“Revolvers”—customers who keep a revolving balance on their credit cards—used to be the cash crop for credit card companies. But now more and more of them are turning into expensive charge-offs, and the new CARD act is going to make it harder to acquire those riskier customers anyway. As a result, card companies are beginning to look more closely at the customer who was most hated back in the credit-orgy years: the deadbeat.
(A “deadbeat” is industry slang for a customer who doesn’t bring in much revenue—typically someone who never carries a revolving debt.)
Of course, one of the ways to make deadbeats profitable is to re-introduce annual fees, which is something the industry threatened anyway in the weeks before Congress passed the CARD act. It also helps to find customers who are deadbeats but who still spend a lot every month—which means rewards programs will likely be emphasized.
Charge-off-weary credit-card issuers, who still collect the 2% to 3% fee paid by merchants whenever a sale is made, will seek out customers who charge thousands of dollars a month and always pay off their balances.
“The industry has become so risk-averse that even any kind of balance makes them nervous,” said Curtis Arnold, founder of CardRatings.com. “That higher end of the market — folks with above average spending and above average credit — will be sought-after.”
“I do think annual fees will come back, but I also think there will be rewards for everyone in every possible way — anything you want,” Mr. Robertson said. “There will be much more reliance on loyalty programs and making them as robust as possible … to retain existing customers.”
Is this the silver lining to the credit crunch—financially responsible customers will be treated like worthwhile customers again?