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Premium Credit Cards - US - November 2011

Prospects for premium credit cards look more positive than they have in many years. The surge in borrower defaults has dropped sharply, increasing issuer profitability. New government limits on debit card swipe fees make credit cards much more attractive for consumers to use. As a result, competition in the market is as fierce as it has ever been. Card issuers have pulled out all the stops on rewards, cash bonuses and interest-free borrowing offers.

This study is a comprehensive update of the U.S. premium credit card business, with a particular spotlight on the competitive landscape, consumer behaviors and attitudes, the regulatory and legislative environment, profitability drivers, and current marketing strategies. For the purposes of this report, premium credit cards are defined as cards primarily targeting higher income consumers with good or better credit risk scores.

What you need to know:

  • Why is competition so fierce in the credit card industry today?
  • What are the primary factors driving profitability, and what does the future hold?
  • How are recently enacted legislative and regulatory restrictions likely to affect consumer payment behavior?
  • Are American consumers ready to start spending and borrowing on credit cards again?
  • This report builds on the analysis and information presented in several previous Mintel studies, including Credit and Debit Cards - US – July 2011, Mass Affluent and Credit Cards - US - February 2009, Credit Cards - US - November 2008 and Credit Cards: Loyalty and Retention - US - November 2007

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Table of contents

  1. Scope and Themes

      • What you need to know
        • Data sources
          • Consumer survey data
            • VMS
              • Abbreviations and terms
                • Terms
                  • Generations
                  • Executive Summary

                    • Industry overview
                      • Marketing strategies and channels
                        • Who are the innovators?
                          • The consumer—overview
                            • The consumer: spending and bill payment
                              • The consumer: incentives to switch card issuers
                              • Insights and Opportunities

                                  • Key points
                                    • To boost borrowing, card issuers may lower interest rates
                                      • Discover should consider a credit card focused on seniors
                                        • Younger people seem to want different credit card perks
                                        • Inspire Insights

                                            • Make it Mine
                                              • What we've seen
                                                • Industry application
                                                  • Why buy?
                                                    • What we've seen
                                                      • Industry application
                                                      • Market Size

                                                        • Key points
                                                          • Credit card outstandings and payment volume are down since 2008
                                                            • Credit card receivables down 17% since the peak
                                                              • Figure 1: U.S. revolving consumer debt, 2006-Q2 2011
                                                            • Credit card charge volume down 4% since 2008 peak but rebounds in 2010
                                                              • Figure 2: U.S. credit card charge volume, 2006-10
                                                            • Uptrend continues into 2011, on pace for record charge volume
                                                              • Figure 3: Quarterly credit card charge volume, Q1 2008-Q2 2011
                                                          • Competitive Context

                                                            • Key points
                                                              • Competition heats up as credit card lenders feel comfortable again
                                                                • Biggest banks increase their share of market
                                                                    • Figure 4: Credit card receivables at largest issuers, Q2 2011-Q2 2010
                                                                    • Figure 5: Market shares of largest issues, Q2 2011
                                                                  • Card industry is far more concentrated than other banking businesses
                                                                  • Segment Performance

                                                                    • Key points
                                                                      • Card profits skyrocket thanks to big drop in bad debt
                                                                        • For now, though, industry profitability has returned
                                                                          • Figure 6: Net income at large credit card issuers, first half 2011-first half 2010
                                                                        • Net chargeoffs and delinquency rates drop in half
                                                                          • Figure 7: Net chargeoff percentages at eight largest issuers, Q2 2011-Q2 2010
                                                                          • Figure 8: Credit card delinquency rate, Q4 2007-Q2 2011
                                                                        • Revenue remains weak
                                                                          • Figure 9: Revenue at large credit card issuers, first half 2011-first half 2010
                                                                      • Marketing Channels

                                                                        • Key points
                                                                          • Social media sites offer insight into what consumers want
                                                                            • Amex launches “Link, Like, Love” application on Facebook
                                                                              • Amex buys online gaming payments company
                                                                              • Market Drivers

