The U.S. Market for Rewards Cards, 2nd Edition

The U.S. Market for Rewards Cards, 2nd Edition

Interesting times are ahead for the payments industry in general and for the rewards credit card industry specifically. Aside from the macro-economic issues walloping consumers, merchants and the payments industry, rewards credit card issuers have specific challenges ahead of them, including the merchant interchange rate feud, alternative payment networks and systems, card-holder retention in a mature rewards market, and increasing consumer concerns about their finances.

Those challenges aside, the U.S. market for credit cards saw robust growth during the 2003-2007 period. Purchase volume of the four main general-purpose credit card brands (Visa, MasterCard, American Express, and Discover) grew at a compound annual growth rate of 10% to top $1.9 trillion in 2007 accounting for 14% of total U.S. GDP. Driving this growth was the increased penetration of rewards programs, which Packaged Facts estimates accounted for 80% of all general-purpose credit cards issued in the United States.

Growth in rewards-based cards has been substantial for several years as issuers attract new customers with ever more flexible programs and promises of greater rewards benefits. Growth is expected to continue and rewards programs are expected to be a mandatory part of any credit card business. But, the economic and financial crisis of 2007/2008 may have a significant effect on the overall industry’s ability to grow as credit tightens and charge-off rates increase. The question is can rewards programs continue to attract new customers or will retention be the name of the game as issuers fight for share of the wallet?

This Packaged Facts report contains data and analysis on the general-purpose credit card industry in the United States with a focus on rewards-based programs and cards. The report presents the size and growth of the market and several related key metrics within the broader credit card arena, as well as trends and factors affecting the industry. In addition, the following major key competitors are profiled: American Express, Discover Financial Services, MasterCard Worldwide, Visa, Inc., Bank of America, Capital One Financial, Citigroup, JPMorgan Chase, Washington Mutual, Inc., Wells Fargo & Company, and Revolution Money.

The report also provides a focused analysis of consumer demographics and preferences of co-branded credit cards.  
 

Chapter 1: Executive Summary

Scope and Methodology

Report Scope

Report Methodology

Market Size & Growth

Consumer Revolving Credit Hits Trillion on Moderate Growth

Higher Charge Off Rates May Signal New Recessionary Period

Figure 1-1: Total Consumer Credit by Category: Revolving and Non-Revolving, 1978-May 2008 (in billions)

Credit Card Market Overview

Credit Card Growth Robust at 10% CAGR

New Cards Increase…And Dormant Cards Awake

Growth in Other Ways as Well

Table 1-1: U.S. General Purpose Credit Card Market, by Purchase Volume, Transaction Volume, Cards Issued, Accounts, Average Cards per Account, and Average Value per Transaction, 2003-2007 (in millions of dollars, except average values)

Purchase Volume Captures 14% of GDP

Visa Takes the Lion Share at 42%

Transaction Volume Continues Steady Increase

Visa Tops Transaction Volume Share, Followed By Amex

Comfort Zones May Be Challenged

Rewards Credit Card Market

Rewards-Based Credit Cards Up 15%

Figure 1-2: Total U.S. Rewards-Based Credit Cards Issued and Share of Total General Purpose Credit Cards, 2003-2007 (in millions) Recent Growth from New Cards and Conversions Points Cards Still Trumping Cash Back Cards

Market Forecast

Rewards Cards to Account for 93% of Credit Card Market

Figure 1-3: Total General Purpose Credit Cards, General Purpose Rewards-Based Credit Cards and Share of Total Credit Cards Forecast, 2007-2012

Credit Card Industry in Flux

The Associations and Issuers

Figure 1-4: Share of Total General Purpose Credit Card Purchase Volume in the U.S., 2007 (percent)

Issuing Banks

Figure 1-5: Top Credit Card Issuers by End-of-Year Domestic Outstandings, 2007 (percent)

