Merchant Credit Card Account General Facts

Thousands of companies offer merchant credit card accounts, as well as bank cards to consumers. Before the beginning of the last decade of the 20^th century, card issuers competed mostly by waiving annual fees and offering various program advantages. Since then, though, interest-rate competition has taken a much more prominent role in both areas. Many issuers and payment processing services providers, including practically all of the biggest issuers, have lowered rates on many of their clients below the 18 to 19 percent rates typically maintained through most of the last twenty years of the last century. Interest rates in general have recently gotten much more responsive to issuers' costs in recent years as more and more issuers have linked their interest rates to one of several indexes that fluctuate with market rates. (Presently, most large issuers tie the rates on their largest programs to an index, usually the prime rate.) Some issuers have divided their client bases according to various risk characteristics, offering lower rates to existing customers with good payment records while charging relatively high rates on cardholders that are higher-risk or late-paying. What is more, many issuers have tried to gain or maintain market share by providing very low, introductory rates on balance transfers.

Over the past few years, merchant credit card account competition has led to significant shifts in market shares among the biggest providers. The majority of the larger issuers have expanded by acquiring portfolios from smaller competitors or by merging with other companies. Additionally, several of the more rapidly expanding companies in recent years seem to have enhanced their market share by providing comparatively low interest rate cards and attractive balance transfer rates. Others have increased market share through co-branding and similar rebate strategies, usually combined with waivers of annual fees.

Aggressive competition for customers among merchant credit card account providers in 2005 was at least partly responsible for a 5 percent increase from 2004 in the number of MasterCard and Visa cards in circulation, to a grand total of 595.2 million. The number of cards per consumer rose to an estimated 4.95. While the number of cards in circulation kept growing from 2004 to 2005, the growth rate was moderate, indicating that the market was becoming somewhat saturated.

Direct mail offers are still the primary marketing channel. We saw a new record in 2005, with 71 percent of U.S. households receiving an average of 5.7 offers per month in their mail boxes.