U.S. Market for Rewards Cards, 2nd Edition, The

Interesting times are ahead for the payments industry in general and for the rewards credit card industry specifically. Aside from the macro-economic issues walloping consumers, merchants and the payments industry, rewards credit card issuers have specific challenges ahead of them, including the merchant interchange rate feud, alternative payment networks and systems, card-holder retention in a mature rewards market, and increasing consumer concerns about their finances.

Those challenges aside, the U.S. market for credit cards saw robust growth during the 2003-2007 period. Purchase volume of the four main general-purpose credit card brands (Visa, MasterCard, American Express, and Discover) grew at a compound annual growth rate of 10% to top $1.9 trillion in 2007 accounting for 14% of total U.S. GDP. Driving this growth was the increased penetration of rewards programs, which Packaged Facts estimates accounted for 80% of all general-purpose credit cards issued in the United States.

Growth in rewards-based cards has been substantial for several years as issuers attract new customers with ever more flexible programs and promises of greater rewards benefits. Growth is expected to continue and rewards programs are expected to be a mandatory part of any credit card business. But, the economic and financial crisis of 2007/2008 may have a significant effect on the overall industrys ability to grow as credit tightens and charge-off rates increase. The question is can rewards programs continue to attract new customers or will retention be the name of the game as issuers fight for share of the wallet?

This Packaged Facts report contains data and analysis on the general-purpose credit card industry in the United States with a focus on rewards-based programs and cards. The report presents the size and growth of the market and several related key metrics within the broader credit card arena, as well as trends and factors affecting the industry. In addition, the following major key competitors are profiled: American Express, Discover Financial Services, MasterCard Worldwide, Visa, Inc., Bank of America, Capital One Financial, Citigroup, JPMorgan Chase, Washington Mutual, Inc., Wells Fargo & Company, and Revolution Money.

The report also provides a focused analysis of consumer demographics and preferences of co-branded credit cards.

• Chapter 1: Executive Summary
  • Scope and Methodology
  • Report Scope
  • Report Methodology
  • Market Size & Growth
  • Consumer Revolving Credit Hits Trillion on Moderate Growth
  • Higher Charge off Rates May Signal New Recessionary Period
  • Credit Card Market Overview
  • Credit Card Growth Robust at 10% CAGR
  • New Cards Increase...and Dormant Cards Awake
  • Growth in Other Ways as Well
  • Purchase Volume Captures 14% of GDP
  • Visa Takes the Lion Share at 42%
  • Transaction Volume Continues Steady Increase
  • Visa Tops Transaction Volume Share, Followed by Amex
  • Comfort Zones May Be Challenged
  • Rewards Credit Card Market
  • Rewards-Based Credit Cards up 15%
  • Market Forecast
  • Rewards Cards to Account for 93% of Credit Card Market
  • Credit Card Industry in Flux
  • The Associations and Issuers
  • Issuing Banks
  • Trends: Challenges and Opportunities
  • Key Payments Industry Drivers: Security, Online, Rates & Rewards .14
  • Americans Get over-Extended and Re-Trench
  • Consumers Making More Practical Purchases, Decrease Spending
  • Transparency Necessary in Stressful Economic Environment
  • Consumers Confused, Need Help Navigating
  • Build Loyalty through Information Clarity
  • ID Theft Takes Money and Precious Time
  • Rewards Programs Must Diversify into More Alternative Payments
  • Mobile for the Future
  • Debit Cards Transactions Already Exceeding Credit
  • Continued Move from Cash/Check to Credit/Electronic
  • Are Interchange Fees Essentially a Tax on the American Consumer?
  • Rewards Product Trends and Strategies
  • Values Increasingly Important to Consumers
  • The Rewards of Being Green
  • Are High Fee Airline Rewards Still Meaningful?
  • Still Room for High Brow Rewards
  • A Movement toward Holistic, Simplified Programs
  • Personalization, Control, Choice and Flexibility
  • Innovation Spurred by Bad Economy
  • Cash Back Comeback?
  • Shelling out the Gas Rewards
  • Marketing Dynamics
  • A Swing Back to Retention after Years as Acquisition Tool?
