With the worst of the economic contraction hopefully behind us, banks are looking for new ways to generate revenue. Recent legislation has hampered the way financial institutions operate and bad publicity about new fees has stung many banks. Now, banks are considering the best way to promote credit cards to improve profitability.
The current Survey of Credit Underwriting Practices indicates that banks are continuing to loosen their credit card requirements. During the recession, many banks took heavy losses to write off debt. With that experience fresh in their memory, banking officials are using their ad budgets to reach high-income consumers who pose low credit card risk. The category of premium credit cards is proving especially lucrative.
Banks have an incentive to sign up consumers for these accounts because they can legally use the cash float to cover reserves. This practice works especially well once the banks determine which account holders are likely to pay off their balances in 60 and 90-day periods. And banks have discovered that consumers who use these high-end credit cards exhibit predictable cash flow patterns, often related to travel or business expenses. The premium cards are also profitable for banks because they charge a high annual fee for the service.
Savvy banks are using ad campaigns to turn the drawbacks of these credit cards into benefits. Two leading problems of high-limit premium credit cards are the temptation to spend more money and fraudulent charges. Banks which roll out alert programs can position themselves as helping consumers manage their money. These alert programs can be marketed as services which will likely increase customer loyalty.[Source: Arnold, Curtis. Premium Credit Cards: Golden Goose. Foxbusiness.com. 9 Nov. 2011. Web. 21 Nov. 2011]