Trends: Challenges and Opportunities

Key Payments Industry Drivers: Security, Online, Rates & Rewards .14

Americans Get Over-Extended and Re-Trench

Consumers Making More Practical Purchases, Decrease Spending

Transparency Necessary In Stressful Economic Environment

Consumers Confused, Need Help Navigating

Build Loyalty Through Information Clarity

ID Theft Takes Money and Precious Time

Rewards Programs Must Diversify into More Alternative Payments

Mobile for the Future

Debit Cards Transactions Already Exceeding Credit

Continued Move From Cash/Check to Credit/Electronic

Table 1-2: Total Business-to-Consumer Payments, by Medium, 2003-2007 (in billions of dollars)

Are Interchange Fees Essentially a Tax on the American Consumer?

Rewards Product Trends and Strategies

Values Increasingly Important to Consumers

The Rewards of Being Green

Are High Fee Airline Rewards Still Meaningful?

Still Room for High Brow Rewards

A Movement Toward Holistic, Simplified Programs

Personalization, Control, Choice and Flexibility

Innovation Spurred By Bad Economy

Cash Back Comeback?

Shelling Out the Gas Rewards

Marketing Dynamics

A Swing Back to Retention After Years As Acquisition Tool?

Credit Card Ad Spend at $1.9 Billion For 2007

TV Spend Down

Targeting Through Unique Touchpoints

Overall Credit Card Direct Mail Offers Decline in 2008

Table 1-3: Synovate’s Mail Monitor Direct Mail Volume Losses and Gains, 2008 vs. 2007

Reward Direct Mail Promotions Up, Response Slightly Down in 2007

Evolving Media Consumption Opens Up Opportunities

Behavioral Targeting Opportunities

Co-Branded Credit Card Usage

Approximately 67% of Adults Have/Use Credit Cards

Stagnant Growth in Co-branded Cards Since 2004

Table 1-4: Consumer Ownership and Use of Co-Branded Credit Cards, by Type, 2004 vs. 2008

Co-Branded Card Users Profile Brand Comparison

Table 1-5: Comparison of Demographic Characteristics Favoring Ownership and Use of Specific Co-Branded Cards, 2008 (index)

Financial Security Important to Co-Branded Credit Card Users

Amex Versus Discover: Extremes of Financial Awareness

Chapter 2: The Rewards Cards Market

Scope and Methodology

Report Scope

Report Methodology

Market Size & Growth

Consumer Revolving Credit Hits Trillion

Figure 2-1: Share of Consumer Non-Revolving Credit versus Revolving Credit, 1978-2008 (%)

Growth Tame Compared to Historical

By 2007 Issuers Reported Higher Charge Off Rates

Recessionary Periods Effect on Credit Card Growth

Figure 2-2: Total Consumer Credit by Category: Revolving and Non-Revolving, 1978-May 2008, (in billions of dollars)

Credit Card Market Overview

Credit Card Growth Robust at 10% CAGR

New Cards Increase…And Dormant Cards Awake

Growth in Other Ways as Well

Table 2-1: U.S. General Purpose Credit Card Market, by Purchase Volume, Transaction Volume, Cards Issued, Accounts, Average Cards per Account, and Average Value per Transaction, 2003-2007 (in millions of dollars, except average values)

Purchase Volume Captures 14% of GDP

Figure 2-3: Total General Purpose Credit Card Purchase Volume and Percent of U.S. Gross Domestic Product (GDP), 2002-2007 (in trillions of dollars)

Visa Takes the Lion Share at 42%

Figure 2-4: Share of Total General Purpose Credit Card Purchase Volume in the U.S., 2007 (percent)

Transaction Volume Continues Steady Increase

Figure 2-5: Total General Purpose Credit Card Transaction Volume and Average Annual Transactions per Card, 2002-2007 (in billions)

Visa Tops Transaction Volume Share, Followed By Amex

Figure 2-6: Share of Total General Purpose Credit Card Transaction Volume, 2007 (percent)

High Consumer Penetration Means Slow Growth in Cards Issued and Accounts

Figure 2-7: Total General Purpose Credit Card Accounts, Cards Issued and Average Number of Cards per Account, 2003-2007 (in millions)

