Twitter
Andrew Davidson 
Susan Menke 
Susan Wolfe 
Lisa Hronek Credit Cards
The Rise of the Bonus Surfer
During the past year we have seen credit card sign-on incentives hit new heights. As a result, it has reached the point where we might be seeing a new type of customer emerge. That customer is a savvy transactor who has maintained a good credit score, receives the best offers and likely has a renewed appreciation for a “good deal” as a result of the on-going economic crisis. Enter the “bonus surfer,” otherwise known as a nightmare for credit card issuers.
Competition in the credit card industry continues to intensify and card issuers have been doing everything they can to stand out in a crowded mailbox. Incentives for taking on new cards have been escalating. Headline grabbers in 2011 included the $300 offered by Chase for taking out the Chase Freedom card and making just one purchase. Then there was the 100,000 miles offered, again by Chase, for its British Airways Visa Signature card – enough for two transatlantic round-trip tickets. But it hasn’t just been Chase. Citi, Amex, Capital One and others have all offered remarkable deals that are large enough to entice consumers to apply regardless of whether or not they intend to use the card.
Recently I was visiting the dentist and I got chatting with the dental hygienist who just happened to be extremely knowledgeable about credit cards. She was singing the praises of her new Chase Sapphire Preferred card because, if she spent $750 in three months, she would get 50,000 bonus points – worth $625. She was delighted with the card which is not surprising given that it has one of the best bonus incentives in the market today and comes with multiple benefits and features. But here comes the twist in the tail. She had heard, from a friend, that Citi, in an online promotion, was offering 100,000 miles as an incentive for taking out a Citi AAdvantage Visa Signature card and she was therefore planning to take her $625 from Chase, head off on her planned vacation, then cancel the card (thereby avoiding the second year annual fee) before surfing over to Citi to get 100,000 miles for vacation number two.
More than a decade ago the industry had to contend with a growing number of “rate surfers” who switched from card-to-card in order to capitalize on the proliferation of low rate introductory balance transfer offers. Rate surfers were gaming the system and the industry response was to introduce balance transfer fees which, effectively, put an end to the practice. Likewise, “bonus surfers” are similarly unsustainable and, should their numbers swell, the card industry will be forced to look at ways to curb this behavior. Given the increasingly competitive nature of the industry I suspect the response will be more carrot than stick with rewards and bonus initiatives designed to get cardholders over the hump of moving into that fee-paying second year. Until that time, savvy bonus surfers will continue to cash-in on some of the best credit card offers ever.
Credit Card Revival
Just in time for Black Friday and the holiday season, credit cards are making a comeback.
According to a USA Today article, “On Black Friday, payments made with credit cards rose 7.4% from a year earlier, vs. an increase of 3.4% for payments with signature debit cards,” according to First Data, a payments processing firm. An analysis by Javelin Strategy & Research forecasts that credit card payments for online purchases will increase 63% from 2011 to 2016, vs. 2% for debit cards. During the recession, the use of credit cards declined as cost-conscious consumers switched to debit cards and cash for their purchases.”
There are likely a number of reasons for the return to credit cards. Effective from Oct 1st, the Durbin Amendment, which capped interchange fees, resulted in most banks eliminating rewards on debit cards. Thus, consumers wanting rewards for purchases needed to place them on credit cards and those consumers without credit cards may have applied for them during the past six months. (Personally, I know I did apply for a new credit card with rewards during the past six months due to the elimination of rewards on my debit card.) Additional evidence supporting my theory comes from the Federal Reserve Bank of New York that reported that credit account inquiries increased for the second quarter in a row (an indicator of consumer credit demand). This may indicate a possible, albeit slow, return to borrowing habits. Anthony Karydakis, the chief economist at Commerzbank in New York, said “slowly but steadily, consumers are exploring more normal ways of returning to a more normal pattern when it comes to borrowing habits.”