  • Credit Card Ad Spend at $1.9 Billion for 2007
  • TV Spend down
  • Targeting through Unique Touchpoints
  • Overall Credit Card Direct Mail Offers Decline in 2008
  • Reward Direct Mail Promotions up, Response Slightly down in 2007
  • Evolving Media Consumption Opens up Opportunities
  • Behavioral Targeting Opportunities
  • Co-Branded Credit Card Usage
  • Approximately 67% of Adults Have/Use Credit Cards
  • Stagnant Growth in Co-branded Cards since 2004
  • Co-Branded Card Users Profile Brand Comparison
  • Financial Security Important to Co-Branded Credit Card Users
  • Amex Versus Discover: Extremes of Financial Awareness
• Chapter 2: The Rewards Cards Market
  • Scope and Methodology
  • Report Scope
  • Report Methodology
  • Market Size & Growth
  • Consumer Revolving Credit Hits Trillion
  • Growth Tame Compared to Historical
  • by 2007 Issuers Reported Higher Charge off Rates
  • Recessionary Periods Effect on Credit Card Growth
  • Credit Card Market Overview
  • Credit Card Growth Robust at 10% CAGR
  • New Cards Increase...and Dormant Cards Awake
  • Growth in Other Ways as Well
  • Purchase Volume Captures 14% of GDP
  • Visa Takes the Lion Share at 42%
  • Transaction Volume Continues Steady Increase
  • Visa Tops Transaction Volume Share, Followed by Amex
  • High Consumer Penetration Means Slow Growth in Cards Issued and Accounts
  • Visa and MasterCard Do Interesting Flip Flop in Shares of Accounts 46
  • Comfort Zones May Be Challenged
  • Rewards Credit Card Market
  • Rewards-Based Credit Cards up 15%
  • Recent Growth from New Cards and Conversions
  • Non-Rewards Cards down but Not Yet out
  • Points Cards Still Trumping Cash Back Cards
  • Market Forecast
  • Rewards Cards to Account for 93% o f Credit Card Market
• Chapter 3: Corporate Profiles
  • A Note on Metrics
  • Credit Card Industry in Flux
  • Franchise Associations
  • Issuer Hybrids
  • Issuing Banks
  • American Express
  • Overview
  • History
  • 1980s Turbulence
  • 1990s: A Time for Reinvention
  • Competition Heats up
  • AmEx Suit a Game Changer
  • Performance: U.S. Revenue up 17%
  • Purchase Volume Increases 13% in 2007
  • Recent Rewards Products
  • American Express Delta Reserve Rewards for the Whole Family
  • American Express Expands Rewards to Mortgages
  • Significant Events
  • Former AmEx Division Free to Compete
  • Law Suit Funds to Bolster Rewards Programs
  • AmEx Tops among J.D. Power Survey
  • Discover Financial Services
  • Overview
  • Diners Club Now at Discover
  • History
  • Discover Spin-off
  • Performance: Discover Struggles to Grow Business
  • Purchase, Transaction Volumes up Modestly; Fewer Cards Issued
  • Recent Rewards Products
  • Discover Doubles Patriotism
  • Discover Motiva Receives Praise
  • Significant Events
  • Discover Ranks No. 1 in Customer Loyalty
  • Discover Offers Credit Monitoring to Cardmembers
  • MasterCard Worldwide
  • Overview
  • History
  • MasterCards IPO
  • Was the IPO a Rouse to Protect Member Banks?
  • Collusion to Fix Fees Remains Key to Lawsuits
  • Essentially Shifting the Lawsuit Risk from Member Banks to Shareholders
  • Performance: Revenue up 22% over 2006
  • Growth from More Customers and Increased Usage
  • Current Rewards Products
  • Elite Rewards for the Affluent
  • Ameriprise Shuns AmEx in Favor of MasterCard
  • Barclays & Lufthansa Fly with MasterCard
  • Significant Events
  • MasterCard Settles AmEx Suit for $1.8 Billion
  • MasterCard Mobilizes with Obopay
  • Visa, Inc.
  • Overview
  • History
  • Reorganization and Initial Public Offering
  • Performance: Visa Revenue Reaches $3.6 Billion
  • Visa Grows Steadily
  • Recent Rewards Products
  • Visa Reaps Rewards from Barclays and L.L. Bean
  • This Bud-and Three Points-for You
  • Visa Teams up with uTango
  • Significant Events
  • Visa Implements New Fraud Protection Program
  • Visa Restructures Service Station Interchange Fees
  • Bank of America
  • Overview
  • BofA a Behemoth
  • Too Big?
