NEW YORK (11/18/11)--Although credit card issuers--including credit unions--are wooing new accountholders aggressively by offering teaser rates and sign-up bonuses, holding on to these new member/customers will be a challenge, according to a new study.
Credit unions especially should take note in light of all the new members they attracted (and are still attracting) surrounding the events of Bank Transfer Day, the day that was earmarked to switch accounts from big banks to credit unions and local community banks. Although most of credit unions' new business is tied to new checking accounts, they will be cross selling other products, including credit cards, to those new members and will need to know the trends aimed at retaining the new members.
Common methods to attract new credit card account holders include offering 0% rates on balance transfers, or supercharged air miles and hotel points as bonuses for signing up for a new credit card, said a survey conducted by Cardbeat, a syndicated research publication of New York and London-based Auriemma Consulting Group (ACG).
Zero percent offers for balance transfers were a hallmark of the pre-recession economy, but this time the offers are different, said Auriemma in a press release (Business Wire Nov. 15). For example, the offers are mainly for the most creditworthy consumers. And issuers are trying new tactics to combat "rate surfing," said Dr. Patricia Sahm, managing director at ACG.
"Consumers told us that their primary reason for acquiring a card was the APR [annual percentage rate], and it was also the primary reason for cancelling the same card once the teaser rate expired," Sahm said. "Now we see issuers offering zero interest with very long time frames, such as over a year on new purchases as well as promo checks."
Card issuers must get the member/customer to actually use the new card--a big step, Sahm said. In a recent Cardbeat survey, 40% of respondents who had cancelled a card during the previous six months said they never or rarely used the card.
Teaser rates appeal mostly to people who usually carry balances. However, consumers who pay their monthly balance in full like the airline and hotel bonus offers.
In the past, sign-up bonuses were usually 10,000 to 25,000 miles or points. Now many travel companies are offering 50,000 or more points and waiving the first year's annual fee. The travel/entertainment segment of consumers aren't interested in rate surfing. Instead, they engage in "travel hacking," collecting as many different cards they can. Some boast 20 different cards in their dresser drawer, and they aren't spending time managing those accounts, said Sahm.
"Because most travel-oriented cards have an annual fee, the issuer has less of an issue with inactive accounts," Sahm said. "Annual fees have the dual benefit of adding a revenue stream and of forcing the usage issue: if you pay an annual fee, you need to use the card to justify it."
The Web-based survey polled 400 credit card users in the U.S.