Platinum Card Growth Fueled by Offers of Low Interest Rates

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A surge in ownership of Platinum credit cards is being driven in large part by marketers offering low interest rates rather than higher credit limits or rewards programs, according to a study released this week.

These low interest rates are turning the cards into commodities, according to Gregory Weed, vice president of card services for PSI Global, Tampa, FL, a division of market research firm NFO Worldwide Inc. Marketers need to somehow add value to the Platinum-level cards in order to maintain their profitability, he said.

According to the PSI Global's 1999 study of the U.S. credit card market, 51 percent of the households that opened a Platinum credit card account in the past year said that a low rate was an important factor in their decision. This compares to 27 percent who cited rate among those who opened Gold accounts and 20 percent among those who opened standard accounts.

"Platinum cards have not developed as an upper-end of the market so much as they have fostered a rate-sensitive franchise that cuts across income groups," said Weed.

With the vast increase in the number of Platinum cards in circulation - there are 25 million more Platinum cards this year than there were in 1997 - there has been a cannibalization of holders of Gold and standard cards, he said.

"Platinum cards have been the focus of the bulk of direct mail solicitations for the past couple of years, and they've also been the subject of account upgrades," Weed said.

The study found that higher credit limits were not a strong factor in consumers' decisions to obtain Platinum cards, except among the lowest-income households.

Rewards on the other hand, are only appealing to those households with incomes over $75,000, and may be more important as a tool for retention rather than acquisition, he said. Among lower-income households, offering rewards might even place a heavy strain on profitability, Weed said. Instead, he suggested that offering fee-based rewards programs to lower-income households would be a better strategy.

"Platinum marketing is already putting a strain on profits because it's offering lower rates and generally no fees," he said. "The paradigm has to change.[The Platinum card market] is crying for features and innovations and value propositions that invigorate and establish new meaning."

He said one such innovation that might be credit card marketers' salvation is the chip-embedded card, which has the potential to store more information than cards with a magnetic stripe that are the most common today.

Part of the problem, he said, is that consumers do not perceive much of a difference between Gold, Platinum and standard cards, with 36 percent of the respondents in the survey saying there was no difference between Gold and Platinum cards.

"Any perceived difference that does exist cannot be ascribed to prestige imagery or privileged service," he said.

The study included 4,082 respondents to a an extensive mail questionnaire. It was sent to households from NFO's household database, which Weed said can be projected for the 102 million total U.S. households.

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