
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, March 19, 1992                   TAG: 9203190077
SECTION: BUSINESS                    PAGE: B-5   EDITION: METRO 
SOURCE: The Washington Post
DATELINE:                                 LENGTH: Medium

CREDIT CARDS LOSING THEIR WHISTLES, BELLS

As banks seek higher profits, the marketing glitter they once used to sell credit cards is fading. It costs a lot and card holders are seeing through it.

Over the past few years, as the credit card market has become increasingly competitive, card issuers have resorted to a variety of whistles and bells to differentiate their card from the rest of the herd.

Issuers have offered everything from travelers insurance to frequent-flier miles to buying services in an effort to lure customers in an essentially saturated market. Some of these offers were heavily advertised, with commercials featuring broken crockery and lost hats all made good again because they were bought with a particular card.

Now the tide of "enhancements," as the industry calls them, seems to be receding a bit.

First, competition over interest rates and fees has offered a clear - and for most consumers more valuable - way of setting a card apart. Second, some enhancements have become so common that they do little to differentiate a particular card, while the variety and rapid change has left many card holders thoroughly confused.

Some of the enhancements are simply "marketing glitter," said Robert McKinley of Ram Research Corp., a Frederick, Md., company that tracks the industry. "Consumers are beginning to see through a lot of that."

At the same time, a few features have turned out to be so expensive for issuers that they are cutting back on them.

The much-touted insurance against loss and accidental breakage has disappeared from most packages, and Visa USA has eliminated this kind of coverage from the benefits automatically included with any Visa gold card.

"We've all tweaked our programs" to try to keep things card holders want without incurring too much cost, said a Visa spokeswoman. She said the full coverage for loss or breakage was simply too susceptible to abuse, resulting in "exorbitant" costs coverage.

"So many issuers piled [enhancements] on in the late 1980s that they ultimately became nothing more than white noise" with little impact on market share, said Elgie Holstein of Bankcard Holders of America, a consumer group based in Herndon.

"At the same time, they do contribute somewhat to the cost of maintaining card programs, and as banks seek to improve profits, anything that doesn't contribute directly to the bottom line" is likely to get the ax, Holstein said. Thus, many enhancements "can be expected to do the slow fade," he said.

Given the shifting sands of enhancements, consumers should be very careful before signing up for a card with some special feature. They should ask themselves whether the extras are needed and worth the extra cost.

To answer these questions, it is necessary to understand a bit about how these enhancements work.

To begin with, note that all credit cards are not alike.

Visa and MasterCard do not themselves issue Visa and MasterCards. Visa and MasterCard are associations, which do the marketing and set the rules, but the cards are actually issued by association members, mostly banks. Both Visa and MasterCard have standard cards and premium cards, often referred to as gold cards.

Visa and MasterCard both require that issuers of their gold cards include a core package of enhancements specified by Visa and MasterCard. Some of these can be included with standard cards if the issuer so desires.

Indeed, many low-cost standard cards skip the enhancements altogether, relying on low rates or low fees to draw customers.

On the other hand, with both premium and standard cards, issuers can add their own embellishments if they choose. These can include perks such as frequent-flier miles, rebates on purchases and the like. AT&T's Universal Card, which is available as either a MasterCard or Visa, includes a calling card feature for long-distance telephone calls.

It is the potential for non-bank issuers to tie in other products on a low-cost card that worries banks. Sears, Roebuck and Co., for example, wants to issue a Visa card that will roll in various financial services from its Dean Witter Reynolds Inc. subsidiary, but that plan has been mired in litigation.

For consumers, the bottom line, say many financial advisers, is to shop carefully and be sure not to pay for something you don't need.

by CNB