US card issuers are ramping up the direct mail credit card reward offers, but this time round, most of the cards will carry annual fees.
In the third quarter, 28% of rewards card offers came with annual fees, up from 21% in the same period last year, according to market research firm Synovate, which tracks credit card mailings to households.
And just one month into the fourth quarter, 36% of rewards card offers had annual fees.
The trend comes as no surprise, and is expected to be played out in many other markets as issuers struggle to make existing card schemes profitable with relatively low interest rates and dangerously high bad debts. The reward schemes are usually targeted at the less risky.
Anuj Shahani, Synovate’s director of competitive tracking services said dthat in general, rewards cards ‹ typically reserved for those with good to excellent credit ‹ are also accounting for a greater portion of credit card offer mailings. They made up 88% of offers in the third quarter, up from 65% last year and 58% in 2007.
The shift isn’t surprising, since banks are focusing on the most creditworthy customers to limit risk in the downturn, Shahani said.
Certain types of rewards cards are more likely to have annual fees, such as those cobranded with an airline or hotel, and exclusive cards that offer richer membership rewards. The American Express Preferred Rewards Gold card, for example, costs $125 a year after the first year.
Another reason banks are pushing rewards cards is that customers tend to use them more frequently.
Annual fees aren’t typical for basic rewards cards. However, analysts have predicted fees could become more common in light of the new federal regulations limiting banks ability to hike interest rates. Citi, for instance, started testing a $30 annual fee on its Diamond Preferred card earlier this year. The fee is credited back if the customer charges a certain amount for the year.
The data from Synovate also suggests issuers are rolling out more tiered offerings, meaning richer rewards are coming at a higher price. For example, American Express introduced the Hilton Surpass card in February. For a $75 annual fee, customers get nine points for every dollar spent at participating Hilton hotels, compared to six points with the no-fee Hilton card.
Despite the growth in rewards card offerings, overall credit card mailings have been down sharply in the US in 2009.. There were 272.5 million mailings in the third quarter, down from 939.9 million mailings the same time last year and 1.29 billion in the third quarter of 2007.