                                                                                • Key points
                                                                                  • Incentives, debit-fee cap, likely to increase credit card usage
                                                                                    • Boston Fed study says credit cards will benefit from debit-fee caps
                                                                                      • Forbes: Banks make more money on credit cards
                                                                                        • Increased rewards also will spur credit card usage
                                                                                          • TransUnion says consumers really are paying down their card debt
                                                                                              • Figure 10: Average credit card debt per borrower, Q4 2007-Q2 2011
                                                                                          • Leading Companies

                                                                                            • Key points
                                                                                              • Bank of America
                                                                                                • JPMorgan Chase
                                                                                                  • Citigroup
                                                                                                    • Capital One
                                                                                                      • American Express
                                                                                                        • Discover
                                                                                                          • Wells Fargo
                                                                                                            • Barclaycard
                                                                                                              • HSBC
                                                                                                              • Innovation and Innovators

                                                                                                                • Key points
                                                                                                                  • Amex rolls out two cobranded cards for Mercedes Benz
                                                                                                                    • Ritz-Carlton offers its inaugural credit card with Chase
                                                                                                                      • FICO helps banks fine-tune credit card offers on the go
                                                                                                                        • Capital One offers one billion miles in ‘Match My Miles’ challenge
                                                                                                                          • Chase Amazon card lets users redeem their points as they earn them
                                                                                                                            • You can pay with points or credit, it’s your choice
                                                                                                                              • Fifth Third Bank presents credit, debit card in one
                                                                                                                                • Wells Fargo, Chase introduce first U.S. chip-and-PIN credit cards
                                                                                                                                • Marketing Strategies

                                                                                                                                  • Key points
                                                                                                                                    • It’s becoming tougher for super-premium cards to stand out from the rest
                                                                                                                                      • More providers are using cash bonuses
                                                                                                                                        • Providers ramp up mileage offers
                                                                                                                                          • Rewards now focus on everyday spending, even on upscale cards
                                                                                                                                            • Issuers also go longer with 0% intro periods
                                                                                                                                              • Card issuers explore “tiering” their credit cards
                                                                                                                                                • Representative direct and electronic mail advertising
                                                                                                                                                  • Premier Rewards Gold Card from American Express
                                                                                                                                                    • Figure 11: American Express direct mail ad, July 2011
                                                                                                                                                  • Southwest Airlines Rapid Rewards Premier Card from Chase
                                                                                                                                                    • Figure 12: Chase/Southwest Airlines direct mail ad, July 2011
                                                                                                                                                  • Sony Card from Capital One
                                                                                                                                                    • Figure 13: Capital One/Sony email ad, August 2011
                                                                                                                                                  • Citi Thank You Preferred Card from Citibank
                                                                                                                                                    • Figure 14: Citi Thank You Preferred Card direct mail ad, July 2011
                                                                                                                                                  • Citi Simplicity Card from Citibank
                                                                                                                                                    • Figure 15: Citi Simplicity direct mail ad, July 2011
                                                                                                                                                  • Citi Dividend World MasterCard from Citibank
                                                                                                                                                    • Figure 16: Citi Dividend World Mastercard direct mail ad, July 2011
                                                                                                                                                  • Wells Fargo Rewards Card from Wells Fargo
                                                                                                                                                    • Figure 17: Wells Fargo Rewards Card direct mail ad, July 2011
                                                                                                                                                  • Discover More Card from Discover
                                                                                                                                                    • Figure 18: Discover More Card direct mail ad, July 2011
                                                                                                                                                  • Carnival World MasterCard from Barclays
                                                                                                                                                    • Figure 19: Direct mail ad, July 2011
                                                                                                                                                  • Visa Black Card from Barclays
                                                                                                                                                    • Figure 20: Visa Black Card direct mail ad, July 2011
                                                                                                                                                  • Bank of America Cash Rewards Card
                                                                                                                                                    • Figure 21: Bank of America Cash Rewards direct mail ad, July 2011
                                                                                                                                                  • Chase Freedom Card from Chase
                                                                                                                                                    • Figure 22: Chase Freedom Card direct mail ad, July 2011
                                                                                                                                                • Premium Credit Card Consumers—Brands