Visa and MasterCard Do Interesting Flip Flop in Shares of Accounts 46

Figure 2-8: Share of Total General Purpose Credit Cards Issued, 2007 (percent)

Figure 2-9: Share of Total General Purpose Credit Card Accounts, 2007 (percent)

Comfort Zones May Be Challenged

Figure 2-10: Total General Purpose Credit Cards Issued in the United States, 2003-2007 (in millions)

Rewards Credit Card Market

Rewards-Based Credit Cards Up 15%

Figure 2-11: Total U.S. Rewards-Based Credit Cards Issued and Share of Total General Purpose Credit Cards, 2003-2007 (in millions)

Recent Growth from New Cards and Conversions

Non-Rewards Cards Down But Not Yet Out

Points Cards Still Trumping Cash Back Cards

Market Forecast

Rewards Cards to Account for 93% o f Credit Card Market

Figure 2-12: Total General Purpose Credit Cards, General Purpose Rewards-Based Credit Cards and Share of Total Credit Cards Forecast, 2007-2012

Chapter 3: Corporate Profiles

A Note on Metrics

Credit Card Industry in Flux

Franchise Associations

Issuer Hybrids

Figure 3-1: Share of Total General Purpose Credit Card Purchase Volume in the U.S., 2007 (percent)

Issuing Banks

Figure 3-2: Top Credit Card Issuers by End-of-Year Domestic Outstandings, 2007 (percent)

American Express

Overview

History

1980s Turbulence

1990s: A Time for Reinvention

Competition Heats Up

AmEx Suit a Game Changer

Performance: U.S. Revenue up 17%

Figure 3-3: Total American Express U.S. Revenue, 2003-2007 (in billions of dollars)

Purchase Volume Increases 13% in 2007

Table 3-1: Key U.S. Metrics for American Express, 2003-2007

Recent Rewards Products

American Express Delta Reserve Rewards for the Whole Family

American Express Expands Rewards to Mortgages

Significant Events

Former AmEx Division Free to Compete

Law Suit Funds to Bolster Rewards Programs

AmEx Tops Among J.D. Power Survey

Discover Financial Services

Overview

Diner’s Club Now at Discover

History

Discover Spin-Off

Performance: Discover Struggles to Grow Business

Figure 3-4: Total Discover Financial Revenue, 2003-2007 (in billions of dollars)

Purchase, Transaction Volumes Up Modestly; Fewer Cards Issued

Table 3-2: Key U.S. Metrics for Discover, 2003-2007

Recent Rewards Products

Discover Doubles Patriotism

Discover Motiva Receives Praise

Significant Events

Discover Ranks No. 1 in Customer Loyalty

Discover Offers Credit Monitoring to Cardmembers

MasterCard Worldwide

Overview

History

MasterCard’s IPO

Was the IPO a Rouse to Protect Member Banks?

Collusion to Fix Fees Remains Key to Lawsuits

Essentially Shifting the Lawsuit Risk from Member Banks to Shareholders

Performance: Revenue up 22% over 2006

Figure 3-5: Total MasterCard Revenue, 2003-2007 (in billions of dollars)

Growth from More Customers and Increased Usage

Table 3-3: Key U.S. Metrics for MasterCard, 2003-2007

Current Rewards Products

Elite Rewards for the Affluent

Ameriprise Shuns AmEx in Favor of MasterCard

Barclays & Lufthansa Fly with MasterCard

Significant Events

MasterCard Settles AmEx Suit for $1.8 Billion

MasterCard Mobilizes with Obopay

Visa, Inc.

Overview

History

Reorganization and Initial Public Offering

Performance: Visa Revenue Reaches $3.6 Billion

Figure 3-6: Total Visa Inc Revenue, 2003-2007 (in billions of dollars)

Visa Grows Steadily

Table 3-4: Key U.S. Metrics for Visa, 2002-2006

Recent Rewards Products

Visa Reaps Rewards from Barclays and L.L. Bean

This Bud—and Three Points—for You

Visa Teams up with uTango

Significant Events

Visa Implements New Fraud Protection Program

Visa Restructures Service Station Interchange Fees

Bank of America

Overview

BofA a Behemoth

Too Big?