  • Branching out
  • Leading in Community Development
  • Performance: Card Revenue Softens
  • Recent Rewards Product
  • Olympic Rewards
  • Unique Rewards between BofA and AmEx
  • Significant Events
  • BofA Ranked the Safest
  • Active Card Control Innovation
  • Capital One Financial
  • Overview
  • Performance: Credit Card Revenue up 11% in 2007
  • Recent Rewards Product
  • Capital One and Orbitz Offer Triple Points
  • Significant Events
  • Capital One teams up for Financial Education
  • Capital One Personalization Offers Differentiation
  • Citigroup
  • Overview
  • under the Umbrella
  • Significant Card Portfolio Acquisitions
  • Performance: Card Revenue Declines 1%; Outstandings up 5%
  • Recent Rewards Product
  • Citi Expands Diamond Preferred
  • Significant Events
  • Citi Embraces Mobile Access
  • Citi Backs Alternative Payments Company
  • JPMorgan Chase
  • Overview
  • Performance: Card Business Growth Moderate
  • Recent Rewards Product
  • Chase and Continental Increase Flexible Rewards
  • Options for the Affluent
  • Chase Gets an Ace with the U.S. Tennis Association
  • Chase Flies the Friendly Skies
  • Helping to Manage Rewards
  • Significant Events
  • JPMorgan Chase Snatches up WaMu
  • Chase acquires Target Receivables
  • Washington Mutual, Inc.
  • Overview
  • Performance: Outstandings up 15%
  • Recent Rewards Product
  • Fox Rewards
  • Significant Events
  • WaMu Saves Trees
  • Wells Fargo & Company
  • Overview
  • Performance: Outstandings up an Astounding 22%
  • Recent Rewards Product
  • Wells Fargo Helps Customers Go Solar
  • Pushing Online Banking, Paperless Statements
  • Eco-Friendly Rewards
  • Revolution Money
  • Overview
• Chapter 4: Trends: Challenges and Opportunities
  • Consumers, Wall Street and Main Street in for a Wild Ride
  • Key Payments Industry Drivers: Security, Online, Rates & Rewards
  • Rewards Has the Power of Positivity
  • Transparency Necessary in Stressful Economic Environment
  • Economic Crisis Peaks
  • Americans Get over-Extended
  • Consumers to Re-Trench
  • Hints of Whats to Come
  • Consumer Credit Hangover: Personal Savings Rate near Zero
  • Consumers Making More Practical Purchases
  • Consumers to Decrease Spending
  • The Splurge Factor
  • Consumers More Aware of Credit Pitfalls
  • Three Percent of Consumers Participate in 10+ Programs
  • There is Still A Learning Curve for Issuers Too
  • Consumers Confused, Need Help Navigating
  • 40% of Consumers Call for Clarity in Terms
  • Card Issuer Sites New Improvement
  • Consumer-Friendly Comparison Sites Pick up Slack
  • Build Loyalty through Information Clarity
  • Four Percent of American ID Theft Victims
  • ID Theft Takes Money and Precious Time
  • Identity Theft Will Require Ongoing Education
  • Rewards Programs Must Diversify into More Alternative Payments
  • by 2012 24% of Online Spend via Alternative Payments
  • Contactless and Mobile for the Future
  • 230 Million American Cell Phones Waiting to Become Credit Cards
  • 77% of Cell Phone Users Have Yet to Make a Purchase
  • Future for Targeted Marketing Opportunities Exciting
  • Debit Cards Transactions Already Exceeding Credit
  • 14 Percentage Point Increase in Debit Use since 2006
  • Debit Increasingly Preferred for Purchase across Categories
  • Gasoline Purchases See Equal Credit/Debit Use
  • Continued Move from Cash/Check to Credit/Electronic
  • Paper Share Drops from 54% in 2003 to 39% in 2007
  • Payment Medium, 2003-2007 (percent)
  • Interchange Fee Suits
  • Ramifications of Antitrust Suit
  • Effect on Rewards Cards
  • Consumers Moving Away from Fee-Based Cards
  • Are Interchange Fees Essentially a Tax on the American Consumer?
