The latest evaluation of the secured credit card informs the banking industry that this product has not reached its fullest potential.

According to RAM Research Corp.'s 1994 secured card survey, the secured credit card market is growing rapidly, but there is plenty of room for more players.

Currently, about 925,000 consumers own secured cards. While RAM Research estimates the industry could attract between five and 10 million secured cardholders, MasterCard International maintains the potential for growth is more than double the researcher's estimate.

Gaining Attention

Despite the different projections, the message is clear: secured cards represent an opportunity for growth.

Meanwhile, an increasing number of credit card issuers are slowly recognizing this fact.

In 1992, 35 institutions offered secured cards, compared with 120 in 1993 and 414 this year, RAM's survey revealed. While most of the increase is due to credit unions jumping into the market, the number of large national bank programs also has increased significantly over the past several years.

Joining Citicorp, Signet Banking Corp., and Chase Manhattan Bank this year were two San Francisco issuers, Bank of America and Wells Fargo & Co.

With the entry of the large banks, secured cards have become less expensive for consumers. Robert B. McKinley, president of RAM Research of Frederick, Md., said as secured card fees and interest rates decrease, one of the industry's greatest challenges is to keep such accounts profitable.

"The profit lies in the long-term payoff, when these accounts become unsecured," he said.

Application and processing fees, once associated with secured cards have nearly disappeared. Five years ago consumers typically paid $25 to $100 in such fees, according to the survey.

Also, interest rates and annual fees are higher on secured products versus their unsecured counterparts. For example, Key Federal Savings Bank charges its customers 18.9% for a secured card and 16.9% for unsecured credit.

Today, interest rates on secured cards range between 8% and 21% "and Citibank actually charges the same rate on its secured and unsecured products," said Mr. McKinley.

Still, most issuers charge higher interest rates on their secured cards, because a secured card portfolio is more labor intensive, requiring beefed up customer service.

Issuers say the higher price is justified since they are absorbing a greater risk in giving credit to people who have either blemished credit records or no record at all. Payment checks that bounce, according to the survey, can place the account as much as 200% over the credit limit, which is determined by the size of the deposit.

Requirements Smaller

Nevertheless, Mr. McKinley points out that many issuers are requiring a much smaller deposit to secure the line of credit today than the average deposit of $500 five years ago.

"Over the past year, more banks have allowed people to get a card for as little as $100," he added.

The increased competition from the larger banks also has jacked-up the savings rate on the deposit, with some as high as 5%.

As secured cards become a better deal for consumers, the industry enjoys increased spending and unpaid balances on the cards. In 1988, consumers spent $79.8 million with their secured cards and borrowed $45.5 million. Today spending has increased to $605 million and overall debt has increased to $359.5 million, according to the survey.

Ultimately, the legislative climate could drive the product, suggested Mr. McKinley. As a battle over issuing credit cards to students brews on Capitol Hill, with Rep. Joseph P. Kennedy 2d holding hearings on the issue, Mr. McKinley said offering secured credit cards to students could "mute any criticism the government has" of how the industry markets credit. Students are given credit, Rep. Kennedy argues, without providing proof of income and ability to pay bills and without a credit record.

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