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.

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 26^th.

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.

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.

The word “preferred” seems to be catching on when it comes to credit card marketing. Using “preferred” to convey a higher level of status isn’t new; however, the increasing number of recent product launches that have the word baked into the card name suggests that a trend is emerging.

Here is a list of preferred cards hitting U.S. mailboxes in 2011. Note that five of these seven products were launched/re-launched since the official end of the recession.

• American Express Blue Cash Preferred
• American Express Blue Sky Preferred
• American Express Starwood Preferred Guest
• Bank of America Business Preferred World MasterCard(charge card)
• Chase Sapphire Preferred
• Citi ThankYou Preferred
• Citi Diamond Preferred

Some history…
There was a time when owning a gold credit card meant something. In the 1990’s, if you owned a gold card, you had financial clout and the cache that went along with it. Then, Visa removed the $5,000 minimum credit limit requirement for gold cards and suddenly they were being offered to the masses. Platinum cards followed the same path – most subprime credit card offers these days are for platinum cards – prompting Visa to launch its Visa Signature card and MasterCard to launch its World and World Elite products, to distinguish premium cards from traditional offerings. These network platforms haven’t disappeared but their use in a marketing campaign is less obvious in today’s environment.

Given the ongoing economic uncertainty, most issuers continue to focus on premium cardholders and competition for new premium cardholders has become particularly intense. Issuers have been looking for new ways to differentiate themselves and the result has been a shift towards a tiered approach, based upon a single product, available with multiple pricing options. For example, there are four versions of the Citi ThankYou card: ThankYou, Preferred, Premier and Prestige, each offering different benefits and fees. Similarly, there are three versions of the new Bank of America Business Charge Card. Both Chase and American Express use the term “preferred” to distinguish the fee-based versions of their products from the no-fee based cards.

A tiered approach to card marketing is becoming more popular, as issuers attempt to carve up the premium segment. As a result I expect that we will see more issuers use the word “preferred” in their marketing materials in the coming months (or at least until something else becomes more popular).

Credit card direct mail in Canada has not rebounded from the recession in the same way that it has in the United States. In Canada volumes plummeted in 2009 and have remained flat ever since.  Any hope of a recovery in 2011 has been severely delayed by industrial action that has crippled the Canadian postal system.  Industrial action began on June 3, when almost 50,000 Canada Post employees commenced a series of rotating strikes, after the union and management failed to hammer out a new contract. The National Association of Major Mail Users (NAMMU), which represents the direct mail industry in Canada, is projecting 15,000+ layoffs as a result of Canada Post’s estimated 50% reduction in mail volumes during the strike. Factor in the growth of emerging channels, such as online advertising, and it is understandable that some might predict the demise of credit card direct mail, particularly for acquisition.  However, it is my view that there will still be a recovery at some point. Here’s why:

U.S. issuers

Credit card direct mail in Canada has always been fueled by the presence of the U.S. monolines. Back in 2000 Canadian banks were forced to respond to the threat from MBNA and Capital One and the result was an expanding mailbox that eventually peaked in 2008.  In 2011, in the lead up to the strike, Capital One and MBNA, along with American Express have been dominating the mail.  I doubt the Canadian banks will sit back and allow their customers to be tempted by these competitive offers in the long term.

Duality

The new rule allowing banks to issue both Visa and MasterCard branded credit cards has added a new competitive element to the market. Both CIBC and RBC have been promoting MasterCard branded cards and MasterCard accounts for the majority of card offers in the mail in 2011, up significantly from prior years. Visa will be looking to redress the balance by encouraging card issuers to promote Visa over MasterCard.

Cobrand cards

Cobrand cards have not traditionally been big Canada. However, recent partnerships suggest that this might change as issuers seek out new strategies to gain an advantage. In the past year we have seen card issuer’s partner with WestJet, Delta, Costco and Sears to name a few of the more notable launches. Capital One acquired the HBC portfolio and recently announced that it would be launching a card in partnership with Intercontinental Hotels. All of these cards need to be promoted and direct mail remains a key channel for bringing them to market.

The personal approach

Direct mail is now competing with emerging channels for the marketing dollar. The great strength of direct mail is its ability to offer a personal message.  Comperemedia has been tracking the decline of non-personalized mail as a proportion of total mail volume.  It appears that some of the Canadian issuers that still rely on mail are realizing the benefits of the personal approach. It is the ability to offer a personal message that will sustain direct mail in the coming years.

So, despite the strike, there is evidence to suggest that we are not seeing the end of credit card direct mail in Canada. Direct mail will continue to be a valuable part of the credit card marketing mix for some time to come.

We often talk about the messaging on the front of the outer envelope (OE) and its ability to make a campaign stand-out amidst a crowd of competing offers. However, messaging on the back of the OE can reveal more about a company’s targeting strategy, particularly in the credit card industry.

