--Consumer cautiousness crimps loan growth for credit-card
issuers
--Many banks have scaled back direct-mail offers this year after
bombarding consumers' mailboxes last year
--Credit-card issuers are investing in other businesses to find
new revenue
By Andrew R. Johnson
Good financial habits can be hard to break.
Credit-card lenders have ambushed consumers' mailboxes with rich
offers for cash-back rewards, sign-up bonuses and introductory
interest rates to spur borrowing. But the push hasn't resulted in
loan growth for most card issuers, as consumers remain cautious
about racking up new debt. And analysts aren't expecting that to
change any time soon as the U.S. economic recovery edges along
slowly.
To compensate, some of the country's largest issuers have
revamped their product lines, ventured into new businesses and
turned to dealmaking in hopes of finding new revenue.
"The No. 1 challenge almost universally across the board is now
just asset growth, which translates into revenue growth," said John
Grund, a partner with First Annapolis Consulting, which advises
credit-card companies. "All roads lead through the U.S. consumer
... who is still suffering from a sluggish economy, from the
overhang of the mortgage crisis and a general reluctance to
borrow."
Total U.S. revolving credit, which primarily consists of
credit-card debt, increased by an annualized rate of 4.7% to $857.6
billion in October, according to the Federal Reserve. It has
declined several months this year, though, and remains far below
the peak of $1.03 trillion in July 2008.
For consumers like Jennifer Fuentes, the uncertain economic
environment remains a key factor in trying to slash credit-card
debt.
"Just seeing my friends on unemployment and everything, now you
have to watch what you're doing with your money," said Ms. Fuentes,
a 35-year-old Bronx resident who works at a bookstore in Manhattan.
"Before it was like, 'I'll just put it on the credit card and I'll
pay it off later.'"
Ms. Fuentes has switched to mainly using her debit card, which
is tied to her checking account, after amassing about $10,000 in
debt on about 10 credit cards, including store cards and bankcards.
She also tries to pay more than the minimum payment due on each of
her accounts every month to cut down on how much she pays in
interest and more quickly pay off her debt.
The shift in mindset has prompted many credit-card lenders to
target so-called transactor customers, or those who frequently use
their credit cards for everything from smaller everyday items to
big purchases but pay off their balances each month. While such
customers don't generate much interest income for lenders, they do
generate revenue from transaction fees merchants pay to accept
credit cards.
The strategy has worked for American Express Co. (AXP), which
typically issues cards to more affluent customers and is less
reliant on finance charges for revenue.
J.P. Morgan Chase & Co. (JPM) and Citigroup Inc. (C), whose
credit-card businesses are run by former American Express
executives, have gone after such consumers in recent years with
products aimed upmarket, such as the Chase Sapphire card, in hopes
of getting consumers to switch from other cards.
"We don't want consumers to take on more debt," said Eileen
Serra, chief executive officer of card services for Chase, the
largest U.S. credit-card issuer based on outstanding balances. "We
would love for them to consolidate more spending with us."
Citi has launched new versions of co-branded cards with American
Airlines and Hilton Worldwide that offer increased rewards for
spending while also rolling out products geared toward a decidedly
middle-market crowd, such as Simplicity, which carries no late fee
or penalty interest rate.
Chase's and Citi's credit-card portfolios have shrunk in recent
quarters, and both have substantially cut back their use of direct
mail this year after having bombarded consumers' mailboxes with
offers last year.
Marketing-research firm Mintel Comperemedia estimates issuers in
total will have sent 3.3 billion mail offers by year's end, down
more than 35% from last year's 5.1 billion mailings, a sign they
are being cautious about how they spend marketing dollars.
Direct-mail offers surged in 2011 as credit-card issuers
aggressively tried to gain new customers.
"I think what their hope was to invest in direct mail and have
that translate into spending growth, and spending growth is a
primary driver of balance growth," said Bill Carcache, an analyst
with Nomura. "But that spending has happened in the face of really
unbreakable deleveraging."
While Chase has scaled back its direct mail volume, it hasn't
cut its overall marketing, Ms. Serra of Chase said.
"Mail ... is a very expensive channel and what we've seen is
that the quality and the quantity of new accounts that we open
through both our branches and the digital channel are just so
strong at this point," Ms. Serra said. "Our plan right now is not
to really pull back in any significant way but to better balance
where we invest the money so we get the best return."
Many lenders have turned to new business lines to compensate for
sluggish loan demand.
Capital One Financial Corp. (COF) made two large acquisitions
this year, including the purchase of HSBC Holdings PLC's (HBC) U.S.
credit-card business. That deal brought Capital One about $28
billion in new card loans, a large proportion of which are
private-label cards issued in the names of retailers including Best
Buy Co. Inc. (BBY) and Saks Inc. (SKS).
Citi opted to keep its retail-card business, which includes
about $37 billion in loans, last year after trying to sell it
during the financial crisis.
Discover Financial Services (DFS) and American Express, among
the only large credit-card issuers generating consistent loan
growth, have also invested in new areas.
Discover has been growing its student- and personal-loan
businesses and added mortgage lending to the mix earlier this year.
American Express has been trying to broaden its customer base by
offering products that don't require a credit check, such as
prepaid cards it sells through retailers including Wal-Mart Stores
Inc. (WMT) and Target Corp. (TGT).
Don Fandetti, a Citi Research analyst, said: "The companies are
effectively telling with their moves that there's not much organic
growth in cards."
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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