In a new twist on credit card rewards, TD Bank is going after cardholders who carry balances and make on-time payments. At the other end of the spectrum, Capital One Financial Corp. also has a new card rewarding students for making on-time payments, as long as they stay within strict credit limits.
Both products are part of a growing array of credit cards rewarding consumers for more-responsible financial behavior following the financial crisis. But they are also an indication of how issuers are trying to woo back potentially credit-wary customers with strategies crafted to hedge risk on both sides.
With new rewards programs that reward specific behaviors, “banks are trying to figure out how to expand their universe of customers” in an intensely competitive market, Judy Cohen, vice president at EMI Strategic Marketing, tells PaymentsSource.
“Banks don’t want to abandon students or near-prime (credit-score) customers,” so they are crafting products that reward people for making the right moves, including paying bills on time and also paying specific percentages of outstanding balances, she says.
Cherry Hill, N.J.-based TD Bank Group designed the TD Payment Plus Visa credit card specifically for customers who carry balances from month to month. It enables customers who pay at least 10% of their outstanding balance to receive 50% off that month’s interest rate-based finance charge. The credit appears on the following month’s statement, as long as the payment is received on time.
Cardholders also may opt to receive 25% off the finance charge for any month when they pay 5% to 9.99% of their balance on time.
The card, which carries no annual fee, offers no rewards for routine purchases. Its annual percentage interest rate is 21.24%, which is somewhat higher than many cards. The average rate for new card offers in mid-February was 14.73%, according to CreditCards.com’s weekly national survey.
Payment Plus cardholders paying 10% on a $1,500 balance on time each month will receive a total credit of $65 over six months, TD Bank figures.
The Payment Plus card is the first of its kind on the market and has received “substantial interest from consumers” since its Feb. 1 introduction, according to a bank spokesperson. TD Bank is marketing the card online and via direct-mail offers with a promotion to receive 0% interest for the first six months on balances transferred from other cards.
But at least one analyst says he is skeptical about the type of customers the program might attract.
“The best credit card customers will not be tempted by this offer,” Brian Riley, senior research director with TowerGroup, tells PaymentsSource. “There are better APRs out there that also offer rewards on purchases, so this card will naturally attract a higher-risk customer that can’t qualify for the lowest APR. By definition, customers for this card will be riskier in an issuer’s portfolio.”
TD Bank counters that its card is not targeting “credit-challenged” customers as much as it is looking to provide fresh incentives for responsible cardholders who carry a balance.
“We’re in a very competitive market, and we want to attract customers who carry a balance and realize they have a choice about what card to use,” Michael Copley, TD Bank executive vice president, tells PaymentsSource. “This is all about financial fitness.”
Larchmont, N.Y.-based Paymentflex Technologies Inc. devised the software program enabling TD Bank to calculate cardholders’ rewards based on the percentage of their balance they pay off each month.
Also in the spirit of encouraging responsible financial moves, Cap One on Feb. 17 unveiled a college student-targeted card that provides extra rewards when cardholders make on-time payments.
A “credit card with training wheels,” the Journey Student Rewards Visa card carries no annual fee and is designed for “students with limited or average credit,” Cap One says in a press release.
The card provides 1% cash back on all purchases and an additional 25% of the total cash-back reward each month cardholders pay their bill on time. The card includes an array of tools to help students manage their spending and payments with free texts and e-mail alerts.
A website promoting Journey offers information for parent and a “Credit 101” section with information for first-time credit card users.
The card offers an introductory credit limit of $300 to $500, depending on creditworthiness, with a variable APR of 19.8%, tied to the prime rate. Cardholders will be eligible for “conservative credit line increases” if they use the card responsibly, a Cap One spokesperson says, noting cardholders will not be allowed to exceed credit limits.
The new card replaces Cap One’s previous Student Rewards credit card.
Cap One and TD Bank are not the first to offer a card rewarding customers for making on-time payments.
Citigroup Inc. in May 2009 introduced the Citi Forward card, which gives customers 100 ThankYou Rewards points for each billing period in which payments are received on time and cardholders stay under their credit limit (
Discover Financial Services in 2007 introduced the Motiva Card, which gives cardholders one month’s interest back for every six consecutive on-time payments.
“These products and marketing moves align nicely with banks’ efforts to rebuild tarnished reputations with consumers after the fallout of the recession,” Campbell Edlund, president of EMI Strategic Marketing, notes. They are evidence of “the need to balance growth goals with caution; focusing on customers who are attracted to products that encourage borrowing, but demand responsibility, as well,” she says.