Competition for credit cards is heating up – just over 1.4 billion offers for new credit cards were received by US consumers in Q1 2011, according to Mintel Comperemedia, up from 826 million in Q1 2010. Card issuers are increasingly using bold and creative messages on the front of the OE in order to gain attention. After all, for a consumer to accept an offer the first step is for him/her to open the envelope. There are many strategies, but typically, issuers might promote their most attractive benefit on the front of the OE e.g., 25,000 bonus miles, a $200 gift card or a 0% introductory APR. Alternatively they might leave the OE completely blank so that consumers think the mail piece is a bill or other important notification.

The back of the OE, if used at all, is sometimes reserved for second tier benefits that don’t, by themselves, justify space on the front. However, the benefits promoted on the back of the OE can reveal some additional insights about the targeting strategy of a particular offer. Take the following examples from Chase:

Chase has been ramping up its efforts to promote its Disney Rewards Visa card. The front of the offer is saved for the $200 Disney Gift Card incentive and a window reveals a glimpse of Mickey Mouse. Displayed on the back of the envelope are eight miniature images of Disney card designs along with the message to “Choose your card design. See details inside.” In other words, if Vintage Mickey doesn’t encourage you to open the envelope then maybe Finding Nemo or Tinker Bell or Toy Story will – either way it’s more about Disney than it is about the credit card.

The Chase Freedom card which promotes 5% cash back and an additional cash incentive after first purchase (ranging from $100 to $300) on its OE is clearly targeting a different crowd. On the back of the OE Chase provides a list of additional benefits including text message alerts; customizable account alerts; 24/7 account access and fraud protection. Chase is targeting consumers that value round-the-clock access and flexibility, echoing the “freedom” theme.

Contrast the Disney and Freedom offers with an offer for Chase Sapphire, which promotes 25,000 bonus points on the front of the OE, but on the back states that “when premium services matter to you, Chase Sapphire makes sure you get them,” emphasizing direct access to expert advisors; worldwide acceptance and no caps or points expiration. Here, Chase is targeting consumers that value service and the status that comes with premium card ownership.

The challenge, for any credit card offer, is to stand-out in a mailbox already stuffed full of credit card offers. As a result, the front of the OE often grabs the headlines. However, credit card marketers can gain additional insights into competitor strategy by paying attention to the second tier benefits that can sometimes be found on the back of the OE.

On February 22nd, the government’s new Consumer Financial Protection Bureau (CFPB) welcomed leaders from the credit card industry to the Treasury for a conference on the CARD Act. Last week, presentations from the conference were published on the CFPB’s new website (consumerfinance.gov) where you can also watch Elizabeth Warren’s Key Note address. Mintel Comperemedia was honored to kick off the conference with a presentation on “The Supply of Credit in the Card Market.”

The CARD Act conference – called “The CARD Act: One Year Later” – signified an effort by the CFPB to establish a starting point for dialogue that is based on fact, and to set the tone for the CFPB moving forward. Attending the conference were CEOs, CMOs and senior executives from the major card issuers and credit unions as well as credit bureaus, consumer advocates, regulators and academics.

Presentations covered the cost of credit for consumers, the supply of and demand for credit, and industry profitability. The CFPB summarizes the key findings on its site and you can now download the presentations. Here are the key points from my presentation:

1. Competition is increasing – credit card acquisition mail volumes are up for the fifth consecutive quarter and we are starting to see subprime offers back in the mail.
2. The landscape has shifted – rewards are the norm and plain vanilla cards (with no rewards and no annual fee) represent a niche market. A no-fee rewards card is the new “vanilla” of the credit card market.
3. APRs are higher; BT and Cash Advance Fees have increased – revolvers and subprime consumers, in particular, have been impacted by rising fees and the difference between subprime consumers and the rest of the market is more polarized than before the recession.
4. Most offers promote 0% teaser rates; teaser rate terms are also becoming more favorable for consumers with an increasing number of introductory balance transfer offers extended for thirteen months or more. In a competitive environment with improving terms – and many offers loaded with features and benefits – we are, arguably, seeing some of the best offers for new credit cards that we have seen at Comperemedia.

Understandably, with the competition in the room, many of the senior executives attending the conference gave little away regarding their post CARD Act strategies. The senior executives I spoke with were quick to praise the CFPB for proactively reaching out to them for their perspective and for promising a balanced approach. Under the Dodd-Frank Act the CFPB receives its full powers on July 21st, 2011. It is gearing up for a flying start.

On Saturday morning my household received three, large (8×6), grey, intriguing envelopes. The envelopes didn’t just stand out from the clutter – they demanded immediate attention. Inside were offers for The Capital One Venture Card.

On the front of the outer envelope for the Venture Card offer was a quote, in bold font, from Money Magazine: “Best Rewards Card if you aim to rack up airline miles.” Inside were more glowing reviews: Newsweek (“Ideal…”); Good Morning America (“Best…”); and CBSnews.com (“Pick…”). The Venture Card promotes double miles, with no limit, and cardholders earn 10,000 bonus miles if they spend $1,000 within the first three months. There is a $59 annual fee which is waived for the first year and the variable APR for purchases ranges from 12.99% to 17.99%.

