Issuers of cobranded credit cards managed for several years to avoid the fierce pricing wars of the card business, but according to a recent study, such cards are no longer above the fray.
The study, conducted by Behavioral Analysis Inc. of Tarrytown, N.Y., shows that more than 50% of cobranded offers in the third quarter of 1995 sported a teaser rate, compared with 20% over the same period in 1994.
In addition, the percentage of cobranded offers with balance transfer options doubled in 1995 to 80%.
Lisa Itzkovitz, marketing director at the research firm, said such cards traditionally have not competed on price, relying instead on the appeal of their rebate feature, which gives cardholders discounts on goods and services.
Despite higher pricing, more people respond to direct mail offers promoting cobranded cards, said Ms. Itzkovitz, "because they provide a real value to the cardholder like airline mileage and discounts on auto purchases."
The higher interest rate charged for cobranded cards, from 17% to 20%, is supposed to offset the cost of aligning with a marketing partner and sharing profits from the program. Interest rates on standard cards range from about 8% to 16%.
Ms. Itzkovitz attributes the lowered pricing to the increase in the number of issuers peddling such cards.
"The value of teaser rates is primarily if not totally relevant to new account acquisition," added Don Berman, president of Cardholder Management Services, Plainview, N.Y. "Virtually every issuer today offers an introductory rate and balance transfer option, so it is no surprise," that cobranders would follow suit, he said.
Still, the study found that the average teaser rate of cards that are cobranded is 8.10% - compared with 7.42% for comparable products that are not.
Household Bank, Prospect Heights, Ill., is one issuer that has gone against the grain - lowering the teaser rate on its popular General Motors card earlier this year. Consumers now can sign up for a GM card with a 7.9% interest rate good for 12 months. Previously, the introductory rate was 9.9% for six months.
However, at the same time, Household raised some of its ancillary fees and introduced some new ones.
For example, the cash advance fee rose from 2% to 2.5% of the loan with a minimum charge of $2.50 versus $2. And a new $15 fee was introduced to penalize people who make purchases beyond their credit limit.
Cardholders who pay their bills in full each month are also being targeted, as the Household International subsidiary eliminated a grace period that allowed cardholders to pay their bills five days late.
A spokesman for Household said that cardholders would be given two warnings about the new policy, but if the late payments continue, Household will charge interest from the beginning of the billing cycle.
"We had to bring our pricing up to market conditions," said the spokesman.
