UPFRONT 1997: Credit Cards

Record-level deadbeats, slow payers and personal bankruptcies are more than balancing out card growth ratesAfter years of riding annual growth rates in excess of 20 percent, credit card issuers and brands are now struggling with the uncomfortable notion that their hyperbolic marketing over the past five years may have put cards in the hands of consumers who could devastate what has been a very lucrative industry.Even in the face of a slower, 17 percent growth rate last year, the bankruptcy numbers are gloomy. The vast majority of the record 1.1 million personal bankruptcies filed in the U.S. last year weren't directly attributable to credit cards. But maxing out cards is almost always a precursor to personal bankruptcy. Credit card charge-offs-accounts not paid in over six months, or 180 days-rose from $11.8 billion in 1995 to $16.9 billion last year. And the number of people behind in their credit card bill payments also increased to record levels in the last quarter of 1996.Those dire figures have already produced some disastrous results. Citibank, the industry leader with more than $44.8 billion in receivables, wrote off 5.9 percent of credit card loans in the first quarter of 1997, up from 4.4 percent in the first quarter of 1996. Advanta, another top-10 issuer, told analysts it expected a loss of $20 million for the first quarter, largely due to delinquencies.As if the banks that compose Visa and MasterCard brands didn't have enough to worry about, there is the specter of American Express trying to convince banks to break ranks and issue AmEx cards. A Justice Department investigation into whether the two card associations are illegally restraining competition has heightened an already tense situation.There's plenty at stake. If AmEx can convince banks to issue the same cards that it has issued through its own bank up to now, that would allow AmEx to close a huge gap that sees Visa with 221 million cards in the U.S., compared to 26.7 million domestic AmEx cards.Despite the doom and gloom, changes in the works at two large issuers and at MasterCard could portend a burst of marketing spending. Citibank, now at Lowe & Partners/SMS, has been quiet for some time. Citi is also combining its credit card and branch banking operations, which led to the recent notification from card chief Roberta Arena that she will retire by year's end. That has led to speculation that the Citi business may be in play.Even without the current ad agency review, MasterCard's marketing identity is murky at best. Departed MasterCard head Gene Lockhart's techno-positioning only distanced the brand from consumers. Look for a spending burst once a new identity is established.AT&T pioneered the co-branding era with its Universal Card launch in 1990. Now it's one of the largest MasterCard issuers, but with perhaps the smallest marketing budget (CMR tracks it at a paltry $2 million for 1996) in proportion to its size. Nonetheless, a new management team at AT&T, headed by former Citi card chief Richard Srednicki likely portends a renaissance in marketing activity. -Terry LeftonHOT BUTTONS* AmEx continues to push MasterCard and Visa issuing banks to offer its cards* Shake-up at category leader Citibank* Will MasterCard right its reeling ship?OVERALL: Spending upDARK HORSE: New management at AT&T Universal Card could spark relaunch of former wunderkind brandCopyright ASM Communications, Inc. (1997) ALL RIGHTS RESERVED National

Brand Marketing

UPFRONT 1997: Credit Cards

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