Branching out

Leading in Community Development

Performance: Card Revenue Softens

Figure 3-7: Total Bank of America Card Revenue, 2003-2007 (in billions of dollars)

Figure 3-8: Total Bank of America U.S. Credit Card Outstandings, Managed Basis, 2003-2007 (in billions of dollars)

Recent Rewards Product

Olympic Rewards

Unique Rewards Between BofA and AmEx

Significant Events

BofA Ranked the Safest

Active Card Control Innovation

Capital One Financial

Overview

Performance: Credit Card Revenue up 11% in 2007

Figure 3-9: Total Capital One Financial Card Revenue, 2003-2007 (in billions of dollars)

Figure 3-10: Total Capital One Financial Credit Card Outstandings, Managed Basis, 2003-2007 (in billions of dollars)

Recent Rewards Product

Capital One and Orbitz Offer Triple Points

Significant Events

Capital One teams up for Financial Education

Capital One Personalization Offers Differentiation

Citigroup

Overview

Under the Umbrella

Significant Card Portfolio Acquisitions

Performance: Card Revenue Declines 1%; Outstandings up 5%

Figure 3-11: Total Citigroup U.S. Card Revenue, 2003-2007 (in billions of dollars)

Figure 3-12: Total Citigroup U.S. Credit Card Outstandings, Managed Basis, 2003-2007 (in billions of dollars)

Recent Rewards Product

Citi Expands Diamond Preferred

Significant Events

Citi Embraces Mobile Access

Citi Backs Alternative Payments Company

JPMorgan Chase

Overview

Performance: Card Business Growth Moderate

Figure 3-13: Total JPMorgan Chase U.S. Card Revenue, 2003-2007 (in billions of dollars)

Figure 3-14: Total JPMorgan Chase U.S. Credit Card Outstandings, Managed Basis, 2003-2007 (in billions of dollars)

Recent Rewards Product

Chase and Continental Increase Flexible Rewards

Options for the Affluent

Chase Gets an Ace with the U.S. Tennis Association

Chase Flies the Friendly Skies

Helping to Manage Rewards

Significant Events

JPMorgan Chase Snatches up WaMu

Chase acquires Target Receivables

Washington Mutual, Inc.

Overview

Performance: Outstandings up 15%

Figure 3-15: Total Washington Mutual Card Revenue, 2006-2007 (in billions of dollars)

Figure 3-16: Total Washington Mutual Credit Card Outstandings, Managed Basis, 2003-2007 (in billions of dollars)

Recent Rewards Product

Fox Rewards

Significant Events

WaMu Saves Trees

Wells Fargo & Company

Overview

Performance: Outstandings up an Astounding 22%

Figure 3-17: Total Wells Fargo U.S. Card Revenue, 2003-2007 (in billions of dollars)

Figure 3-18: Total Wells Fargo Credit Card Outstandings, Managed Basis, 2003-2007 (in billions of dollars)

Recent Rewards Product

Wells Fargo Helps Customers Go Solar

Pushing Online Banking, Paperless Statements

Eco-Friendly Rewards

Revolution Money

Overview

Chapter 4: Trends: Challenges and Opportunities

Consumers, Wall Street and Main Street in For a Wild Ride

Key Payments Industry Drivers: Security, Online, Rates & Rewards

Rewards Has the Power of Positivity

Transparency Necessary In Stressful Economic Environment

Economic Crisis Peaks

Americans Get Over-Extended

Consumers to Re-Trench

Figure 4-1: Financial Obligations Ratio (FOR) and Charge-off and Delinquency Rates for Loans and Leases at Commercial Banks, 1985-2008 (percent)