These particular Venture Card offers were timed to perfection. Even though it wasn’t mentioned, they were received just days after Capital One launched its Match My Miles Challenge (March 10th) with 30 Rock star Alec Baldwin. The launch involved a 30 second ad on Facebook and a nationwide TV campaign. The Match My Miles Challenge gives consumers who open a Capital One Venture Card the opportunity to match up to 100,000 miles from another mileage program. The issuer will match up to one billion miles on a first-come first served basis. The challenge ends on May 13, 2011 or when one billion miles have been claimed.

The Alec Baldwin campaign is big. There is a lot of buzz about the Match My Miles Challenge (in less than 24 hours 156,000 viewers “liked” the campaigns Facebook page) but the envelopes are significant too. They represent another sign that the card industry is back. Not only are credit card mail volumes on the rise – US consumers received 1.4 billion offers for new credit cards in Q4 2010 up from 551 million in Q4 2009 – but issuers, such as Capital One, are going back to doing what they did so well in the past: looking for innovative ways to stand out in the mailbox and gain share of wallet in an increasingly competitive environment.

1) The Card Industry Cracks Instant Redemption
I think we will see some significant steps forward towards enabling consumers to redeem instantly at the point of sale. Citibank recently announced that it is testing what it calls 2G cards using technology from Dynamics, Inc. Dynamics has developed a card that lets you pick whether you want to pay with rewards or with your credit card, all at the push of a button, on the card itself. If the test proves to be a success then we really might enter a new era for loyalty. Card issuers that can crack instant redemption will be on to a winner.

2) The Emergence of Prepaid Debit with Rewards
Most analysts predict that the prepaid market is set for phenomenal growth. Prepaid cards are traditionally marketed to the unbanked and they represent an interesting prospect as they are not covered by latest regulations impacting debit cards. We already have celebrity prepaid cards such is a Twilight Eclipse Card and the recently launched Kardashian card (which they subsequently pulled due to negative PR; but that’s another story). The next logical step is prepaid debit with rewards. Adding rewards to prepaid cards may facilitate an expansion into segments other than the young and unbanked.

3) The Growing Importance of Points Transfer Programs
American Express has traditionally owned the points transfer concept – where cardholders can transfer the balance on their points program to other programs such as airline or hotel programs. However, Chase also now promotes points transfer for Sapphire and Ink cardholders. I anticipate that the points transfer feature will become more important in the months and years ahead as issuers seek to compete in the travel reward space.

4) More Aggressive Messaging
We’ve seen some aggressive marketing tactics in the past few months, particularly between Chase and American Express in both the consumer and small business markets (see Chase attempts to capture American Express cardholders). Comparison tables are not new but they are typically used to compare pricing rather than loyalty programs. With the increase in competition issuers will need to be more aggressive and direct in their marketing in order to stand out.

5) The Growing Potential of Mobile Loyalty
The growth of mobile loyalty programs will be fueled by the growth in smartphones. Nielsen expects smartphones’ share to double by the end of 2011, reaching about 49% of the market compared to 51% for basic phones. In conjunction with the growth in smartphone use, is the development of barcode technology that will likely have a significant impact on loyalty marketing. A company called Bar Pages has developed a 3 dimensional cube for bar codes to incorporate opportunities for messaging.

Starbucks and Target are both using barcode systems now to accept payments that link to prepaid cards which clearly creates further opportunities to apply instant redemption. Maybe it won’t be so far in the future that we see an open loop prepaid account using a smart phone with instant rewards redemption at the point of sale.

Does the “punishment” fit the perceived crime?

Wikileaks has been all over the news lately. Both the site itself and its controversial director are subject of much scrutiny. After financial companies Visa and MasterCard decided to cut ties with Wikileaks, Operation Payback was launched by Wikileaks activists and aimed at slowing down or stopping web traffic on websites of companies backing away from Wikileaks. As a result, Visa’s website went down temporarily while the MasterCard’s site was down for the better part of a day. While no sensitive consumer information was released in those attacks, could that be next? Could the consumer become collateral damage of digital warfare?

The argument has been made that Operation Payback is not necessarily in defense of Wikileaks or its founder, rather a protest of perceived internet censorship. As an American, I’ve been raised with the unwavering belief in the right to free speech, even when I disagree with those who invoke that constitutional right. But, where do we draw the line?

In my opinion, speaking out against censorship is completely different from intentionally attempting to thwart businesses for making unpopular decisions. Do financial companies no longer have the right to make decisions for fear of digital retribution?

On the other hand, how about the countries governed by totalitarian rule? The internet is frequently censored in countries such as China, North Korea and Iran. Will Anonymous strike those governments too? Claiming to be absolutely against censorship cannot be applied discriminately. Either strike all or none.

Personally, I think this was a fringe group looking to make a name for itself. The concept of Wikileaks is loosely founded on the basic American rights to free speech and free press. However, exercising those rights moves into uncharted waters when the technologically proficient seek to send a message that does little more than wreak havoc with business.

So what do you think? Does the freedom of speech and expression include technological attacks on businesses?  Where do we draw the line?