Debit or Credit? Citi Places Its Bet

Citibank was noted as a leading mailer of credit card offers in Q3, with an estimated 346 million pieces mailed, according to Synovate’s Mail Monitor program. The initiative is being linked, in part, to the effects of the Durbin Amendment, which will potentially make debit cards less attractive to consumers.

Citi said it is emboldened by a continuing reduction in uncollectible debts in its credit-card portfolio, a sign that the worst of the fallout from the financial crisis is behind the company. Citi’s North American card business earned $584 million in the second quarter, compared with a $154 million loss a year ago.

Jud Linville, a former American Express executive hired last year by Citi to revamp its card operations, said he sees opportunity as rivals pull back. Mailings for American Express, Bank of America and Discover Financial Services all fell in the second quarter from the first quarter, according to Mail Monitor.

“This is a business where you look for vacuums,” Mr. Linville said. “Are there players moving out of certain categories?”

One potential void was created last year by an addition to the Dodd-Frank Act, which overhauled financial regulation. Known as the Durbin Amendment, the new rules, which go into effect in October, will limit the fees that banks collect from merchants each time a debit card is swiped, making cards far less profitable for the issuers.

As a result, some issuers are making debit cards less attractive by charging monthly fees and eliminating rewards. Citi is hoping to capitalize on this change by convincing dissatisfied debit customers to use its credit cards instead.

Citi’s initiative is perhaps best viewed as a tactical move in credit marketing, as the article notes declines in solicitations by other issuers. Debit users will likely endure some inconvenience and added costs in order to maintain their pay-now orientation. And according to Mercator’s research, significant segments of credit cardholders are still trying to hold the line on borrowing, with limited appetite for increased credit spending that might increase revolving balances. Recent Mercator surveys also note the growing importance of electronic application channels, where consumers shop for card offers or apply directly at favored issuers.

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