                                                                                                                                                  • Key point
                                                                                                                                                    • American Express most popular premium card
                                                                                                                                                        • Figure 23: Most popular cards by FICO Score and HH Income $100K+, August 2011
                                                                                                                                                      • Males are the most prevalent holders of premium cards
                                                                                                                                                        • Figure 24: Brand for primary card – premium cards, by gender, August 2011
                                                                                                                                                        • Figure 25: Brand for primary card – premium cards by age, August 2011
                                                                                                                                                      • American Express is first among highest earners
                                                                                                                                                        • Figure 26: Brand for primary card – premium cards by household income, August 2011
                                                                                                                                                      • Blacks prefer Visa, underrepresented among Amex clientele
                                                                                                                                                          • Figure 27: Brand for primary card – premium cards by race/Hispanic origin, August 2011
                                                                                                                                                        • Different regions have their favorite brands
                                                                                                                                                          • Figure 28: Brand for primary card – premium cards by region, August 2011
                                                                                                                                                        • Amex is the winner among small-business owners
                                                                                                                                                          • Figure 29: Brand for primary card – premium cards by employment status, August 2011
                                                                                                                                                      • Satisfaction with Credit Card Issuers

                                                                                                                                                        • Key points
                                                                                                                                                          • Customer satisfaction rate is 70%
                                                                                                                                                            • Figure 30: Satisfaction with primary credit card, by gender, August 2011
                                                                                                                                                          • Blacks, Hispanics value payment flexibility
                                                                                                                                                            • Figure 31: Satisfaction with primary credit card, by race/Hispanic origin, August 2011
                                                                                                                                                          • Valued attributes by primary card brand
                                                                                                                                                            • Figure 32: Valued features and services of credit cards, by brand, August 2011
                                                                                                                                                          • American Express holders value airline lounge benefits…
                                                                                                                                                            • Figure 33: Valued features and services of credit cards, by brand, August 2011
                                                                                                                                                          • …but there’s little other sign of premium cards adding real value
                                                                                                                                                            • Figure 34: Valued features and services of credit cards, by brand, August 2011
                                                                                                                                                        • Consumer Spending on Credit Cards

                                                                                                                                                          • Key points
                                                                                                                                                            • Most respondents spend less than $500 a month on credit cards
                                                                                                                                                                • Figure 35: Amount charged on primary card and all credit cards in typical month, August 2011
                                                                                                                                                              • Men are higher credit card spenders
                                                                                                                                                                • Figure 36: Amount charged on primary card in typical month by gender, August 2011
                                                                                                                                                                • Figure 37: Amount charged on all credit cards typical month by gender, August 2011
                                                                                                                                                              • Spending varies slightly by age group
                                                                                                                                                                • Figure 38: Amount charged on primary card in typical month by age, August 2011
                                                                                                                                                                • Figure 39: Amount charged on all credit cards typical month by age, August 2011
                                                                                                                                                            • Payment Behavior

                                                                                                                                                              • Key points
                                                                                                                                                                • Six out of 10 pay their balance in full each month
                                                                                                                                                                  • Figure 40: Payment behavior in a typical month, by gender, August 2011
                                                                                                                                                                • Oldest consumers most likely to pay balance in full
                                                                                                                                                                  • Figure 41: Payment behavior in a typical month, by age, August 2011
                                                                                                                                                                • 85% of the highest earners pay their balance in full
                                                                                                                                                                  • Figure 42: Payment behavior in a typical month, by household income, August 2011
                                                                                                                                                              • The Consumer—Most Popular Benefits

