Credit Cards with Annual Fees Will Be Widespread by End of 2010, Says Auriemma Consulting Group

LONDON--(Business Wire)--
Reduced revenues will drive credit card issuers to introduce cards with annual
fees to consumers in the near future, according to Auriemma Consulting Group, a
management consulting firm that serves the cards and payments industry. Cards
without annual fees will not feature rewards and will only offer cardholders
basic benefits.

This shift away from no-fee credit cards will come as a result of the changes in
the ways that consumers are using credit cards, which affects the profitability
of credit card issuers. Consumers are less likely to carry balances on their
credit cards, reducing the amount of revenue card issuers can earn on interest.
Data published by Auriemma Consulting Group in Cardbeat® shows that the
percentage of consumers carrying balances on their credit cards has decreased
40% in the past year. Additionally, the number of consumers unable to pay their
bills (credit cards or otherwise) has increased dramatically over the past 18
months. Since the end of 2008, the percentage of credit card accounts written
off by lenders has exceeded 10%; in 2006, the percentage of credit card accounts
written off was typically between 3 and 5%. These two factors have resulted in
card issuers being forced to seek out alternate commercial models and income
streams.

To maintain profitability, many issuers will aggressively market fee-based cards
to customers. Whilst credit card companies will continue to offer no-fee cards,
the rewards aspect of these cards will be greatly reduced or removed altogether.
Rewards cards, including cards with premium services or benefits, will certainly
feature a fee in the near future. Credit card issuers that currently offer cards
with annual fees will most likely increase those fees.

Additionally, card issuers will develop new card offerings, with tiered rewards
and benefits. Most likely, these offerings will have several cards under a
specific brand. Cardholders can pay a higher fee for richer rewards and
benefits, and a lower (or no) fee for a more basic product. There have already
been examples of tiered cards in the market. In the UK, the most notable example
comes from M&S Money (a subsidiary of HSBC). M&S`s basic no-fee card gives
cardholders 1 point per £1 spent in the store. Cardholders enrolled in their
Premium Club (with a £10 monthly fee) receive free vouchers for coffees from the
in-store cafe, complimentary family travel insurance, and earn 3 loyalty points
for every £1 spent in the store.

Megan Bramlette, a managing associate at Auriemma Consulting Group says, "By the
end of 2010, all major credit issuers in the UK will have some sort of fee-based
enhancement available to its customers, the most successful of which will offer
benefits that are in line with their core value proposition like in-store
benefits for a retailer co-brand card, or premium seat selection and baggage fee
waivers on airline cards."

It is expected that it will be more expensive for consumers to borrow money in
the future, whether on a credit card, a mortgage, a personal loan, or any other
type of financial product. As the lending industry transitions to a fee-based
environment, it is likely that many British consumers will cease using credit
cards, particularly the sub-prime and mass-market population. The number of
credit card users in the UK will shrink, and the remaining consumers using
credit cards will be the more affluent and rewards-seeking population.

About Auriemma Consulting Group

Since 1984, ACG has offered comprehensive management consulting, research,
industry roundtable and benchmarking services to the financial services
industry. ACG clients include credit card issuers and networks, commercial
banks, auto and mortgage lenders, merchants, and industry vendors. With offices
in London and New York, ACG offers actionable solutions to help clients make
important business decisions to maximise their efficiencies and revenues.

Auriemma Consulting Group
Megan Bramlette, +44(0)207-629-0075
megan.bramlette@acg.net

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