Simplicity Is Cards' New Selling Point

If issuers spent the summer working through the stages of grief over the new credit card law, a spate of new products shows their acceptance of the new reality — and their renewed efforts to grow within it.

Major issuers, including Bank of America Corp. and JPMorgan Chase & Co., unveiled products and features this week to meet consumer demand for "back-to-basics" and "consumer-friendly" cards. Such efforts contrast sharply with the industry trend of retrenchment that accelerated over the summer, when issuers raised interest rates, eliminated products, closed accounts, discontinued some fees and added others in reaction to the recession and the restrictions of the Credit Card Accountability, Responsibility and Disclosure Act.

Adapting to the law "is a work in process for the industry, to put us in a place for next year to offer customers the choices that they need. I think the industry is getting there," Ric Struthers, B of A's president of global card services, said Thursday.

His company, for example, said Wednesday that it would give customers such choices with the BankAmericard Basic Visa, which it will start offering in October. The card will come with one variable interest rate — the U.S. prime rate plus 14 percentage points — for all cardholders and all types of transactions, including cash advances and balance transfers. It has no overlimit fee, one flat late-payment fee of $39 and a single page of disclosures. The interest rate will not change if a cardholder is late on a payment (though B of A reserves the right to suspend an account after multiple late payments, as with its other cards).

Though B of A started developing the BankAmericard line of products at the beginning of the year (the name comes from an early credit card introduced in the 1950s), Struthers acknowledged the influence of the same consumer and legislative pressures that led to the signing of the Card Act.

In April, when "we met with the president … he said he wanted a plain-vanilla card. We listened to that. We looked at consumer research," he said. "The Basic card is something we had in mind" already, and consumer appetite for such a product remained high after the law was signed. "I think the industry in general will focus on the need that consumers have expressed. They want more transparency."

Similarly, JPMorgan Chase spent two years developing Blueprint, an online tool that helps cardholders figure out how long it will take to pay off different balances and track their progress doing so. By the time the company rolled out Blueprint to 20 million customers in its most prominent card programs this week, the market was more than primed for such features.

"It's sort of fortuitous timing because they're oriented toward having the consumer have control of their finances," said William Wallace, the president of JPMorgan Chase's card services unit.

The new law complicated the development process for Blueprint, he said. "Because we started this two years ago, we … had to deal with a number of curveballs throughout the process," including the Federal Reserve rules released in December and the law that the president signed in May. The core product remains the same, Wallace said, but without those new restrictions, "I think there were a few cases where we would have provided some additional flexibility for a consumer around choosing which balance they wanted to pay off in their hierarchy."

Blueprint lets cardholders finance certain purchases while paying others in full each month interest-free. Customers can also choose the number of monthly installments or monthly amounts they want to pay on an existing balance, and Blueprint calculates a payoff plan.

During the development process, JPMorgan Chase sometimes had up to 300 people working on the project and had researchers follow 40 consumers' payment behaviors "in gory detail," Wallace said. The company found that cardholders "wanted predictability, they wanted repeatability, more transparency. They really wanted to get a sense of progress and success" from making payments, he said.

For JPMorgan Chase, "the play from a business perspective is loyalty and wallet share," Wallace said. "Instead of churning people from card to card, we believe we've given a set of tools that would give a customer the choice to do more" with one, JPMorgan Chase-issued card. "The industry's been so focused on new customer acquisitions for so long that our existing customers said, 'What are you doing for me?' "

B of A, by contrast, is hoping its new card will primarily serve to bring in new customers. "I think there will be some existing customers that have interest in this product, in going back to the simplicity," Struthers said. But from outside, "we think there will be some good interest, and we expect to gain off of our competitors."

Other issuers are relying on rewards programs to address consumer interest in more "basic" products and features during the economic downturn. American Express Co., for example, said this week that its charge-card holders would be able to apply points earned on purchases toward their bills for "everyday" spending categories. Citigroup Inc. will soon announce "Micro Rewards," which require only very few points for redemption, in its ThankYou Network. (In March, Citi introduced the Citi Forward card, whose interest rate drops a quarter of a point after three consecutive on-time payments.)

Some issuers acknowledged the need to find new ways to meet cardholder demand for simplicity but said new products might not be the best way to do it.

"I don't really know what a 'plain-vanilla' card is," said David Nelms, the chief executive of Discover Financial Services. "Our focus is to simplify and enhance our overall product. … We've talked about whether we want to package the Card Act stuff as a product — frankly, we did some focus groups, and they didn't want us to take credit for it."

Though "I think there's something to 'back to basics,' … I would like to see competitors focus more on service levels," he said. "The product is one thing … , but it's a service business."