…some issuers are making debit cards less attractive by charging monthly fees and eliminating rewards. Citi is hoping to capitalize on this change by convincing dissatisfied debit customers to use its credit cards instead.
Debit or Credit? Citi Places Its Bet
By SUZANNE KAPNER
Citigroup’s Big Push to Win Credit Card Customers
Citigroup Inc. is making an aggressive effort to rebuild its struggling business. The bank is filling mailboxes across the U.S. with new credit-card offers, hoping to attract millions of customers.
A Massive Surge in Credit-Card Mailings
Citi mailed an estimated 346 million card offers to North American households in the third quarter. This number, shared by Mail Monitor, means Citi sent one offer for nearly every person in the U.S. Last month alone, one-third of all credit-card offers came from Citi.
Because of this mailing surge, Citi is set to become the largest issuer of credit-card mail offers, beating Chase for the first time in eight years. This push reflects Citi’s attempt to recover after suffering huge losses during the 2008 financial crisis.
Why Citi Is Expanding Now
Despite consumers being cautious with new debt, Citi believes it has an advantage. The bank has recorded a steady drop in unpaid card bills. As a result, its North American card unit earned $584 million in the second quarter, compared with a $154 million loss last year.
Jud Linville, hired to revamp Citi’s card business, sees an opportunity while other banks reduce their mail campaigns. Mailings from American Express, Bank of America and Discover all dropped in the second quarter.
“This business rewards those who fill gaps left by others,” Linville said.
The Debit Card Shift Works in Citi’s Favor
The Durbin Amendment, part of the Dodd-Frank Act, limits swipe-fee revenue from debit cards. Because of this, many banks have added fees and removed rewards. Citi wants to take advantage of this frustration by convincing unhappy debit-card users to switch to its credit cards.
To attract these customers, Citi is promoting simpler cards. For example, its Simplicity card charges no annual fee, no late fees, and no penalty rates. Other offers include 0% balance transfers, which could become profitable once teaser periods end.
Aggressive Marketing—but at a High Cost
Citi’s campaign is expensive. One direct-mail piece can cost around 70 cents. With hundreds of millions mailed, Citi may have spent more than $240 million in the third quarter. Direct mail is costly, about 10 times more than acquiring customers through branches.
Even then, industry data shows that issuers may gain only 25 customers per 100 mailings. This means Citi will need months before it sees significant results.
Will Customers Really Switch?
Switching behavior remains uncertain. Debit-card transactions continue to rise. In 2009, Americans made nearly 38 billion debit purchases, up from 25 billion in 2006. Meanwhile, credit-card transactions stayed flat.
However, a Mintel survey revealed that two-thirds of customers would switch cards or leave their bank if a debit fee was added. Since Citi has a smaller debit business, it has more flexibility.
Facing Strong Competition
Citi isn’t alone in this race. Chase has also encouraged customers to consider credit cards for everyday spending. However, Citi remains confident.
“This is about outperforming the competition,” Linville said.