                                                                                                                                                                • Key points
                                                                                                                                                                  • Most consumers aren’t aware of card benefits other than rewards
                                                                                                                                                                      • Figure 43: Credit card benefit usage, August 2011
                                                                                                                                                                    • Men are more likely to use dining and entertainment benefits
                                                                                                                                                                      • Figure 44: Credit card benefits usage, by gender, August 2011
                                                                                                                                                                    • Youngest group likes other perks besides rewards
                                                                                                                                                                      • Figure 45: Credit card benefits usage, by age, August 2011
                                                                                                                                                                    • Highest earners redeem the most rewards
                                                                                                                                                                      • Figure 46: Credit card benefits usage, by household income, August 2011
                                                                                                                                                                    • Blacks earn the fewest rewards
                                                                                                                                                                      • Figure 47: Credit card benefits usage, by race/Hispanic origin, August 2011
                                                                                                                                                                    • Self-employed redeem fewer rewards than workers
                                                                                                                                                                      • Figure 48: Credit card benefits usage, by employment status, August 2011
                                                                                                                                                                    • Rewards are most often used in the Northeast region
                                                                                                                                                                      • Figure 49: Credit card benefits usage, by region, August 2011
                                                                                                                                                                  • Online Activities

                                                                                                                                                                    • Key points
                                                                                                                                                                      • Two of three pay credit card bill online
                                                                                                                                                                        • Figure 50: Online activities related to credit cards, by gender, August 2011
                                                                                                                                                                      • Online bill payment falls off with age
                                                                                                                                                                        • Figure 51: Online activities related to credit cards, by age, August 2011
                                                                                                                                                                      • Online activity rises with income
                                                                                                                                                                        • Figure 52: Online activities related to credit cards, by household income, August 2011
                                                                                                                                                                      • Non-whites more likely to pay bills online
                                                                                                                                                                        • Figure 53: Online activities related to credit cards, by race/Hispanic origin, August 2011
                                                                                                                                                                      • Self-employed people less likely to pay online
                                                                                                                                                                        • Figure 54: Online activities related to credit cards, by employment, August 2011
                                                                                                                                                                      • Key points
                                                                                                                                                                        • Lower rates and fees, better rewards most likely to encourage switching
                                                                                                                                                                          • Figure 55: Incentives to switch cards by gender, August 2011
                                                                                                                                                                        • Youngest are most likely to switch, oldest are least likely
                                                                                                                                                                          • Figure 56: Incentives to switch cards by age, August 2011
                                                                                                                                                                        • Highest earners incented by better rewards, not lower rates
                                                                                                                                                                          • Figure 57: Incentives to switch cards by household income, August 2011
                                                                                                                                                                        • Attitudes about switching vary sharply by race and Hispanic origin
                                                                                                                                                                          • Figure 58: Incentives to switch cards, by race/Hispanic origin, August 2011
                                                                                                                                                                        • Discover’s customers are most loyal
                                                                                                                                                                          • Figure 59: Features that would potentially cause respondent to switch cards, by primary card brand, August 2011
                                                                                                                                                                        • Amex and Discover cardholders less likely to look for low interest rates…
                                                                                                                                                                          • Figure 60: Features that would potentially cause respondent to switch cards, by primary card brand, August 2011
                                                                                                                                                                        • …but wider acceptance could lead them to consider switching
                                                                                                                                                                          • Figure 61: Features that would potentially cause respondent to switch cards, by primary card brand, August 2011
                                                                                                                                                                      • Personal versus Business Expenses

                                                                                                                                                                        • Key points
                                                                                                                                                                          • Most consumers use primary card for both personal and business
                                                                                                                                                                            • Figure 62: Incidence of using personal credit card for business, personal purposes (or both) as primary card by gender, August 2011
                                                                                                                                                                          • Self-employed use primary card for both personal and business use
                                                                                                                                                                            • Figure 63: Incidence of using personal credit card for business, personal purposes (or both) as primary card by employment, August 2011
                                                                                                                                                                        • Cluster Analysis

