Two Credit Card Trends: Rewards Gain Traction, Sellers Reenter Biz

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BIRMINGHAM, Ala.-Credit card rewards are ramping up, with some financials making the move at the expense of debit rewards while others simply seek ways to boost lending as the economy recovers.

At the same time, many CUs that have sold their card portfolios are now looking to reenter the business.

That's how analysts who spoke with Credit Union Journal summed up trends in both rewards programs and the overall card market. They are emphasizing that credit unions may have to sweeten credit card rewards to compete as the competition heats up.

According to Bill Hardekopf, CEO of LowCards.com, card issuers want to push consumers to credit rewards to make more money in the face of looming debit interchange cuts.

"Rewards are being increased on credit cards at the same time debit rewards are being taken down," said Hardekopf. "I don't sit in the board rooms of banks, but I am sure this is because it will be much more profitable for banks if we, as consumers, use our credit cards."

Hardekopf stated that 2011 is one of the "hottest times" for credit card rewards he has seen in over 10 years. "Part of that is from debit, and part of it is due to the fact that (credit card business) has been fairly dry due to the downturn."

Credit card rewards are focused on consumers with excellent to good credit, stressed Hardekopf. "This is where the competition is taking place. Card issuers are going after the type of consumers who will cut their financial risk. This is coming after the economy has punched them in the gut and is now apparently starting to come back. So issuers are feeling better about their situation and are putting all their chips all in, if you will."

Hardekopf pointed out some "fantastic" deals are being promoted by large issuers, such as Chase rebating $150 once a consumer reaches a certain purchase level within a three-month period. "British Airways has a credit card that gives you up to 100,000 miles; pretty significant stuff."

The St. Petersburg, Fla.-based PSCU Financial Services has had five of its clients pull debit rewards, according to EVP Chuck Fagan. "But these are credit unions that already had credit card programs, so I don't know if I can say there has been a shift in emphasis."

What Fagan is certain about, is many credit unions that sold their credit card portfolios in the last five years are getting back into the credit card business. "They are all starting back with rewards, indicating that they know they have to be competitive to grow this book of business."

The Appeal of the Yield

Like Fagan, Jennifer Kerry, VP of credit card services for Co-Op Financial Services in Rancho Cucamonga, Calif., is seeing some credit unions exiting debit rewards. "But I don't see that as a sign of a shift to credit rewards. Where the shift is happening is from credit unions that sold their credit card portfolios coming back because credit cards are a high-yielding loan product. And they are coming back with rewards."

Jeff Russell, EVP of The Members Group, Des Moines, Iowa, observed that many credit unions are waiting until the debit interchange rules are finalized before committing. "Those that have debit rewards are building plans to react to what happens. Those that do not have debit rewards are not introducing debit rewards."

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