March 12, 2009 - 9:37am
U.S. credit card issuers, including Citigroup Inc, JPMorgan Chase & Co, and Capital One Financial Corp, are cutting reward programs, raising interest rates and increasing fees in order to cover their costs.
Not a long time ago Citigroup, the nation's largest credit card issuer, had been offering up to $100 in gift cards for enrolling in its "Thank You Rewards" program. Last month American Express Co, the credit card company with the largest sales volume, started offering some clients $300 to pay off their credit card balances and close their accounts. Another company, Discover Financial Services, has proved how expensive reward programs cost for such organizations by showing $710 million was spent in 2008 on its rewards program from the revenue of $5.7 billion.
Nonetheless, JPMorgan had noted during its presentation to the investors that cardholders using its reward program were increasing their spending, generating higher revenue and had lower credit loss rates. This once again proves the words of Bill Hardekopf, chief executive of lowcards.com, a website that tracks credit cards, who stated the credit companies were “trying to determine which customers are good bets.” Moreover, companies are trying to pass part of the cost of reward programs to merchants by joint promotions aimed at bringing new businesses and customers to retailers.
Some credit companies are simply changing their reward programs making it harder to get to the actual reward. Others are raising interest rates and fees or simply closing down accounts. Meredith Whitney, one of Wall Street's bank analysts, estimated that credit card lines in the US will be cut by $2.7 trillion (50 percent) by the end of 2010.
Some analysts are sure higher costs and fewer rewards will push clients away while reducing the risk of default. But this is forecasted to negatively affect the company revenues as well.
Not a long time ago Citigroup, the nation's largest credit card issuer, had been offering up to $100 in gift cards for enrolling in its "Thank You Rewards" program. Last month American Express Co, the credit card company with the largest sales volume, started offering some clients $300 to pay off their credit card balances and close their accounts. Another company, Discover Financial Services, has proved how expensive reward programs cost for such organizations by showing $710 million was spent in 2008 on its rewards program from the revenue of $5.7 billion.
Nonetheless, JPMorgan had noted during its presentation to the investors that cardholders using its reward program were increasing their spending, generating higher revenue and had lower credit loss rates. This once again proves the words of Bill Hardekopf, chief executive of lowcards.com, a website that tracks credit cards, who stated the credit companies were “trying to determine which customers are good bets.” Moreover, companies are trying to pass part of the cost of reward programs to merchants by joint promotions aimed at bringing new businesses and customers to retailers.
Some credit companies are simply changing their reward programs making it harder to get to the actual reward. Others are raising interest rates and fees or simply closing down accounts. Meredith Whitney, one of Wall Street's bank analysts, estimated that credit card lines in the US will be cut by $2.7 trillion (50 percent) by the end of 2010.
Some analysts are sure higher costs and fewer rewards will push clients away while reducing the risk of default. But this is forecasted to negatively affect the company revenues as well.