Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.ibd From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: Executive Update Date: Wed, 18 Nov 92 12:51:16 EST Message-ID: <13.1992Nov18.125116@AmeriCast.com> 11/18/92 TITLE Executive Update Credit Card Issuers Look For New Ways To Stand Out As Crowd Thickens, An Increasingly Diverse Array Of Incentives Appears The Associated Press In New York Angry consumers, an aggressive telephone company and the hot breath of congressional regulation have sent a shiver of panic through the once-cozy credit card business, and card holders are starting to reap some benefits. Less expensive credit cards have been popping as the industry rewrites its pricing structure in the face of new competition. After a decade of stagna- Competi- tion tion, card rates are coming down, having fallen one percentage point to an average 17.95% nationwide, according to Ram Research Inc., a credit card research group in Frederick, Md. In a bid to lure new card holders and crank up the charge volume, card is- suers also are offering new incentives for free airline trips, discounts on hotels and even money off of a new car. "The good news is the market has become more competitive than it was five years ago," said Steven Brobeck, executive director for the Con- sumers Federation of America, a Washington-based advocacy group. The options facing consumers are numerous: The top 100 card is- suers are offering more than 500 credit-card rate combinations, according to a recent report from Salomon Brothers Inc. Even a poor credit history doesn't disqualify someone from the hotly competitive credit card market. Special "secured" cards are being pitched to survivors of personal bankruptcy. This has been a trend slow in the making, but events in the last year have opened up a wide range of options for plastic users. The new GM Card, introduced by General Motors Corp. in September, rewards frequent card users with rebates that can be applied toward the purchase of most new GM cars. All heavy-hitting credit card companies - Citicorp, Chase Manhattan Corp., American Express' Optima Card operation, and Sears' Discover Card unit - have overhauled their rates this year in a bid to prevent customer defections to the upstarts, analysts say. "The fact is, the cards offered by non- bank companies tend to be more attractive than those offered by commercial banks," said Brobeck. $33 Billion In Interest Examine credit card growth trends and there's little wonder why nonbanking companies have set their sights on the business. Total credit card debt outstanding grew from $4.1 billion in 1970 to $194.1 billion in 1991. Last year, interest payments on credit cards totaled $33 billion, surpassing interest payments on auto or other consumer installment loans for the first time in histo- ry, according to a study by Boston Co. Economic Advisors. Greater accessibility of cards, convenience, the run-up of house- hold spending in the 1980s and lower minimum payments are key trends behind that growth, the economic research company says. Three major events in the last six years have laid the groundwork for the fierce rivalry. In 1986, Sears, Roebuck & Co. launched Discover Card, a no-fee card that offered a modest 1% rebate on annual charges. The Market' "That kind of pricing stunned the market," said professor Bill Dunkelberg, dean of Temple University's school of business and management. Until that time, the annual fee was a sacred element of credit card pricing. In March 1990, American Telephone & Telegraph Co. launched its Universal Card with no annual fee and a variable interest rate. Within six months, AT&T Universal had 2.7 million accounts, mak- ing it the nation's eighth- largest credit card. Consumer anger over high credit card interest rates also led to a legislative attempt to cap rates. Soon, the industry responded with a new rate structure. American Express' Optima Card in February provid- ed the basic outline that other major issuers followed. Optima's best customers saw their rates decline by a steep 3.75 percentage points to 12.5%, while riskier customers paid more. Tiered Pricing The idea of so-called tiered pricing is to reward the best custo- mers with a lower rate and give delinquent card holders an incen- tive to buff up their credit history to get a better deal. It also illustrated a refinement of the industry's plan to target narrow slices of the population, rather than trying to be all things to all people. An illustration is the so-called secured credit card. Aimed at people with new or bad credit, such a card essentially requires holders to place in the bank enough money to equal the card's credit limit. If the holder defaults, the bank keeps the money. Banks profit on this niche with high annual fees, some greater than $45, and high interest rates, above 20%. If consumers weren't strongly motivated by lower interest rates, companies accelerated so-called affinity programs. General Elec- tric Co. unveiled its GE Rewards card in September, which offers a fairly complicated system of discounts with nearly two dozen businesses. This article is copyright 1992 Investors Business Daily. Redis- tribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM