New opportunities emerge for credit card issuers as competition intensifies

March 30, 2011

Chicago (March 31, 2011) – Competition is intensifying in the credit card industry as the volume of credit card offers continues to rise. As a result, credit card issuers are starting to look for new ways to stand out in an increasingly cluttered mailbox.

” opportunities exist for those card issuers who are willing to swim against the tide,”says Andrew Davidson, senior vice president, Comperemedia. “For example there tends to be a ‘me too’ approach when it comes to responding to new regulations. Bucking these trends can enable an issuer to gain an edge. “

According to Mintel Comperemedia, in Q4 2010 approximately 1.4 billion offers for new credit cards were received by U.S. consumers, up from 551 million during Q4 2009 – representing the fifth quarter of successive growth. Andrew Davidson suggests four ways issuers can gain an edge in the current environment:

1. Waiving balance transfer fees

Balance transfer fees have been rising. The mean balance transfer fee on introductory balance transfer offers was 3.06% in Q4 2010 up from 2.75% during Q4 2010. However, in recent quarters it has come down (from a high of 3.28%) as competition has increased. ” card issuers began promoting BT fees of 4% and 5% to accommodate the new regulations,” adds Andrew Davidson. “However, more recently, some issuers have been waiving balance transfer fees to gain a competitive advantage. “

2. Waiving foreign transaction fees

The bulk of offers for new cards still carry a 3% fee on foreign transactions. Despite the new regulations, most issuers haven’t increased their transaction fee pricing. Now there are signs that things might be changing – at least for premium cardholders – as competition intensifies. Chase, Citi, and HSBC have joined Capital One in waiving foreign transaction fees on some of their cards.

3. Offering a below average go-to APR for purchases

The industry responded to the CARD Act by raising go-to APRs on purchases. However, in 2010, APRs stabilized – in Q4 2010 the mean APR for purchases, on variable rate offers, was 14.03% compared to 14.02% during Q4 2009. “Variable APRs have stabilized during the past year,”notes Andrew Davidson. “However, the spread between the mean variable APR and prime rate has widened considerably since the start of the recession. Some issuers are bucking this trend by promoting APRs that are below the mean in order to take advantage of the high rate environment. “

4. Offering a longer teaser rate duration

Most offers these days promote an introductory APR for balance transfers and purchases, while others promote a 0% teaser rate. The current trend is towards longer intro APR durations. In Q4 2010 58% of introductory balance transfer offers promoted a teaser rate duration of 13 months or more compared to just 20% a year ago. “The squeeze on credit observed during mid-2009 is being reversed and many issuers are now offering durations of 15, 17 or 18 months or more,” adds Andrew Davidson. “We have even seen offers with 24 and 30-month intro rate durations in recent months. There is clearly an opportunity to push longer durations in the current environment. “

Andrew Davidson will be discussing these and other opportunities during a presentation on”New Opportunities in Direct Marketing” at the Card Forum and Expo on April 28th in Miami, Florida.

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