Bank card issuers are stoking their marketing engines with gold.
Charge volume on gold cards is thought to be up by as much as 30% from last year, as lenders turn to gold cards as a way to boost the yield on their portfolios.
When standard cards with no annual fee and single-digit interest rates are everywhere, bankers see the gold cards as a way to catch the consumer's eye - and increase charge volume. The cards carry higher credit limits and are pitched to the affluent.
"There's more of a lift on receivables," said John P. McCabe, senior vice president of the credit card business for National Westminister Bancorp in New York.
Mr. McCabe said two new direct marketing campaigns have contributed to 50% growth in gold card accounts this year for Natwest, making it one of the fastest-growing issuers.
"From our perspective, it's an effective and compelling marketing tool," said Scott P. Marks, executive vice president at First Chicago Corp., the nation's largest gold card issuer.
A Million New Accounts
First Chicago opened an estimated 1.2 million new gold card accounts this year under its direct marketing campaign.
What differentiates gold cards from standard cards are the higher credit limit - the minimum cap for a gold card is $5,000, and any credit limit is possible - and a package of enchancements, such as travel services, extended warranties, and auto rental damage insurance.
The boom in gold cards means more profitability for issuers such as First Chicago and Natwest. But it also is increasing Pressure on banks and the card associations to come up with new enhancements to set gold and standard cards apart.
From Gold to Platinum
"The gold card has become ubiquitous. It no longer has elite clientele," said Stephen Szekeley, vice president of credit card research for PSI, a Tampa research firm.
American Express Co. was the first to introduce a gold charge card in 1966.
After MasterCard and Visa got into the gold game in the early 1980s, Amex pushed for even greater prestige by unveiling its elite platinum card in 1984.
In the late 1980s the card associations responded by repositioning gold cards to include the enhancements. So far, there are no official plans to introduce a platinum bank card, though there has been some talk at Visa of launching an "elite" card.
The current gold rush has been under way for a couple of years. "Clearly, more households are receiving gold card offers year over year and [more of them] relative to standard cards," said Robert G. Skolnick, executive vice president of BAI Research in Tarrytown, N.Y.
Solicitations at a Peak
BAI runs Mail Monitor, a survey that tracks direct mail credit card offers. He said gold card solicitations this year are at the highest levels he's seen since the company began tracking offers five years ago.
And consumers are responding.
MasterCard reported a 30% increase in gold card sales volume in its third quarter, to $11.7 billion, from the year-earlier period. Sales volume for Visa jumped 35%, to $18.1 billion, in the third quarter.
Visa has 35 million cards in the United States, up 33% over last year, while MasterCard has 23 million cards, up 27%.
One reason is that customers have been taking advantage of balance transfers, said Robert B. McKinley, president of RAM Research, Frederick, Md. People consolidate retail cards and bank cards to gold cards, because of the higher credit limit.
No Annual Fee
Also, consumers have been wooed by the spate of no annual fee or fee waiver offers on gold cards, he added.
Visa leads MasterCard in the gold category with roughly a 60% share of the market. Both associations saw sales volume on gold cards and the number of gold card accounts jump, as chargeoffs dipped this year.
The gold card pioneer - American Express Travel Related Services Inc. - reported growth in its gold and platinum products this year, despite an overall dip in the number of American Express cards.
"A year ago a lot of people thought this was a saturated market," said Julian Romeu, who was vice president of Gold MasterCard Product Group and is now senior vice president in the new Business Development group.
"Certainly, looking at our performance this year you would have to think twice about that."
Brand Awareness Enhanced
Mr. Romeu said MasterCard's "smart money" advertising campaign, released in February, boosted Gold MasterCard's brand awareness. MasterCard introduced a new enhancement this September, MasterGuest Vacation Planning Services, to build usage and retention.
And it plans to offer enhancements next year that focus on security and fraud protection, information reporting, and convenience.
Visa also has tapped rich ore in its gold cards.
"Issuers are really doing a bang-up job using Visa Gold to improve their retention rates or reward their classic card holders who have been among their best customers," said Richard H. Hagadorn, senior vice president of credit products at Visa International.
Issuers are combining Visa gold with other retail services like home mortgages, checking accounts and savings accounts. "They are doing a good job of penetrating other customer bases," Mr. Hagadorn said.
Cobranding Programs
Visa has found customers using gold cards in airline affinity and other cobranded programs, contributing to average annual spending volume on gold cards of $5,000, double the average for standard cards.
Visa predicts the next area of gold growth will be in debit. The group is pushing gold card use in the VisaCheck program, which enables debit users to take advantage of product warranties offered to gold credit card customers.
Both bank card associations report success in the $51.5 billion mail-order business.
In February, MasterCard will launch Gold MasterValues by mail to promote mail-order sales with a free shipping offer from 16 upscale catalogues.
Will They Lose Their Glitter?
In the meantime, industry followers may wonder, do gold cards stand a chance of becoming run of the mill?
PSI reports that at least 37% of people who carry bank cards have one gold card.
"Gold has lost its glitter because of such proliferation," Mr. McKinley argued. "The prestige factor is a hard sell with consumers these days."
"There are gold products everywhere," agreed Frank Skillern, president of American Express' U.S. Consumer Card Group. "That product is certainly less distinguished in the marketplace than the platinum card."
Rich Pricing
About 1% of American Express cardholders qualify for the Platinum Card, which carries a hefty $300 annual fee.
"The platinum card continues to do well even though it's a premimum-priced product," Mr. Skillern said. "There are only so many people in the United States that are going to pay $300 for a card."
Even if they use only a handful of the enhancements that come with the card - including a concierge service, exclusive dining, entertainment, and travel services - Mr. Skillern said, membership fees can be repaid several times over in the course of a year.
Mr. Skillern said he wouldn't be surprised if bank cards came out with a platinum-type of card. But to succeed, he said, the card would have to offer a package of benefits that go well beyond what banks have been willing to offer.
