|Banks and credit card companies are shifting strategy and going after people with the means to pay their bills.|
NEW YORK ( TheStreet) -- The credit crunch has turned impulse shoppers into toxic assets, with banks boosting fees on high-end credit cards to more than the average person's outstanding balance. What better time to launch a credit card aimed at the wealthy? Don't blame JPMorgan Chase ( JPM - Get Report), whose credit card division has taken a $1.59 billion bath since September 2008 and has a default rate hovering around 8%, for launching its Chase Sapphire rewards card to snare shoppers making $120,000 a year or more. With credit reporting agency TransUnion announcing that 1.17% of credit card payments in the second quarter were 90 days or more past due, up from 1.04% a year earlier, banks and credit card companies are trying to put cards in the wallets of as many people with 750 credit scores as possible.
"It used to be that your bread-and-butter customers were revolvers, who you wanted to pay the minimum and string them out through their lifetime, though, ideally, you wanted to get paid when they passed away," says Curtis Arnold, consumer advocate and founder of CardRatings.com. "Those customers are now viewed as a higher risk." In headier times, banks and credit card companies could shore up their numbers by lobbing T-shirts at college students or picking off unsuspecting parents at sporting events by offering their kids free apparel. People recruited by such means carried an average balance of $5,700 in the second quarter. With new laws putting the kibosh on such practices next February, cards that promote big spending and reward on-time payments have become the new standard.
The Chase Sapphire, introduced by JPMorgan on Aug. 19, comes to the party a bit late and somewhat empty handed. The lack of an annual fee for the basic card (the points-heavy "preferred" card will set you back $95 annually after your first year) and its travel services separates it from the crowd, but features like roadside assistance, point-per-dollar rewards and limitless spending have become somewhat rote -- even as lower-rung cards cut benefits. "It's trying to be in the same league as these other luxury cards, but it's more a mainstream rewards card," says Ben Woolsey of CreditCards.com. "They've come out with a common rewards platform similar to American Express' ( AXP - Get Report) Membership Rewards that's not terribly novel." By contrast, Bank of America ( BAC - Get Report) charges a $295 annual fee (it's waived for its more valued investing clients) for its American Express Accolades card, which offers far more travel perks. Holders of the Visa ( V - Get Report) Black Card, introduced by Barclays ( BCS) last year, get special access to airport lounges, restaurants and shows for a $495 annual fee. For roughly the same amount, Citigroup's ( C - Get Report) Chairman American Express card gives users hotel upgrades, private jet access and companion tickets. If you want to avoid the rabble, however, you need to root them out yourself. For five years, Stratus Rewards has offered its white Visa card only to candidates nominated by its members or by partners such as the Sports Clubs/LA, Marquis Jet and the Young Entrepreneurs Organization. Those lucky few are expected to pay $1,500 a year and ring up $100,000 in annual charges to receive private jet hours, special entry to the Louvre in Paris and awards-show quality gift bags.
The best way to ensure a steady stream of fees is to ditch the paupers altogether. American Express' Centurion card, more commonly known as "the black card," has done this for a decade by requiring candidates to spend $150,000 a year on another American Express card before even receiving an application. From there, cardholders must pay a $5,000 initiation fee and $2,500 annual fee, and charge $250,000 a year just to keep the titanium toy in their billfolds. For their trouble, they receive buy-one-get-one-free nights at Mandarin Oriental hotels, use of personal shoppers at Tiffany ( TIF - Get Report) and Neiman Marcus, concierge service, translators during travel and reserved tickets to games and concerts. With Citigroup experimenting with $39 fees and rewards on low end cards and Chase supplementing Sapphire with $100- to $300-a-year United Airlines ( UAUA) reward cards, companies are trying to turn their customers into the demographic they used to hate. "These are the customers that, historically, if you asked them about their card would say 'I'm a deadbeat: I don't hold a balance, I don't pay a fee and I get all these reward points out of the deal,'" Arnold says. "Yesterday's deadbeat customer is today's desired customer." -- Reported by Jason Notte in Boston. Follow TheStreet.com on Twitter and become a fan on Facebook.