Capital One Financial Corp. is moving away from a popular marketing strategy that ignited the credit card industry several years ago.
Analysts say the Falls Church, Va.-based credit card specialist will offer fewer cards with teaser rates.
Instead, Capital One is rolling out card products meant to generate more fee income.
Capital One was one of the pioneers in 1991 of teaser rates, which are used to entice cardholders to transfer their outstanding credit card debt from one card to another with a lower interest rate. The rate usually jumps after about six months.
Although Capital One hasn't stopped the balance transfer offers, it has begun to market a new series of card products, including cobranded/affinity and secured cards, and "joint account" cards designed for two cardholders, Nigel W. Morris, president and chief operating officer of Capital One, and Richard D. Fairbank, chairman and chief executive, said in the company's annual report.
Since the newer cards "tend to have lower outstanding balances than balance transfer products, we expect this marketing shift to result in slower loan growth but improved profitability on a long-term basis," the executives said in the report.
At the heart of Capital One's decision, analysts said, is the fact that teaser rates have become so widespread in the industry that consumers have learned how to use them to their advantage.
About 40% of cardholders who have transferred balances from one card to another have done so two or more times, according to a recent study by Synergistics Research Corp., Atlanta.
"In the early days, balance transfer offers were probably lucrative, but the economics aren't as good today," said Anne Moore, president of Synergistics.
Analysts said that Capital One has suffered heavier attrition losses than its competitors, "probably because they had an annual fee and lower credit limits," said Moshe A. Orenbuch, an analyst with Sanford C. Bernstein & Co.
Mr. Orenbuch said he believes that if other card issuers begin to lose customers the way Capital One has, they also will ease up on teaser rates.
"The industry has copied Capital One's success," so it makes sense that eventually it will follow this latest move, said Donald M. Berman, president of Cardholder Management Services, Plainview, N.Y.
Analysts said that Capital One started talking about its intentions last year, though industry insiders noticed that something was up at Capital One about two weeks ago, when the annual report came out. The company also hinted at its shift in strategy in its fourth quarter earnings statement.
Part of Capital One's game plan is to increase its fee income. For example, secured credit cards, which Capital One is marketing aggressively, are fee-oriented products that are priced higher than unsecured cards.
Michael J. Freudenstein, a J.P. Morgan Securities Inc. analyst, estimates Capital One will generate a 34% increase in fee income in 1997, to $536 million.
Analysts expect to see a decrease, however, in receivables growth.
During 1995, Capital One's managed loans increased 41% to $10.4 billion. Mr. Freudenstein projects growth of 10% in managed loans for this year and 16% in 1997.
"Balance transfer offers are an important product," said Diana Sun, a spokeswoman for Capital One, "but they will be just one of the many products we will offer."
The migration away from teaser rates has already begun, said Thomas P. Facciola, a Salomon Brothers Inc. analyst. He said he believes that balance transfer offers account for only 20% of Capital One's direct-mail marketing today, down from 100%.