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TheStreet Open House

Citigroup Gets Creative to Boost Cards

Stocks in this article: C BAC JPM

Given the changes in the industry, card issuers need to focus on opportunities to increase revenue they generate from interchange fees, meaning that they need to drive more transaction volume, says Ron Shevlin, senior analyst at Aite Group.

"Citi's imposing spending minimums, not only do they try to drive the transaction volume but there is a mix of carrots and sticks. The stick being, 'Hey you're going to get hit with a higher interest rate unless you spend the money," Shevlin says.

Even though the move is risky, given that some cardholders could decide to close their accounts, "it's a smart business move," he says. "They have to do this to drive the volume."

The topic of interchange fees -- the fees paid by a merchant's bank to a customer's bank after they make a purchase on an accepted card network -- is a dicey subject for card issuers and payment networks like Visa (V - Get Report), MasterCard (MA - Get Report), American Express (AXP - Get Report) and Discover (DFS - Get Report).

Since payment networks set the pricing of interchange fees for their bank customers, there has been much controversy surrounding alleged interchange abuses, including a host of lawsuits against the firms alleging overcharges.

Dennis Moroney, research director in bank cards at TowerGroup, says that card issuers should still be able to make money on customers by implementing more fees, such as annual fees, pay for privileges, even possibly charging customers if they don't use a card enough.

Bank of America is tacking on annual fees to some of its credit card customers in an effort to what works and what doesn't, for both it and its cardholders.

JPMorgan Chase, which is among those issuers to lift interest rates and lower credit lines, has also created card products and services that are tailored to specific customer segments. The company says that it doesn't matter whether a customer uses a JPMorgan Chase debit or credit card, as long as it uses one or the other.

--Written by Laurie Kulikowski in New York.

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