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This story appears in the December 2008 issue of Cards&Payments.
Mailings of card solicitations have dropped sharply as card issuers curtail the overall number of offers they send to prospective customers, especially in geographic areas hit hardest by housing-price declines. Many issuers hoping to minimize further exposure to charge-off losses also are mailing out notifications of reduced credit lines to some riskier cardholders and are closing inactive accounts.
Citibank this fall is notifying holders of inactive Citi Diamond Preferred Rewards MasterCards that their accounts would be shut down within about 30 days unless they begin using their cards. Using this strategy, Citi can politely excuse unprofitable cardholders while potentially reducing the amount of funds it has to set aside in loan-loss reserves for each account, says Scott Strumello, an associate with U.S.-based Auriemma Consulting Group.
"It's a good way to lower the risk profile without being too abrupt and angering customers," he says.
Overall credit card solicitations have continued a downward trend this year, according to U.S.-based Synovate's Mail Monitor, which tracks credit card direct-marketing trends.
Credit card direct-mail volume declined during the second quarter ended June 30 to its lowest level since the fourth quarter of 2003, according to Mail Monitor. U.S. households received 1.06 billion credit card offers during the quarter, down 17% from 1.27 billion during the same period last year.
"The economic crisis and credit meltdown is accelerating a downward trend in card-solicitation mailings," says Andrew Davidson, Mail Monitor vice president of competitive tracking services. Total credit card solicitations may be about 4.25 billion for the year, down about 1 billion from 5.25 billion mailed last year, he predicts.
JPMorgan Chase & Co.'s absorption of Washington Mutual Inc. likely will dent mailings further. "WaMu was a big player in terms of mailing credit card solicitations, and while Chase may mail to a larger audience, the overall effect will be fewer mailings altogether," Davidson says.
Executives at top card issuers told analysts at the end of September that they will continue to market cards to new customers, but more cautiously.
James Dimon, Chase chairman and CEO, told analysts at the end of the third quarter that the company continues to solicit new customers, even in economically troubled regions. "We're not pulling out of California. We're still going there, we're still marketing," he said, noting Chase would scrutinize prospects more carefully.
Capital One Financial Corp. also continues to focus its marketing and originations on the parts of the U.S. card market it believes provide the best combination of risk-adjusted returns and losses through the cycle, Gary L. Perlin, Cap One chief financial officer, told analysts during a third-quarter conference call. "We've closed down inactive accounts, and we're implementing targeted line reductions," he said.
Phoenix Marketing Inc., a U.S.-based market-research company, says card issuers' marketing budgets are tighter, but they still are spending money strategically, especially to make sure their solicitations will get results.
"Issuers are testing offers more rigorously before they launch them," says Lee Holm, executive vice president of Phoenix's financial services division. "Issuers are trying to be more effective through marketing, and (testing offers) first is increasingly important." CP