  • Regulation on the Horizon?
  • Small Ticket Purchase Driving Higher Rates
• Chapter 5: Rewards Product Trends and Strategies
  • Values Increasingly Important to Consumers
  • The Soul of a Card: Enlightenment Visa Reward Card
  • The Rewards of Being Green
  • Most Major Issuers Play in the Green Grass
  • Some Consumers Skeptical of Greenwashing
  • but Is IT Just Ethical Lip Service?
  • Are High Fee Airline Rewards Still Meaningful?
  • The Airline Shakeout
  • Consumers May Check out Completely
  • Single Relationships and High Loyalty Flyers Will Persevere, for Now
  • Still Room for High Brow Rewards
  • Citi Goes VIP
  • World Elite MasterCard and Virtuoso Travel Network
  • Luxury Is Not Lost
  • out of This World Rewards
  • A Movement toward Holistic, Simplified Programs
  • Chase and Joint Rewards
  • Is the Future in Card Collectives?
  • MasterCards Relationship Rewards Multi-Account Technology
  • Personalization, Control, Choice and Flexibility
  • MasterCards Name Your Own Reward
  • Technology Makes IT Possible: Chase Freedom
  • Consumers Make Decision: Capital One Card Lab
  • Merchant Specific Alternatives
  • Entertaining Business Builders
  • Innovation Spurred by Bad Economy
  • Cash Back Comeback?
  • Impersonal Nature of Cashback Is a Challenge
  • Supermarket Cash Back Rewards Cards
  • Shelling out the Gas Rewards
• Chapter 6: Marketing Dynamics
  • A Swing Back to Retention after Years as Acquisition Tool?
  • Credit Card Ad Spend at $1.9 Billion for 2007
  • Credit Card Ad Spend down in TV, up in New Media
  • Overall Credit Card Direct Mail Offers Decline in 2008
  • Reward Direct Mail Promotions up, Response Slightly down in 2007
  • Beware the Do-Not-Mail Movement
  • Evolving Media Consumption Opens up Opportunities
  • World of Warcraft & Visa Reward The Entertainment Driven Consumer
  • Free Entertainment a Motivator in Poor Economy
  • 20th Century Fox & WaMu Team up
  • Technology Changing Credit Card Outreach
  • Behavioral Targeting Seeing Little Use
  • Targeted End-User Marketing in Debate
  • Word-of-Mouth: Added-Value for Marketers and Consumers
  • WOM a Real Business
  • Proof in the Numbers
  • Viral Card Design Contest Shows Power of WOM
• Chapter 7: Co-Branded Credit Card Usage
  • Note on Simmons Market Research Bureau Data
  • Data Presented for Co-Branded Cards
  • Approximately 67% of Adults Have/Use Credit Cards
  • Stagnant Growth in Co-branded Cards since 2004
  • Other Sources Show Greater Short-term Shift in Credit Cards Overall
  • Demographic Profile: Visa vs. Co-Branded Visa Credit Card Holders
  • Demographic Profile: MasterCard vs. Co-Branded MasterCard Credit Card Holders
  • Demographic Profile: Discover vs. Co-Branded Discover Credit Card Holders
  • Demographic Profile: American Express vs. Co-Branded American
  • Express Credit Card Holders
  • Co-Branded Card Users Profile Brand Comparison
  • Demographic Profile: Co-Branded Airline/Hotel Card Users
  • Demographic Profile: Co-Branded Airline/Hotel Cards by Brand
  • Demographic Profile: Co-Branded
  • Affiliations/Associations/Organizations Users
  • Demographic Profile: Co-Branded Affiliations/Associations by Brand
  • Co-Branded Affiliate/Organization/Association Cards by Card Brand, 2008 (index)
  • Demographic Profile: Co-Branded Auto Card Users
  • Co-Branded Auto Cards, 2008 (index)
  • Demographic Profile: Co-Branded Auto by Brand
  • Co-Branded Auto Cards by Card Brand, 2008 (index)
  • Financial Attitudes of Co-Branded Credit Card Users
  • Financial Security Important to Co-Branded Credit Card Users
  • Amex Versus Discover: Extremes of Financial Awareness
  • Amex Holders Do Their Research
