Consumer response rates to offers for new credit cards have been declining since February and hit a 10-year low in the second quarter, according to a recent study by research firm BAIGlobal Inc., Tarrytown, NY.
BAIGlobal’s Mail Monitor tracking service, which polls a representative sample of consumers around the country to estimate national mail volumes and response rates, reported that response rates were 0.6 percent for the second quarter, the lowest quarterly response in its 10 years of tracking. The rate compared with a response rate of 0.8 percent in the second quarter of a year ago, which also was considered low. In this year’s first quarter, the response rate was 1.6 percent.
“We’ve seen it steadily decline since February,” said Julia Beaver, vice president of competitive tracking services at BAIGlobal. “It’s been dropping by about 0.01 percent each month. Rather than having one bad month, it seems to be a consistent trend downward.”
In addition, she said, preliminary findings indicate that the response rate for July also has been relatively low.
Traditionally, declining response rates have been attributable to heavy mail volume, when mass mailings discourage consumers from applying, Beaver said. But this year’s quarterly decline was not associated with an increase in mailings; on the contrary, mail volume decreased slightly for the second quarter, to 817 million pieces from 956 million in the year-ago period.
“When you consider mail volume was slightly less than a year ago, the drop in response was especially significant,” Beaver said.
She attributed the drop in response rates to multiple factors, including the booming economy, which has allowed consumers to understand how to pay off 10k in credit card debt, as well as lower amounts and get by with fewer cards. In addition, consumers have become more savvy about credit-card solicitations and are only responding to the best offers.
“People already have a good deal on their credit card, and a lot of that is driven by the credit card companies themselves offering very attractive rates” and other benefits, such as balance transfers, she said. “So people have chosen to consolidate down to fewer cards and maybe, at the moment, aren’t looking for additional cards.”
According to Inside Track, another BAIGlobal tracking service, the number of credit cards per household has dropped to 2.5 in the first half of 1999, down nearly 11 percent from 2.8 in 1997. In addition, Inside Track reported that the average dollar balance of revolving credit accounts has dropped 12 percent for the first half of 1999, compared with the full year 1997.
The BAIGlobal reports follow news this summer from Bank One Corp., Chicago, that it would not meet analysts’ profit expectations because of slow growth and shrinking margins in its First USA credit card operation. The bank this summer said it has been experiencing a slowdown in new customer acquisitions as the booming economy is helping people pay off their debts and get by with fewer cards.
An August report by Moody’s Investors Service Inc., Murray Hill, NJ, found that consumers paid off nearly 15 percent of their debt in the second quarter, up from about 14 percent a year ago. It was the highest rate of repayment in 10 years, Moody’s said.
However, overall usage remained strong, according to Inside Track. The dollar amount of new monthly charges averaged $949 per household in the first half of 1999, vs. average monthly charges of $854 in 1997.
Beaver said that although response credit card acquisition mailings might be off, credit card issuers appear to be having some success with retention mailings and with reactivation efforts, in which they are encouraging consumers to use cards that have been dormant.
“There are all sorts of programs out there linked with specific merchants, to sort of encourage usage,” she said. “Banks are saying, ‘Let’s look at the card they’ve got and encourage them to use it.'”
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