Credit cards target banks’ own customers

Getting a bank issued credit card is nothing new for U.S. consumers.  But the recent appearance of low-fee, high-rewards credit cards that are generally available only to a bank’s own customers marks a shift in the way banks market credit cards.

These new credit cards usually have lower fees, fewer penalties and appealing rewards.  However, you must be an existing customer or be willing to open accounts with the banks to become a cardholder.

Certain banks are offering the credit cards in an attempt to compete in an industry where the number of players is quickly shrinking, with over 70 percent of the U.S. credit card business now controlled by the leading five issuers.

By issuing credit cards just to existing bank customers, the banks hope to gain creditworthy customers who default less.  Although the credit cards offer lower fees (which brings in less penalty income), loyal customers usually are bigger spenders and help increase the banks’ assets.  Smaller credit card issuers see this approach as a means for gaining traction in the industry.

On Sept. 4, 2006, Wachovia became the latest bank to introduce this type of credit card, on the heels of Commerce Bank and Wells Fargo, for customers with a checking, savings or other account with the bank.  The move represents Wachovia’s re-entry into the credit card business after ending its relationship in 2005 with issuer MBNA, now part of Bank of America.

Wells Fargo’s approach is slightly different, with the bank issuing credit cards anyone can apply for, but marketing them exclusively to existing customers.