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TheStreet Open House

Chase's Revival of Free Balance Transfer Card Is Questionable

NEW YORK ( TheStreet ) -- What on earth is Chase up to?

It's a fair question to ask in reaction to the decision by the nation's largest bank to offer products with questionable profitability. You see, JPMorgan Chase (JPM) is at the forefront of the resuscitation of free balance transfer credit cards, which offer introductory 0% balance transfer APRs and do not charge balance transfer fees. Issuers once made money off these cards by instituting default rates at the drop of the hat, but since the CARD Act prohibited such tactics, free balance transfer offers were believed to be collateral damage of this pro-consumer reform law and in fact disappeared for a couple of years.

Until recently, that is. Chase and Discover (DFS) reintroduced this genre to the credit card market a few months ago. Discover's quick discontinuance of their online offer for the No Balance Transfer Fee More Card only served to support the theory that these cards are unsustainable and fuel curiosity about Chase's motives in offering a No Balance Transfer Fee Slate Card with 0% interest on transferred debt for 15 months.

There are really only two possible explanations when you get down to it: 1) Chase believes that free balance transfer cards can be gateways to significant profits or 2) They want to give investors the perception of credit card growth.

Free balance transfer credit cards: profitable bait?
Starting with the first possible explanation, it's at least conceivable that free balance transfer credit cards could attract a sizeable number of new customers for Chase, which can then cross sell them other, more profitable products and actually make money when all is said and done. While these cards themselves generally won't bring forth any revenue for at least 15 months, they are extremely attractive to the nearly 40% of consumers who have revolving debt, according to the National Foundation for Credit Counseling's 2012 Consumer Financial Literacy Survey .

With a foot in the door thanks to the obvious appeal of a free balance transfer, Chase gains a captive audience for its bank accounts, car loans, mortgages, etc. And since only around 7-10% of consumers switch banks each year, Chase, it seems, is banking on these new customers sticking around for a while.

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