Credit Cards » Credit Card News » Credit Card Companies Going for Premium Customers to Survive
Date May 10, 2009

Credit Card Companies Going for Premium Customers to Survive

Credit Card Companies Going for Premium Customers to SurviveWith the state the economy is in now, it is of no surprise that credit cardholders are changing their spending habits, avoiding unplanned buying, and generally preferring to use cash instead of their credit cards whenever they have to buy. Credit card companies are getting hit hard by this complete reversal of American buyers’ consumer habits, which used to follow the mantra “buy, buy, buy”.

With the decrease of credit card use among credit cardholders, credit card companies are losing one of their biggest earners. In general, credit card companies usually get most of their earning through three pathways. These are through customer transactions, revolving credit, and through premium credit card accounts. Since consumer buying has dropped recently and most of them prefer to use cash rather than their credit cards to make purchases, credit card companies are losing credit card transaction earnings. The consumer smart spending trend, partially spurred by the increase in interest rates that credit card companies have implemented, has also meant that revolving credit is no longer a big earner for credit card companies. As a result, credit card companies nowadays are eyeing the premium credit cardholders as their way out.

In a recent summit held in India, it was suggested by Mastercard Worldwide that one way to boost activity for the credit card market may be to charge annual fees. Mastercard Worldwide has been having difficulties continuing its growth with the recent state of the economy. However, Mastercard acknowledged that the only viable market for credit cards with annual fees would be the high end cardholders.

Mastercard may actually be coming late in the game. Competitors Citibank, Standard Chartered, Deutsche Bank, and ICICI bank have already beat them to it. Citibank is known for their Platinum Select Card; Standard Chartered and Deutsche Bank have a partnership going with Emirates Airline, and ICICI Bank is currently partnered with Singapore Airlines.

More and more banks are beginning to see that continued profitability lie in the direction of premium cardholders. Banking insiders recognize that the premium credit card market is better prepared to keep up with their credit card payments and understand much better the need for annual fees.

It seems that, for the moment, banks and credit institutions are going to be marketing aggressively towards the premium cardholders’ market. Most of them are now seeing this market as the best way to continue their growth in the current economic climate. However, bank and credit institutions are acknowledging that the selection process for premium cards is much stricter compared to regular credit card lines. Banks take into consideration several factors before considering an applicant such as educational level, employment industry, annual salary, and their credit history.

Date April 29, 2009

Visa Commercials Promote Debit Cards

Visa has noticed the trend of increased debit card use during this recession. They’re running several TV ads that promote Visa debit cards for everything from buying pizza, going to an aquarium with your daughter on a Tuesday, and paying for products online.

On April 29th, Visa Inc. reported that their branded debit card total dollar volume of purchases surpassed credit card purchases for the first time during the last three months of 2008 – making the debit card transactions processed by Visa 50.4% of their total transaction volume in the same period.

It’s no mystery why consumers are turning to debit cards over credit these days. Consumers are becoming more conscious of their spending, and people don’t want to rack up any more credit bills if they can help it. Debit cards are popular over cash use, because American consumers have a preference for the convenience plastic provides – beginning in 2003, credit and debit card purchases bypassed cash and check purchases.

“A big group of consumers like the discipline that debit spending can bring them, and that is particularly relevant in this kind of environment,” said Tim Murphy.  Murphy looks after MasterCard Inc.’s main payment products.

Unlike credit cards, which allow consumers to charge more than they can afford to pay when the statement comes and carry the balance from month to month, debit cards only let you spend what you have in your checking account. A Nilson Report provides data for the increase of debit cards since 1987:

nilson

Banks are helping to encourage debit card use through the offering of rewards programs. While debit card rewards programs are not as generous as most credit card programs – it’s still a good incentive that helps people choose debit over credit. Credit card use is expected to decline even more, as Americans continue to monitor and rein in their spending habits.

Date April 10, 2009

Visa Introduces a Cellphone System To Pay With Credit

In Malaysia, Visa has introduced a cellphone payment system that uses a chip in a cell phone to communicate the visa-cell payment transaction with the merchant terminal. Japan currently uses a similar phone payment scheme, and it is expected that this technology will be rolled out into other countries in coming years.

Here’s how Malaysia credit card buyers use their cell phones to make payments:

  • They buy a phone having the special field communication chip in it (like the Nokia 6212).
  • They connect the phone with their bank via the mobile Internet to set up the payment account.
  • When they’re ready to pay for something, they wave their phone within 4 cm of the merchant terminal, which is exactly like swiping the magnetic strip of a credit card through a terminal.

Currently, the United States has a similar payment system used in a handful of retail establishments which uses an R.F.I.D system. Think about Mobile SpeedPass – where you could flash your special keychain at the gas pump and automatically pay for your gas. This system creates tags in credit cards or for keychains, so instead of swiping the credit card through the terminal itself, you simply wave the tag or keychain to make the payment. The use of the R.F.I.D system is not very widespread yet, as there are concerns over unintentional purchases – for example, what happens if you walk by a terminal but did not make a purchase? It’s possible you could be paying for the person who is currently checking out.

The cell phone equivalent being used in Malaysia offers password encryption for the payment capabilities within the cell phone. That way, if a thief runs off with your phone, they can’t also go on a spending spree using your phone.

The system is currently expanding to make it possible for the phones to handle multiple payment accounts – so users could pay for their parking and public transit through one payment account, their groceries on another. Additionally, these phones will soon make it possible to allow both credit and debit transactions to take place through the phones, simply by selecting which account to use when you pay using the phone.

What is the purpose of using phones for payment instead of credit cards? Visa is hoping to appeal to individuals who have their phones accessible at all times, and therefore find it easier and quicker to pull out their phone at the retailer checkout line rather than finding their credit card in their wallet.

In the United States, Visa is currently testing various ways of enhancing credit cards by using text messaging services and coupons for Visa merchants. For Android smartphone users, they can receive coupons on their phone for retailers near their current location right on their phones – and there are plans to roll out the coupon system to other smartphones in the near future.