Loyalty & Rewards

Card Issuers Target The Affluent

Perhaps it should come as no surprise, but consumers today are a lot less likely to own a credit card and carry card debt. The Great Recession aside, issuers may have helped spark the change when they cut back on card approvals and credit limits to reduce their own risks. And now, with more transactors and a higher percentage of consumers not carrying cards, they face reductions in potential card revenue, many issuers are turning to affluent consumers to fill the gap. But will that strategy work?

By Jeffrey Green (@epaymentsguy)

 

The Great Recession appears to have had a lasting effect on U.S. credit card use, as a greater percentage of consumers are carrying fewer or no cards – and less card debt. And more who are using credit cards are paying off their balances each month, an April 2014 Gallup poll has found.

For issuers, the trend means less interchange and interest income. Before the recession, American households often used credit cards to make ends meet, causing debts to balloon and accounts to default. At the same time, issuer profits were rising. However, many issuers were handing our credit too broadly, creating their own card-default problems in the process.

Once the recession hit, issuer credit dried up, making it more difficult for consumers with lower credit scores to secure cards. Many consumers who were approved had their credit limited to a relatively low amount to keep issuer risk low.

Perhaps as a result of how issuers reacted post-recession, non-affluent consumers have become more frugal with their credit card use. Indeed, according to Gallup, the 33 percent of credit cardholders who today say they revolve balances monthly is a record low since the polling firm first conducted its card-use survey in April 2001. In April 2004, 45 percent of respondents revolved balances, the highest percentage since the survey began.

Conversely, the 64 percent of Americans who always or usually pay off their balance monthly also is the highest since Gallup began its survey. The lowest percentage, at 53 percent, occurred in April 2004 as well.

In the latest survey, Gallup conducted telephone interviews with 1,026 U.S. adults nationally from April 3 to 6 of this year. The margin for error is +/- four percentage points.

Scoring another record was the percentage of consumers who said they have no credit cards, at 29 percent. That’s up from the survey-record low of 17 percent in April 2002. The mean total of cards per adult American, when including those with no cards, is 2.6 cards, also a record, and compares with a record high of 3.3 cards in April 2002. When leaving out those not having any cards, the mean is 3.7 cards, which compares with a high of 4 in 2001 and 2002, but misses the record low by 10 basis points.

Overall average card debt, however, remains on par with that April 2006 among consumers who still own credit cards. Among card-owning respondents, the average balance of $3,573 is down nearly $300 from 2008 but about $150 higher than in 2006, according to Gallup. However, when taking into account those respondents who have no cards, the average card debt was $2,426 in April 2014, or $500 less than that of April 2008, and also a record low for Gallup’s survey.

The results of a separate Gallup survey released April 21 found that the majority of Americans do more saving than spending, by 62 percent to 34 percent. And this also could be affecting their credit card use.

A growing number of issuers have attempted to counter their subsequent reductions in outstandings by going after affluent consumers, a sector where spending on cards and carrying balances represents less of a financial burden. And they tend to spend more.

Citi, for example, as recently as last month launched its first global credit card for affluent consumers. And last year, Wells Fargo and American Express struck a credit card issuing deal targeting the affluent market.

An EMI report out last August illustrated the growing importance of affluent consumers to credit card issuers. In an April 23 blog post, however, EMI indicated that attempts to acquire affluent cardholders through rewards can be a two-edged sword. The six issuers that provided first-quarter 2014 card-related revenue and cost reported card profitability was virtually unchanged from a year earlier.

Revenue growth remains elusive, declining 1%, as net interest income fell 2%,” the post noted. “The relatively strong rise in card volume did not translate into similar growth in noninterest income, as issuers are enhancing their rewards programs, which eats into interchange income.”

 

 

 

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