) -- Many of us get at least one pre-approved credit-card offer in the mail each week.

The pace of those letters has slowed since the financial crisis hit as credit-card companies including

Capital One

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tighten lending standards to shield themselves from the risk of default from customers with marginal credit histories.

The credit-card business is a curious one. The companies consider customers who pay off their balance each month as "deadbeats," since they generate no fees from them, and those who carry a balance are the most highly valued because they rack up huge financing charges. Yet, the companies need those carrying a balance to make at least minimum payments. It's a fine line for credit-card companies, which can charge interest of as much as 30% a year.

The credit-card business can be lucrative, but, viewed through the framework of Michael Porter's five forces affecting competition, investing in those companies is too risky for the average investor, especially in times of a sluggish economy and high unemployment.

Degree of Rivalry

The level of competition in the credit-card industry can be viewed by watching TV. In one commercial break, you may see unwashed Vikings pitching Capital One cards, Ellen DeGeneres talking about her

American Express

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card, and a


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spot sporting its touchy-feely "priceless" slogan. Those companies dish out big bucks for primetime exposure not only to entice new customers, but to get existing card members to choose their card when at the cash register.

That's the reason certain cards offer cash back, airline miles and other swag. The better you feel about using that card, the higher your balance will be, and the more companies will make from fees and interest. A more subtle tactic is Capital One's feature of uploading a personal picture on to your card, the idea being that, if you see your son covered in spaghetti on a card when you open your wallet, you will be more likely to use that card.

Credit-card companies fight tooth and nail for every dollar of charges, ultimately making it a hotly contested and, therefore, volatile industry.

Bargaining Power of the Customer

According to a 2007 study by the consumer-credit-rating company


( EXPN), 14% of Americans carry 10 credit cards or more while the average American holds four. The buffet of card choices gives the customer great power. Now, with the addition of the Internet, customers can quickly compare rates, fees, rewards programs and other card features, making it more important for credit-card companies to sweeten the pot for customers to win business.

An industry that offers so much choice, creating fickle customers, is hardly ideal. Many companies will go wanting, due to slightly lower rewards or any number of reasons, increasing the pressure to make their card appealing.

Bargaining Power of the Suppliers

Suppliers for credit cards infuse companies with cash through the process of securitizing credit-card receivables into a much discussed vehicle known as a collateralized debt obligations. Credit-card companies avoid some risk inherent in lending by transferring it to external investors through collateralized debt obligations. However, if the products sold perform poorly due to loose lending standards, investors can quickly take the companies to their knees by refusing to purchase future securitizations, effectively shutting off the tap to fresh cash.

In the credit crisis, standards skyrocketed because investors refused to purchase anything that wasn't ultra secure. Investors have plenty of options when it comes to places to put their money, so when they say "jump," credit-card companies must ask "how high?"

Threat of New Entrants

The credit-card game isn't difficult to get into. Any company with a finance arm and cash to lend can start issuing cards. As so-called "micro finance" becomes more common, expect the old guard of


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, MasterCard and American Express to compete against low-cost alternatives, which will erode profit margins.

Threat of Substitutes

As the savings rate is edging up, there may be a move away from credit spending and back toward cash purchases using debit cards. Many people have become gun shy from debt problems experienced during the crisis, leading them to pay down balances and living within their means. While plenty of people will still be charging purchases, the days of four credit cards per person may be coming to an end.

Life isn't good for credit-card companies today. They have to fight for business under increasingly tighter restrictions from investors, while the general public takes a breather from running up debt balances. While now may be a good time to scoop up American Express or Capital One on the cheap, ask yourself if this business model is really worth the risk.

-- Reported by David MacDougall in Boston.

Prior to joining Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.