  • MasterCard Users Are Amateur Advisors
• List of Tables
  • Table 1-1: U.S. General Purpose Credit Card Market, by Purchase Volume, Transaction Volume, Cards Issued, Accounts, Average Cards per Account, and Average Value per Transaction, 2003-2007 (in millions of dollars, except average values)
  • Table 1-2: Total Business-to-Consumer Payments, by Medium, 2003-2007 (in billions of dollars)
  • Table 1-3: Synovates Mail Monitor Direct Mail Volume Losses and Gains, 2008 vs. 2007
  • Table 1-4: Consumer Ownership and Use of Co-Branded Credit Cards, by Type, 2004 vs. 2008
  • Table 1-5: Comparison of Demographic Characteristics Favoring Ownership and Use of Specific Co-Branded Cards, 2008 (index)
  • Table 2-1: U.S. General Purpose Credit Card Market, by Purchase Volume, Transaction Volume, Cards Issued, Accounts, Average Cards per Account, and Average Value per Transaction, 2003-2007 (in millions of dollars, except average values)
  • Table 3-1: Key U.S. Metrics for American Express, 2003-2007
  • Table 3-2: Key U.S. Metrics for Discover, 2003-2007
  • Table 3-3: Key U.S. Metrics for MasterCard, 2003-2007
  • Table 3-4: Key U.S. Metrics for Visa, 2002-2006
  • Table 4-1: Percentage of Adults Who Are More Practical or Realistic in Their Purchases, Month-over-Month, October 2007-April 2008 (U.S. adults)
  • Table 4-2: Percentage of Adults Who Are Planning to Decrease Spending, Month over Month, October 2007-April 2008 (U.S. adults)
  • Table 4-3: Selected Comparison Sites, 2008
  • Table 4-4: Payment Options Used, by Type of Purchase: September 2003, 2005, and 2007 (percent)
  • Table 4-5: Total Business-to-Consumer Payments, by Medium, 2000-2007 (in billions of dollars)
  • Table 6-1: Synovates Mail Monitor Direct Mail Volume Losses and Gains, 2008 vs. 2007
  • Table 7-1: Consumer Ownership and Use of Co-Branded Credit Cards, by Type, 2004 vs. 2008
  • Table 7-2: Demographic Characteristics Favoring Ownership and Use of Co-Branded Visa Cards, 2008 (index)
  • Table 7-3: Demographic Characteristics Favoring Ownership and Use of Co-Branded MasterCard Cards, 2008 (index)
  • Table 7-4: Demographic Characteristics Favoring Ownership and Use of Co-Branded Discover Cards, 2008 (index)
  • Table 7-5: Demographic Characteristics Favoring Ownership and Use of Co-Branded American Express Club Cards, 2008 (index)
  • Table 7-6: Comparison of Demographic Characteristics Favoring Ownership and Use of Specific Co-Branded Cards, 2008 (index)
  • Table 7-6: Demographic Characteristics Favoring Ownership and Use of Co-Branded Airline/Hotel Cards, 2008 (index)
  • Table 7-7: Demographic Characteristics Favoring Ownership and Use of Co-Branded Airline/Hotel Cards by Card Brand, 2008 (index)
  • Table 7-8: Demographic Characteristics Favoring Ownership and Use of Co-Branded Affiliations/Associations/Organizations Cards, 2008 (index)
  • Table 7-9: Demographic Characteristics Favoring Ownership and Use of
  • Table 7-10: Demographic Characteristics Favoring Ownership and Use of
  • Table 7-11: Demographic Characteristics Favoring Ownership and Use of
  • Table 7-12: Statements Indicating Interest in Financial Security, 2008 (index)
  • Table 7-13: Statements Indicating Level of Financial Capability, 2008 (index)
• List of Figures
  • Figure 1-1: Total Consumer Credit by Category: Revolving and Non-Revolving, 1978-May 2008 (in billions)
  • Figure 1-2: Total U.S. Rewards-Based Credit Cards Issued and Share of Total General Purpose Credit Cards, 2003-2007 (in millions) Recent Growth from New Cards and Conversions Points Cards Still Trumping Cash Back Cards
  • Figure 1-3: Total General Purpose Credit Cards, General Purpose Rewards-Based Credit Cards and Share of Total Credit Cards Forecast, 2007-2012
