First USA Turns Up Heat in Credit Card Wars

Tired of losing credit card customers to rivals that offer cheap teaser rates, one of the nation’s biggest card issuers is testing an aggressive strategy: stealing back its former customers.

First USA, the nation’s second-largest credit card issuer, recently launched a marketing program in which it tries to identify customers who are transferring their balance to a rival credit card, and then win back their business by firing off a competing low-rate offer.

If the program works as First USA hopes, customers would be bouncing their balance back to it only days after moving it to another card.

The program--likely to be copied by other large credit card banks--marks a further escalation in the industry’s tug-of-war over customers. With the market for plastic saturated, issuers have spent much of the 1990s poaching one another’s customers.

The First USA effort, however, raises the stakes even further by proactively offering lower rates to customers it believes have defected. In the past, companies typically cut rates only after customers demanded it.

“It’s another example of how vicious the industry is getting,” said Jim Shanahan, a partner at Business Dynamics Consulting, a Newark, Del.-based credit card research firm.

But it is good news for the approximately 15 million Americans who routinely bounce their debt from card to card in search of better interest rates, Shanahan said.

First USA’s program works like this: The company watches for “triggers” such as a cardholder who suddenly makes a large payment or pays off his or her entire balance. Such actions are often signs that the customer is transferring the debt to another card.

Within days, First USA mails an offer, usually with a low teaser rate for six months. One recent offer included a 3.99% teaser rate for six months and 9.99% thereafter.

Included in the offer are preprinted checks, which the customers uses to pay off the rival credit card company and move the debt back to First USA.

It means more paperwork and processing for the bank, but First USA officials predict it will be worth it, particularly if it helps them hang on to good customers.

“We’re trying to identify our customers and speak to them individually, not as a mass market,” said Gary Marino, executive vice president at First USA, which started testing the program three months ago. “We’re saying to people, ‘We want to have a long-term relationship. Give us another chance.’ ”

Of course, First USA won’t be rushing such offers to every customer. The bank is targeting its most profitable cardholders, including heavy spenders who pay on time and often carry a balance from month to month.

The offers also may have some hidden costs, including a transaction fee equal to 1% of the amount and an automatic rate hike if the customer is late on a monthly payment.

In addition, the low rate only applies to balances moved back from the rival card, not existing balances or new purchases, which are charged at the card’s regular rate.