All rights reserved.

 
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U.S. credit-card companies are targeting affluent consumers in a resurgence of marketing campaigns, as they recover from massive defaults by subprime borrowers in the past year."We have seen almost the entire mailbox skew toward prime and superprime consumers," said Andrew...
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2009-00-02
Wednesday, 02 Dec 2009 10:00 AM
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