Credit Card Issuing Industry Marketing

Discussion 1: Provide an overview of the credit card issuing industry cost structures and revenue sources

Credit card issuing companies generate revenues from different sources. One of the primary sources of revenue is consumer (merchant) fees collected from the cardholders for annual subscription, card renewal, card replacement, and redemption of reward points. Customer fees contribute around 9 percent of total industry revenues (Gambardella, 2020). Issuing companies also generate revenues from interest charged on conversion of outstanding amounts to easy Equated Monthly Instalments (EMI), balance transfers between cards, cash advances, and late payment (Hill, Schilling & Joes, 2016). Interest fees account for 36 percent of industry revenues (Gambardella, 2020).

The highest revenues are generated from merchant or interchange fees (Gambardella, 2020). When a cardholder makes payment to a merchant through a credit card, the merchant does not receive the full amount. A certain processing fee is deducted, a portion of which is forwarded to the issuing bank through the payment network. This is referred to as interchange fees, and it usually ranges between 1% and 3% of the transaction. Interchange revenues account for over 46 percent of the industry’s revenues, and are the largest source of revenue (Gambardella, 2020). Credit card issuers also earn commissions from the sale of third party products such as when sales agents promoting the credit card engage in cross-selling of other products such as investment schemes or mutual funds (Hill et al., 2006). Some revenue is also generated from co-branding activities, such as when third parties pay advertising fees for inclusion of their adverts in customer credit card statements (Hill et al., 2006).

The cost structure of credit card issuers includes operating expenses, costs incurred in reward programs, and bad debts or charge-offs (Gambardella, 2020). Operating expenses are costs incurred in the day-to-day running of the companies, including preparation of customer statements, printing of plastic cards, payment of wages for workers, mailing, research & development, and marketing. Operating expenses account for around 34 percent of the industry’s annual costs (Gambardella, 2020). Credit card issuers emphasize the value of their services through their reward programs (Gambardella, 2020). As such, reward programs make up a significant part of the company expenses. Costs are also incurred in the form of bad debts, when customers completely fail to pay their credit card bills, causing a loss to the issuing company (Hill et al., 2006).

Discussion 2: Product Life Cycle Analysis: A Case Study of the Sapphire Brand

JP Morgan Chase’s Sapphire credit card was released in 2016 with insane offers that included a 100,000-point introduction bonus, a $3,000 travel credit, and bonus points for dining and travel spending with access to hundreds of airport lounges globally. The Sapphire brand is most likely in the market growth stage of the product life cycle, which is characterized by accelerating demand and a rapid expansion of the market (Hill et al., 2006). Demand for the brand has been very high, particularly among younger users, and reports indicate that within the first two days of the brand’s launch, Chase had run out of both the metal card and the packaging used to ship it (Pilcher, 2016). The company was forced to issue thousands of temporary plastic cards to customers before it could replenish its supplies (Pilcher, 2016). Supplies that had been projected to last two years were depleted within two days (Pilcher, 2016). The company reports that demand for the Sapphire credit card has been eight to ten-fold what it expected (Pilcher, 2016). A 2020 survey by Nilson showed that Chase enjoyed the largest market share at 16.6 percent, having issued over 95,000 cards (Nilson Report, 2020).