Have you noticed something differently about your mailbox lately? A slimmer, tidier, not quite so overstuffed look? If you haven’t noticed it yet, take another look. The tidal flow credit card offers landing in your mailbox has slowed to a trickle. Even people with good credit who used to get 2-3 offers a week on average, now may get a mailed credit card offer once or twice a month. At best.
It’s not that card issuers don’t want your business anymore. They do. However, as a suitor burnt once too much, they have gotten more wary. Yes, they want business, but only from certain types of customers and only on certain terms.
Squeezed between the economic downturn and the new regulations of the Credit CARD Act of 2009, credit card companies will be facing reduced revenues along with higher costs due to the recession, a toxic mix for any business. So what steps are card issuers taking to deal with the drastically new lending environment they are faced with?
“The new developments will change how the industry acquires customers,” says Rich Tambor, a consultant to the credit card industry, in an interview with the CEO Show. “In past years, card issuers have cast a wide net and used teaser introductory rates to attract as many new customers as possible. Going forward, card issuers will need to be much more careful about how customers are acquired.”
Hence the slowed-down flow of credit card offers to your mail box. Card issuers cut mailed offers to less than 500 million in the first quarter of 2009, the lowest level since 2000, according to the direct marketing research company Mintel Comperemedia. If that trend continues throughout 2009, it would result in fewer than 2 billion mailed credit card offers, less than half of the 5.4 billion offers mailed in 2008. The number of credit card solicitations peaked in 2006 with 8.3 billion offers.
And while it’s still fairly easy for people with good credit to get a credit card by submitting an online credit card application, expect to get started out with a much lower credit limit, say $3,000 instead of the generous $10,000 card issuers handed out to new cardholders out with in the past.
So if credit card companies are abandoning their old marketing tactics, what will take their place? Industry analysts, such as Tambor, predict that credit card companies increasingly will use relationship based marketing. That’s a fancy way of saying that going forward, card issuers are likely to get much more up, close, and personal.
Flooding the market with credit card offers was like trawling the ocean, catching every little fish regardless of value. Card issuers were able to do this because the good customers they caught in the process more than made up for those that defaulted and walked away from their debt. Now that credit card companies are facing both higher costs and reduced revenues, that business model just doesn’t work anymore.
Going forward, Tambor predicts, credit card companies will increasingly recruit new cardholders from the ranks of their existing customers, i.e. people they already know. Credit card prospects will increasingly be checking and savings customers, and mortgage customers, in other words, people that the bank already knows.
Tambor also predicts that there will be less credit available with less generous credit lines. The average starting price for credit will go up, and there will continue to be more rigorous management of credit and further credit limit cuts. Some groups of customers will not be able to get credit cards. Finally, according to Tambor, for less profitable customers banks will find ways to increase revenues as a means of getting consumers to pay for value received, even if it means reintroducing annual fees.
“This is a seismic shift for the industry,” says Tambor. “While it may be painful, it can create opportunities for innovation, and I think that will happen over the next few years.”