Hints of What’s to Come

Consumer Credit Hangover: Personal Savings Rate Near Zero

Consumers Making More Practical Purchases

Table 4-1: Percentage of Adults Who Are More Practical or Realistic in Their Purchases, Month-Over-Month, October 2007-April 2008 (U.S. adults)

Consumers to Decrease Spending

Table 4-2: Percentage of Adults Who Are Planning to Decrease Spending, Month Over Month, October 2007-April 2008 (U.S. adults)

The Splurge Factor

Consumers More Aware of Credit Pitfalls

Three Percent of Consumers Participate in 10+ Programs

There is Still A Learning Curve For Issuers Too

Consumers Confused, Need Help Navigating

40% of Consumers Call For Clarity in Terms

Card Issuer Sites New Improvement

Consumer-Friendly Comparison Sites Pick Up Slack

Table 4-3: Selected Comparison Sites, 2008

Build Loyalty Through Information Clarity

Four Percent Of American ID Theft Victims

ID Theft Takes Money and Precious Time

Identity Theft Will Require Ongoing Education

Rewards Programs Must Diversify into More Alternative Payments

By 2012 24% of Online Spend Via Alternative Payments

Contactless and Mobile for the Future

230 Million American Cell Phones Waiting To Become Credit Cards

77% of Cell Phone Users Have Yet to Make a Purchase

Future For Targeted Marketing Opportunities Exciting

Debit Cards Transactions Already Exceeding Credit

14 Percentage Point Increase in Debit Use since 2006

Debit Increasingly Preferred For Purchase Across Categories

Gasoline Purchases See Equal Credit/Debit Use

Table 4-4: Payment Options Used, by Type of Purchase: September 2003, 2005, and 2007 (percent)

Figure 4-2: Payment Options Used, by Type of Purchase, September 2007 (percent)

Continued Move From Cash/Check to Credit/Electronic

Table 4-5: Total Business-to-Consumer Payments, by Medium, 2000-2007 (in billions of dollars)

Paper Share Drops From 54% in 2003 to 39% in 2007

Figure 4-3: Estimated Share of U.S. Personal Consumption, by Major

Payment Medium, 2003-2007 (percent)

Interchange Fee Suits

Ramifications of Antitrust Suit

Effect on Rewards Cards

Consumers Moving Away From Fee-Based Cards

Are Interchange Fees Essentially a Tax on the American Consumer?

Regulation on the Horizon?

Small Ticket Purchase Driving Higher Rates

Chapter 5: Rewards Product Trends and Strategies

Values Increasingly Important to Consumers

The Soul of a Card: Enlightenment Visa Reward Card

The Rewards of Being Green

Most Major Issuers Play In the Green Grass

Some Consumers Skeptical of Greenwashing

But Is It Just Ethical Lip Service?

Are High Fee Airline Rewards Still Meaningful?

The Airline Shakeout

Consumers May Check Out Completely

Single Relationships and High Loyalty Flyers Will Persevere, For Now

Still Room for High Brow Rewards

Citi Goes VIP

World Elite MasterCard and Virtuoso Travel Network

Luxury Is Not Lost

Out of This World Rewards

A Movement Toward Holistic, Simplified Programs

Chase and Joint Rewards

Is the Future in Card Collectives?

MasterCard’s Relationship Rewards Multi-Account Technology

Personalization, Control, Choice and Flexibility

MasterCard’s Name Your Own Reward

Technology Makes It Possible: Chase Freedom

Consumers Make Decision: Capital One Card Lab

Merchant Specific Alternatives

Entertaining Business Builders

Innovation Spurred By Bad Economy

Cash Back Comeback?

Impersonal Nature of Cashback Is a Challenge

Supermarket Cash Back Rewards Cards

Shelling Out the Gas Rewards

Chapter 6: Marketing Dynamics

A Swing Back to Retention After Years As Acquisition Tool?

