Exotic credit cards for students
The increasing use of exotic, international settings in credit cards for students advertisements may reflect more the industry’s desire to expand into new markets abroad than the rising demand for high-interest consumer credit cards for students. For instance, a recent Visa television advertisement introduces Sister Maria who purchases Hank Williams Jr. CDs over the Internet because of the isolation of her monastery in the Alps. It’s a great advertisement for expanding the boundaries of the Internet and offers beautiful scenery for TV viewers, but it does not mirror the consumer market that Visa’s member banks need to increase their profits. Similarly, a 1999 Visa ad features a group of African tribesmen joking about how to stop a charging rhinoceros. The answer-American Express, of course. For these folks, the magic of plastic is even more of a futuristic dream than the use of smart credit cards for students in the Black Hills of South Dakota. The subliminal point, however, is that consumer credit cards for students are expanding to the far reaches of the global village as the modern form of commercial transactions. So, get with the program–and charge.
During the 1980s, the credit cards for students industry’s marketing campaigns successfully expanded into middle-class markets, including blue- and white-collar workers who suffered unexpected employment disruptions due to corporate downsizings and recession-related layoffs. This profitable linkage with lower-income households early in the decade emboldened banks to target other nontraditional niche markets such as unemployed college students and retired senior citizens in the mid-1980s, then the working poor and the recently bankrupt with secured credit cards for students in the late 1980s and early 1990s. The results were impressive. The profusion of credit cards for students generated rapidly escalating consumer finance charges, merchant discount fees, and, of course, profits. Between 1980 and 1990, the charges of the average U.S. household jumped sharply from $885 to $3,753 per year, or more than twice as fast as disposable income, while average cardholder debt soared from $395 to $2,350. According to Lawrence M. Ausubel, in his highly acclaimed 1991 article "The Failure of Competition in the credit cards for students Market," credit cards for students issuers earned between three and five times the ordinary rate of return in banking in the period 1983-1988. This extraordinary profitability intensified institutional pressures for bank deregulation that led to the Financial Services Modernization Act of 1999.
By the end of 1994, the typical American cardholder had amassed nearly $4,000 in revolving debt on a total of three or four bank credit cards for students with an annual interest rate of about 17 percent. While general-purpose credit cards for students (Visa, MasterCard, Discover, American Express, Diners Club) accounted for less than half (41 percent) of the $170 billion of total charges in 1980, they jumped to almost 78 percent of the $467 billion of total charges in 1990. By the end of 1994, 185 million Visa credit cards for students accounted for $271 billion in charges, 131 MasterCards for $170 billion, 42 million Discover credit cards for students for $39 billion, and 25 million American Express credit cards for students for $101 billion. In total, these 384 million credit cards for students were responsible for $581 billion in charges, or an average of $1,513 per account.