GE to Offer a Consumer Charge Card : Credit: Holders can get discounts on products at large retail chains and on services. But the card will be pricey.
General Electric Co., bidding for a big share of the credit card business, said Wednesday that it will offer a card with consumer discounts at selected large retail chains and consumer service companies.
GE’s move follows the huge success of the AT&T; Universal Card, which wooed legions of consumers beginning two years ago by offering cards with no annual fee. AT&T;, by becoming the nation’s fourth-largest card issuer, has inspired other big non-banking entities to consider sponsoring cards. General Motors too is expected to announce a big bank-issued card initiative soon.
But the new initiatives come at a time when the bank-issued card market is largely saturated, with consumers already seeing a blizzard of competing offerings. Analysts said GE’s prospects for muscling into a big share of the market are uncertain, especially because the GE card will be expensive.
GE’s initiative, nonetheless, is being taken seriously in the industry because of the firm’s considerable financial clout and marketing capabilities.
GE Capital Corp., GE’s huge finance subsidiary, said it will begin marketing this month the GE Rewards card, usable at any place that accepts Mastercards. The GE Mastercard will offer $10 “rewards checks” for each $500 in purchases charged on the card. The checks will be redeemable for discounts on purchases at more than 15 companies, including Kmart, Toys R Us, Bullock’s, Foot Locker, Hertz, HBO and Sprint.
Discounts will apply even on sale items. Each quarter, cardholders will also receive $10 savings certificates from each of the companies, good for additional discounts on merchandise or services.
However, the card will have an annual fee of $25, much higher than the current average of $15 among the nation’s 25 biggest card issuers, according to James Daly, editor of the Chicago-based Credit Card News. And the basic interest rate also will be steep--18.4%, compared to a 17.7% average among the biggest issuers and much lower rates at some firms.
GE said some customers with good credit ratings will qualify for a lower interest rate of 14.9%. It declined to disclose what standards it will use in deciding who gets the lower rate.
GE’s strategy seems to be to try to keep its per-card profit high while passing along much of the costs of the consumer lure--the discounts and rebates--to retailers desperate to attract customers in recessionary times, observers said.
Gerri Detweiler, director of Bank Card Holders of America, a consumer group, expressed disappointment at GE’s announcement. “We were very disappointed that GE didn’t come out with a low-interest rate card,” she said. “GE really has the money and the clout to make a dent in credit card rates, and GE just didn’t do that.”
Consumer credit card rates have remained steep despite the general drop in interest rates the last two years.
David R. Nissen, chairman of GE Capital’s consumer financial services unit, said extensive consumer surveys persuaded the company that the cards will catch on.
Despite the card’s annual fee and above-average interest rate, consumers are attracted by the prospect of significant discounts on purchases, he said. “It is truly a card which cuts the costs of living for today’s value-conscious consumers,” Nissen said.
But Robert B. McKinley of Ram Research Corp., a Frederick, Md., firm that tracks credit card rates, noted that GE’s 18.4% annual rate is much higher than the 6% prime rate most banks charge their best customers on loans. McKinley said this amounted to “an outrageous spread” and added: “To have a spread that high is really a big trap for consumers.”
The discounts GE is offering are large relative to those offered on some cards, such as Sears, Roebuck & Co.’s Discover card, which offers consumer rebates. But analysts said that from a cost standpoint, the GE card would make sense only for consumers who pay their bill in full each month and who charge much more than the average $2,000 that consumers charge per card each year.
Detweiler compared the benefits of the GE card against the savings of a low-priced card, such as USAA Federal’s. The Tulsa, Okla., firm’s card has a 12.5% interest rate and no annual fee.
Detweiler said consumers would have to charge at least $4,000 on the GE card in order to get enough of the GE “rewards checks” to make up for the difference in cost.
GE isn’t a newcomer to the credit card business. The company is a leading issuer of non-bank charge cards, handling one-store charge cards for more than 300 retailers, such as Macy’s.
And GE’s Monogram Bank, which will issue the new Rewards card, already has a significant portfolio of Visa and Mastercard accounts, mainly from buying up accounts from other issuers.