Credit Card Ad Spend at $1.9 Billion For 2007

Credit Card Ad Spend Down in TV, Up in New Media

Overall Credit Card Direct Mail Offers Decline in 2008

Table 6-1: Synovate’s Mail Monitor Direct Mail Volume Losses and Gains, 2008 vs. 2007

Reward Direct Mail Promotions Up, Response Slightly Down in 2007

Beware the Do-Not-Mail Movement

Evolving Media Consumption Opens Up Opportunities

World of Warcraft & Visa Reward The Entertainment Driven Consumer

Free Entertainment a Motivator in Poor Economy

20th Century Fox & WaMu Team Up

Technology Changing Credit Card Outreach

Behavioral Targeting Seeing Little Use

Targeted End-User Marketing In Debate

Word-of-Mouth: Added-Value for Marketers and Consumers

WOM a Real Business

Proof in the Numbers

Viral Card Design Contest Shows Power of WOM

Chapter 7: Co-Branded Credit Card Usage

Note on Simmons Market Research Bureau Data

Data Presented for Co-Branded Cards

Approximately 67% of Adults Have/Use Credit Cards

Stagnant Growth in Co-branded Cards Since 2004

Other Sources Show Greater Short-term Shift in Credit Cards Overall

Table 7-1: Consumer Ownership and Use of Co-Branded Credit Cards, by Type, 2004 vs. 2008

Demographic Profile: Visa vs. Co-Branded Visa Credit Card Holders

Table 7-2: Demographic Characteristics Favoring Ownership and Use of Co-Branded Visa Cards, 2008 (index)

Demographic Profile: MasterCard vs. Co-Branded MasterCard Credit Card Holders

Table 7-3: Demographic Characteristics Favoring Ownership and Use of Co-Branded MasterCard Cards, 2008 (index)

Demographic Profile: Discover vs. Co-Branded Discover Credit Card Holders

Table 7-4: Demographic Characteristics Favoring Ownership and Use of Co-Branded Discover Cards, 2008 (index)

Demographic Profile: American Express vs. Co-Branded American

Express Credit Card Holders

Table 7-5: Demographic Characteristics Favoring Ownership and Use of Co-Branded American Express Club Cards, 2008 (index)

Co-Branded Card Users Profile Brand Comparison

Table 7-6: Comparison of Demographic Characteristics Favoring Ownership and Use of Specific Co-Branded Cards, 2008 (index)

Demographic Profile: Co-Branded Airline/Hotel Card Users

Table 7-6: Demographic Characteristics Favoring Ownership and Use of Co-Branded Airline/Hotel Cards, 2008 (index)

Demographic Profile: Co-Branded Airline/Hotel Cards By Brand

Table 7-7: Demographic Characteristics Favoring Ownership and Use of Co-Branded Airline/Hotel Cards by Card Brand, 2008 (index)

Demographic Profile: Co-Branded

Affiliations/Associations/Organizations Users

Table 7-8: Demographic Characteristics Favoring Ownership and Use of Co-Branded Affiliations/Associations/Organizations Cards, 2008 (index)

Demographic Profile: Co-Branded Affiliations/Associations By Brand

Table 7-9: Demographic Characteristics Favoring Ownership and Use of

Co-Branded Affiliate/Organization/Association Cards by Card Brand, 2008 (index)

Demographic Profile: Co-Branded Auto Card Users

Table 7-10: Demographic Characteristics Favoring Ownership and Use of

Co-Branded Auto Cards, 2008 (index)

Demographic Profile: Co-Branded Auto By Brand

Table 7-11: Demographic Characteristics Favoring Ownership and Use of

Co-Branded Auto Cards by Card Brand, 2008 (index)

Financial Attitudes of Co-Branded Credit Card Users

Financial Security Important to Co-Branded Credit Card Users

Amex Versus Discover: Extremes of Financial Awareness

Table 7-12: Statements Indicating Interest in Financial Security, 2008 (index)

Amex Holders Do Their Research

MasterCard Users Are Amateur Advisors

Table 7-13: Statements Indicating Level of Financial Capability, 2008 (index)

Appendix