JUNE 2004

Turnaround in Issuers Use of Direct Mail

Market research firm Synovate reports in its latest Mail Monitor^® direct mail tracking service that U.S. households received 21 percent more credit card offers in the first quarter of 2004 as compared to the fourth quarter of 2003. The 1.28 billion direct mail solicitations sent out in the first quarter of 2004 represent an 8 percent increase in volume over the first quarter of 2003.

The increase in issuer use of direct mail marks a turnaround from 2003 during which time portfolio credit quality was more important to issuers and therefore offer volume decreased for the second consecutive year—registering 4.29 billion credit card offers for the year, a 12 percent decline in volume from 2002 and a 14 percent decrease in volume from the all-time record of 5.01 billion offers mailed in 2001.

Despite the cutback in mailings for 2003 overall, volume rebounded in December leading Andrew Davidson, Vice President of Competitive Tracking Services for Synovate's Financial Services Practice to correctly predict the increase for the first quarter of 2004. Davidson noted that "[t]he modestly improving economic outlook for 2004 combined with continued low interest rates has prompted issuers to increase their mail activity.... We have seen card mail volume steadily increasing on a monthly basis since the third quarter last year. In fact, March 2004 mail volume was at 473 million which is the highest monthly volume we have seen since November 2001."

Considering the likelihood of an increase in the prime lending rate by the Federal Reserve this year, credit card issuers may be trying to capture as many new cardholders as possible in the current climate. The longstanding low interest rate environment, however, has resulted in a change in the composition of offers being sent to households. During the first quarter of 2004, 18 percent of all offers carried an APR of 6.99 percent or below (compared to 2 percent of offers for the same period in 2003) and the median APR for offers was 8.99 percent. Given the prevalence of such favorable terms, the frequency of introductory rates has declined—69 percent of mailings promoted an introductory rate during the first quarter of 2004, compared with 80 percent of mailings in 2003.

Issuers are also employing more reward and rebate offers in an effort to attract new customer accounts that they can hold on to. The use of a cash rebate component in offers saw a dramatic increase of 75 percent (376.5 million versus 214.8 million) in the first quarter of 2004 as compared to the first quarter of 2003.

See Larger Chart

See Larger Chart