Cash captivates credit card companies, customers

There was a time when credit card rewards programs were dominated by points that could be traded for merchandise, and miles that could be used to buy airline tickets and other travel benefits. Those are still highly popular, but a new study suggests that cash-back deals are catching up fast.

Credit card offers increasingly feature cash

Mintel Comperemedia is a company that tracks direct marketing credit card offers that are targeted at consumers. Yesterday, it unveiled its latest research results, which cover the period from January to April 2011, and these suggest that cash-back deals are increasingly being used as sign-up incentives.

During the first four months of this year, 23 percent of all card offers included a cash incentive (often in addition to continuing cash-back or other credit card rewards) just to sign up. During the same period in 2007, just 1 percent of these solicitations included such an offer.

Credit card rewards too generous?

Some of these sign-up incentives are extraordinarily attractive, and Mintel Comperemedia singles out Chase as particularly generous. Capital One and Discoverare also well-known issuers of cash back rewards cards. However, the researchers also raised a warning flag for card issuers. Andrew Davidson, one of the company's senior vice presidents, remarked in a statement:

It is getting to the point where, in some cases, the incentive is so attractive that consumers may as well apply for a card to cash-in on its incentive regardless of whether they have any serious intent to use the card in the long term. The challenge for issuers will be getting these incentive-driven switchers to change their spending behavior and become loyal cardholders.

Credit card companies competing for customers

Some people immediately associate the word "generous" with credit card companies. However, they tend to be senior bank executives. The rest of us are probably asking: Why the sudden rush of altruism? There are probably two main reasons:

• Card issuers can again afford to invest in marketing. Credit cards were excluded from next month's proposed cap on interchange fees, and issuers may even see a boost in credit card use as a result of that (see Credit card companies likely winners in Senate battle this week). Moreover, The Associated Press reported just yesterday that late payments on cards have fallen to pre-recession levels, and default rates are rapidly returning to normal.

• After some pretty dire years, credit card companies are again expecting the good times to roll (see Credit card companies full of the joys of spring). And they all want as big a piece of the industry's profit pie as they can get. Hence their throwing of money at incentives that they hope will buy them market share.

Credit card applications - is now the time to start signing?

If Andrew Davidson is right, and these exceptionally generous sign-up offers present challenges to card issuers, then some might soon be withdrawn. If you're in the market for bargains, now might be the ideal time to start completing credit card applications for the best rewards cards.

Published 06/16/11 (Modified 03/21/13)