It can’t be much fun to be a credit card marketer right now.
Ron Lieber writes the Your Money column, which appears in The Times on Saturdays.
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Citt's new Prestige card, one of four new credit cards the bank is introducing early next year.
The bosses are desperate for new revenue after a couple of years of writing off bad loans. President Obama signed legislation making it harder to raise interest rates and impose fees.
Meanwhile, many customers are paying down high-interest debt and have sworn off the companies’ products in favor of debit cards. Oh, and they mostly hate that card companies cut many of their credit limits in a time of need and then reduced perks on some cards as if to rub salt in their wounds.
So now a couple of companies want to throw you a small bone. American Express announced Friday that it would soon get rid of its dreaded currency conversion fees for transactions that begin outside of the United States, though only for people who have its Platinum or Centurion (a k a Black) personal and small-business cards.
Two new Citigroup cards will also drop the fees. The new cards are part of an overhaul of much of Citigroup’s credit card operations. The company will discontinue a number of cards, including its PremierPass, Diamond Preferred Rewards, Simplicity Rewards, Home Rebate and Driver’s Edge Options cards. (The popular cards that earn American Airlines miles are not part of the changes.)
Starting early next year, Citi will replace these cards with one of four cards: ThankYou, ThankYou Preferred, Premier and Prestige.
As part of the overhaul, Citi will take away some perks that many cardholders like and add others that weren’t there before. Many new customers will be paying strikingly higher annual fees than they may have paid for Citi’s discontinued cards (though at least for the moment, current customers won’t be affected).
Citi isn’t the only company making changes to its card lineup; most other issuers have been experimenting with new fees and rules for at least a year in an attempt to test the limits of the new card legislation and stop the bleeding in their card businesses.
What’s unusual with Citi is that it’s doing so much at once. The fact that Citi is getting rid of the card formerly known as Simplicity Rewards is telling. The blizzard of all of Citi’s additions and subtractions defies tidy analysis, which is probably just the way the company likes it. It’s a pretty safe bet, however, that Citi wouldn’t be making these moves unless its spreadsheets predicted big gains in revenue and profit.
That doesn’t mean that current Citi customers will all be losers. It does, however, mean that people with one of the discontinued Citi cards need to think about what sort of plastic they want to be carrying. And anyone else shopping for a new card ought to take a look as well, if only to kick the tires on the first of the 2011 card models.
Some of you may be wondering what all this fuss is about. Cash still works in most places, after all. And debit cards can help you track your spending and keep you from charging more than you have in your account.
Millions of affluent people are hooked on credit card rewards, however, for better or for worse. Chase has already overhauled aspects of its card operation to better pursue those individuals.
So Citi is a bit late to the game here. Then again, some of its new effort is built on a unique change it made in 2004.
That was when Citi introduced PremierPass cards. Users earned one point in Citi’s proprietary ThankYou program for every dollar they spent. Then, they redeemed those points for merchandise or free plane tickets on multiple airlines.
The twist was this: When you bought a plane ticket for yourself or others with the cards, you also earned separate “flight” points for every mile that you or they flew. Those points could add up quickly. So Citi wouldn’t let people redeem the flight points until they had an equal number of “purchase points,” which were all the ThankYou points people earned for every card purchases.
Because many people racked up flight points faster than purchase points, the not-yet-redeemable flight points turned into an anchor that kept many cardholders paying annual fees year after year.
For some affluent customers, this was such a bonanza that Citi had to repeatedly tweak the redemption rules for plane tickets in its ThankYou program. These changes served to keep the points from being so valuable that the program would become unsustainable. Today, you get a penny per point to spend on airline tickets when you redeem a ThankYou point.
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