Charge Cards On The Way Back

Charge cards have already gone out the door but the current trend in plastic payment may indicate that they may be making a come back.

During the time when the economy was up, charge cards became obsolete as card companies began handing out credit cards like there was no tomorrow. Credit cards, unlike charge cards, assured card companies of high profits by allowing high credit limits with revolving debts. However, when the economy tanked, the very thing that made credit cards much more attractive to card companies spelled their doom. Overextended credit largely contributed to card companies seeing their delinquencies and charge off rates go up to historical heights.

Now, card companies are wary and are exploring new ways to generate profits without exposing themselves too much to financial risk. This is why charge cards are slowly making a come back among card companies.

Charge cards work similar to credit cards. However, charge cards must be paid off fully every end of the month. Thus, although consumers have to deal with having to pay for their card purchases fully at the end of the month, they no longer have to worry about revolving balances from month to month with fees and interest rates added on every month that the debt remains unpaid. Another plus for charge cards is that they don’t carry overdraft fees, something which even debit cards do not offer.

With charge cards, card companies are aiming for acquiring long term customers by making a tamer product available during this tougher time. San Diego University finance professor, Tony Cherin says that the idea for card companies is to lock a customer in to their company through one of their products. He adds that a card company may get a long term customer just from the inertia of a banking relationship coming from that one product.

At the moment, charge cards are still pretty rare. In the large market of card activity among consumers, charge cards still make up for a small share of the market. However, direct mail offers from card companies for charge cards is continuing to grow and is moving quickly. Just a few years ago, charge card mail offers accounted for around 2 percent of card offers. In 2007, charge cards started becoming more common. At the moment, charge card offers are four times what they used to be. Among all card offers mailed for October of 2009, charge card offers made up 8 percent, says Synovate, a market research firm.