  • Figure 1-4: Share of Total General Purpose Credit Card Purchase Volume in the U.S., 2007 (percent)
  • Figure 1-5: Top Credit Card Issuers by End-of-Year Domestic Outstandings, 2007 (percent)
  • Figure 2-1: Share of Consumer Non-Revolving Credit versus Revolving Credit, 1978-2008 (%)
  • Figure 2-2: Total Consumer Credit by Category: Revolving and Non-Revolving, 1978-May 2008, (in billions of dollars)
  • Figure 2-3: Total General Purpose Credit Card Purchase Volume and Percent of U.S. Gross Domestic Product (GDP), 2002-2007 (in trillions of dollars)
  • Figure 2-4: Share of Total General Purpose Credit Card Purchase Volume in the U.S., 2007 (percent)
  • Figure 2-5: Total General Purpose Credit Card Transaction Volume and Average Annual Transactions per Card, 2002-2007 (in billions)
  • Figure 2-6: Share of Total General Purpose Credit Card Transaction Volume, 2007 (percent)
  • Figure 2-7: Total General Purpose Credit Card Accounts, Cards Issued and Average Number of Cards per Account, 2003-2007 (in millions)
  • Figure 2-8: Share of Total General Purpose Credit Cards Issued, 2007 (percent)
  • Figure 2-9: Share of Total General Purpose Credit Card Accounts, 2007 (percent)
  • Figure 2-10: Total General Purpose Credit Cards Issued in the United States, 2003-2007 (in millions)
  • Figure 2-11: Total U.S. Rewards-Based Credit Cards Issued and Share of Total General Purpose Credit Cards, 2003-2007 (in millions)
  • Figure 2-12: Total General Purpose Credit Cards, General Purpose Rewards-Based Credit Cards and Share of Total Credit Cards Forecast, 2007-2012
  • Figure 3-1: Share of Total General Purpose Credit Card Purchase Volume in the U.S., 2007 (percent)
  • Figure 3-2: Top Credit Card Issuers by End-of-Year Domestic Outstandings, 2007 (percent)
  • Figure 3-3: Total American Express U.S. Revenue, 2003-2007 (in billions of dollars)
  • Figure 3-4: Total Discover Financial Revenue, 2003-2007 (in billions of dollars)
  • Figure 3-5: Total MasterCard Revenue, 2003-2007 (in billions of dollars)
  • Figure 3-6: Total Visa Inc Revenue, 2003-2007 (in billions of dollars)
  • Figure 3-7: Total Bank of America Card Revenue, 2003-2007 (in billions of dollars)
  • Figure 3-8: Total Bank of America U.S. Credit Card Outstandings, Managed Basis, 2003-2007 (in billions of dollars)
  • Figure 3-9: Total Capital One Financial Card Revenue, 2003-2007 (in billions of dollars)
  • Figure 3-10: Total Capital One Financial Credit Card Outstandings, Managed Basis, 2003-2007 (in billions of dollars)
  • Figure 3-11: Total Citigroup U.S. Card Revenue, 2003-2007 (in billions of dollars)
  • Figure 3-12: Total Citigroup U.S. Credit Card Outstandings, Managed Basis, 2003-2007 (in billions of dollars)
  • Figure 3-13: Total JPMorgan Chase U.S. Card Revenue, 2003-2007 (in billions of dollars)
  • Figure 3-14: Total JPMorgan Chase U.S. Credit Card Outstandings, Managed Basis, 2003-2007 (in billions of dollars)
  • Figure 3-15: Total Washington Mutual Card Revenue, 2006-2007 (in billions of dollars)
  • Figure 3-16: Total Washington Mutual Credit Card Outstandings, Managed Basis, 2003-2007 (in billions of dollars)
  • Figure 3-17: Total Wells Fargo U.S. Card Revenue, 2003-2007 (in billions of dollars)
  • Figure 3-18: Total Wells Fargo Credit Card Outstandings, Managed Basis, 2003-2007 (in billions of dollars)
  • Figure 4-1: Financial Obligations Ratio (FOR) and Charge-off and Delinquency Rates for Loans and Leases at Commercial Banks, 1985-2008 (percent)
  • Figure 4-2: Payment Options Used, by Type of Purchase, September 2007 (percent)
  • Figure 4-3: Estimated Share of U.S. Personal Consumption, by Major