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Published: Tuesday, 3/16/2010

Card issuers boost perks for competitive edge


NEW YORK - Not every letter from a credit card company is bad news.

Although millions of card users received notices of interest-rate increases and new fees in recent months, a select portion learned they're getting new perks.

For example, Citigroup Inc. informed certain customers with American Airlines-affiliated cards that they now get 1.2 miles for each dollar they spend, up from a 1-mile-for-$1 ratio. JPMorgan Chase & Co. similarly upped the miles-to-dollars ratio for its British Airways card by 25 percent, to 1.25 miles for each $1 spent and also boosted the ability to rack up rewards on Marriott cards.

The upgrades are aimed at making it more appealing to use one card over another - to "place our cards at the top of their wallet," as Citi spokesman Sam Wang put it.

But not everyone who has one of these cards, or a similar reward card from a different bank, will automatically get an upgrade. Citi, for example, limited them to customers with good records.

The reason for the upgrades is to replace earnings lost because of credit-card reforms that restrict tactics such as over-the-limit fees and interest-rate increases.

One strategy is to increase income from fees.

One big target for this is customers who use their cards frequently but pay their balance off each month, thus paying little or no interest. The real money-maker for card issuers is the transaction fees that merchants pay.

Every time a card is used, between 1 and 2.2 percent of the transaction is siphoned off in fees that get sent to the bank that issued the card. These fees totaled more than $40 billion in 2008, according to the Nilson Report, which tracks the card industry.

Another issue driving rewards-program improvements is the general shift from credit card use to debit card use, which generates lower transaction fees.

Debit card transactions passed credit cards in 2005, and figures from the Nilson Report show credit use fell for the first time in 2009, dropping 11 percent to $1.9 trillion. Meanwhile, debit use increased 7 percent to $1.45 trillion. That trend is expected to continue, with debit spending passing credit spending in the next two years or so.

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