It is interesting to note that retail sales during Thanksgiving weekend climbed 16% with shoppers spending $398.62 on average, which is up from $365.34 a year earlier, according to the National Retail Federation who cited a survey from BIGresearch. ComScore also reported that web sales for Black Friday surged 26% to $816 million and 18% to $479 million on Thanksgiving Day. Although, personally, I did not shop during the Thanksgiving weekend, I know I will be charging my Christmas gifts on a credit card in the near future for the rewards. The jury is still out whether or not I will spend more or less in comparison to last year…. Hopefully less! But doesn’t it always seem that you end up spending more than you expected to around the holidays?
Consumers could also be suffering from “frugal fatigue” from the past three years, says Gerri Detweiler, author of Reduce Debt, Reduce Stress. She stated that “people are tired of having to cut back, and that can lead to spending more on credit cards.” Again, I completely agree in thinking that people want to spend a little bit more this holiday season after cutting back in previous years. Why wouldn’t someone want to get something nice for their family and loved ones for the upcoming holiday season? Either way, more consumers are using credit cards, which is good for banks, retailers, and the overall economy.
Who knew holiday shopping could be so rewarding?
Using credit cards for holiday shopping offers many benefits such as convenience, peace of mind, purchase protection, and now extra rewards. In order to encourage usage this holiday season, many credit card companies are offering special cash back deals and savings opportunities. For example, Discover has a holiday-themed website featuring the tagline “Gifts for them. Rewards for you.” Discover’s website also features a special incentive offer of $150 cash back when you spend $1,000 in the first 90 days of opening a Discover Card.
According to USA Today, this isn’t Discover’s only promotion. Discover is also offering 5% to 10% more cash back on purchases at select retailers, but only if they are made through Discover’s Shop Discover. American Express is offering five times the rewards points on purchases from select retailers such as Apple and Target. And the Amazon.com rewards card offers extra rewards on digital downloads purchased during a limited time-frame. Comperemedia observed another special offer for the Amazon.com Rewards card, promoted in the email and digital channels. From November 15 through December 31, customers can earn 3 points for every $1 spent with the Amazon.com Rewards card through Checkout by Amazon. Checkout by Amazon is a feature available through many online merchants that ties all of your purchases back to your Amazon account, even if they are made on another website.
There are also many rewards that might not be as obvious. I happened to stumble upon the Small Business Saturday Facebook page and discovered that American Express is offering a $25 statement credit when you register an eligible American Express card and use that card to make a purchase of $25 or more at a small business on November 26th.
The holidays are quickly approaching, so it would be worth your while to take the time now to browse through some of the special deals out there and find the best card for the kind of shopping you like to do. Take the time and do some digging, it could be extremely rewarding.
One more spin on the merry-go-round
Readers, raise your hand if the recession has affected you in any way. Even though I can’t see you from behind my computer screen, I’m going to go ahead and guess that there may be a few hands in the air (yes, I realize this is a blog and people won’t actually raise hands – bonus points if you do). Even if you’re lucky enough to have kept your job and your house, unless you’re incredibly fortunate, there has been some economic ripple in your life since 2008.
Since late in that year, we’ve seen some changes in the form of government regulation hit the credit card industry. Given that a part of our current economic woes stem for spending beyond our means and perhaps over-targeting riskier segments, one would think that we all learned a valuable lesson three years ago. Here’s a fun fact: the number of credit cards issued to the subprime population rose 65% from January to May 2011. Here’s another: new subprime card limits increased 68%. That’s definitely a sign that banks are loosening their grip on the tight leash they’ve kept on credit since 2008. What kind of sign is still to be determined.
Personally, I think it’s a double-edged sword, a fine line to walk (insert your personally preferred cliché here) to resume mailing to the subprime segment. Does it really mean that the economy has recovered if subprime individuals are again being courted with credit? Or, does it mean that banks are in a position to assume more risk?
Either way, I’d rather remain cautious. It wasn’t too long ago that our politicians were bickering over the debt ceiling. I don’t think they’d hesitate to throw blame back onto financial institutions and mandate more changes if things start looking too much like they did back in 2008.
My favorite word lately is moderation. Just as banks need to judiciously screen their targeting strategies, the consumer has a responsibility as well to judiciously screen the credit card marketing that they receive. Word to the wise on both sides: Just because you can, doesn’t mean you should.