                                                                                                                                                                            • Security Conscious
                                                                                                                                                                              • Demographics
                                                                                                                                                                                • Characteristics
                                                                                                                                                                                  • Opportunity
                                                                                                                                                                                    • Credit Crunched
                                                                                                                                                                                      • Demographics
                                                                                                                                                                                        • Characteristics
                                                                                                                                                                                          • Opportunity
                                                                                                                                                                                            • Freedom Chasers
                                                                                                                                                                                              • Demographics
                                                                                                                                                                                                • Characteristics
                                                                                                                                                                                                  • Opportunity
                                                                                                                                                                                                    • Characteristic tables
                                                                                                                                                                                                      • Figure 64: Personal credit card user clusters, August 2011
                                                                                                                                                                                                      • Figure 65: Type of credit card used (business or personal), by personal credit card user clusters, August 2011
                                                                                                                                                                                                      • Figure 66: Charges on primary credit card, by personal credit card user clusters, August 2011
                                                                                                                                                                                                      • Figure 67: Payments on primary credit cards, by personal credit card user clusters, August 2011
                                                                                                                                                                                                      • Figure 68: Brand of primary credit card, by personal credit card user clusters, August 2011
                                                                                                                                                                                                      • Figure 69: Online customer service activities, by personal credit card user clusters, August 2011
                                                                                                                                                                                                      • Figure 71: Credit card benefits, by personal credit card user clusters, August 2011
                                                                                                                                                                                                      • Figure 72: Reasons to switch primary credit cards, by personal credit card user clusters, August 2011
                                                                                                                                                                                                      • Figure 73: Personal credit card user clusters, by gender, August 2011
                                                                                                                                                                                                      • Figure 74: Personal credit card user clusters, by age, August 2011
                                                                                                                                                                                                      • Figure 75: Personal credit card user clusters, by household income, August 2011
                                                                                                                                                                                                      • Figure 76: Personal credit card user clusters, by household income, August 2011
                                                                                                                                                                                                      • Figure 77: Personal credit card user clusters, by household income, August 2011
                                                                                                                                                                                                      • Figure 78: Personal credit card user clusters, by race, August 2011
                                                                                                                                                                                                  • Appendix—Simmons Cohort Analysis

                                                                                                                                                                                                      • Asian-Americans love Amex
                                                                                                                                                                                                        • Asians use Amex Blue much more frequently than other cards
                                                                                                                                                                                                          • Figure 80: Type of credit card used most frequently, by race/Hispanic origin, Feb. 2010 – March 2011
                                                                                                                                                                                                          • Figure 81: Type of credit card used in last 30 days, by race/Hispanic origin, Feb. 2010-March 2011
                                                                                                                                                                                                        • Asians carry more types of Amex cards than others
                                                                                                                                                                                                          • Figure 82: Number of Amex and Visa credit cards owned, by race/Hispanic origin, Feb. 2010 – March 2011
                                                                                                                                                                                                        • Cash is Asians’ reward of choice
                                                                                                                                                                                                          • Figure 83: Type of rewards offered by Amex and Visa, by race/Hispanic origin, Feb. 2010 – March 2011
                                                                                                                                                                                                        • Asians most likely to pay their accounts in full each month
                                                                                                                                                                                                          • Figure 84: Payment behavior for Amex and Visa, by race/Hispanic origin, Feb. 2010 – March 2011
                                                                                                                                                                                                      • Appendix—Trade Associations

                                                                                                                                                                                                        Companies Covered

                                                                                                                                                                                                        • Bank of America Corporation
                                                                                                                                                                                                        • Barclaycard
                                                                                                                                                                                                        • Capital One Financial Corporation
                                                                                                                                                                                                        • Citigroup Inc.
                                                                                                                                                                                                        • Fifth Third Bancorp
                                                                                                                                                                                                        • Foursquare
                                                                                                                                                                                                        • HSBC USA Inc.
                                                                                                                                                                                                        • ING Bank, fsb
                                                                                                                                                                                                        • JPMorgan Chase & Co
                                                                                                                                                                                                        • MasterCard Incorporated
                                                                                                                                                                                                        • Mercedes-Benz USA
                                                                                                                                                                                                        • The Ritz-Carlton Hotel Company, L.L.C.
                                                                                                                                                                                                        • Visa U.S.A. Inc.
                                                                                                                                                                                                        • Wachovia Corporation
                                                                                                                                                                                                        • Wells Fargo & Company

                                                                                                                                                                                                        Premium Credit Cards - US - November 2011

                                                                                                                                                                                                        £2,684.63 (Excl.Tax)