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THE new credit cards launched by retailers, airlines, cell-phone operators and other non-traditional issuers in the past three years have, for the most part, uncovered a rich seam of clients who have warmed to the lifestyle benefits they offer.

Life and healthcare insurer Discovery’s launch of its FNB-backed credit card nearly three years ago started a steady stream of “new generation” cards.

Credit cards used to be seen as an exclusive payment mechanism, but they are gaining acceptance, and account for over 15% of bank earnings.

In the past year, regulators and analysts have expressed concern about the pace and scale of credit extension, and there where fears that the new market entrants’ rush to launch credit cards would end in tears. But there have been few tears – except those of joy – mainly because of better risk selection in issuing cards.

Most issuers speak of the high quality of customers, good transaction volumes and card balances – although many recognize the need to market propositions more effectively.

The cards mostly appeal to lower risk borrowers higher up the LSM (living standard measure) chain. Each new card offers a different perk, adding to the lifestyle appeal.

Most issuers report high initial launch volumes, followed by a tailing-off of demand. The card business relies on regular campaigns. The introduction of the National Credit Act on June 1 has slowed applications, as issuers ensure compliance and staff get used to new sales techniques.

Analysts and management consultants once expected the new entrants to threaten banks’ traditional business. But they formed partnerships with the banks instead, improving the quality of their books.

Absa provides the backbone for credit cards issued by Virgin Money and Barclaycard; First National Bank handles Discovery, Clicks, Vodacom and kulula.com; Nedbank caters for SAA Voyager; Standard Bank looks after Edcon and MTN; and Mercantile Bank handles Woolworths’ cards.

Leading the pack in card issuance is retailer Edcon, which launched its fee-free card almost two years ago. Counting primary and secondary cardholders, Edcon has 529 000 cards in issue. Middle-to-upper income Edgars cardholders account for three quarters, and Jet the balance.

Financial services executive Ian Wood said: “It’s the fastest-growing credit card in Africa, the Middle East and Europe.”

Edcon already has a feel for customer creditworthiness, enabling it to screen for better quality cardholders before final assessment by Standard Bank. Its card operation will make a profit in the current financial year, after accounting for all start-up costs.

Graeme Holmes, the head of consumer cards at Nedbank, which launched the SAA Voyager credit card last year, reports almost 50 000 cards in issue.

Nedbank is not the biggest card issuer, but it is the biggest acquiring bank, so it has benefited from the upsurge in card issuance and usage. It has lifted its market share of card balances for the past five months.

Holmes said customers were attracted by the earn-rate for rewards. “What took us by surprise,” he said, “was the number of SAA Voyager Premium cards taken up. These are flyers who are in the right earnings bracket and are good credit risks.”

He expects to benefit from SAA’s database of customers, especially as other banks end their Voyager reward programmes.

Absa retail chief Louis von Zeuner is happy eith his three card brands – Absa, Barclaycard and Virgin Money. They appeal to different clients. “We’ve been selective in issuing cards,” he said, “but there was a slowdown in May, partly related to preparation for the [Credit] Act.”

This affected customer recruitment at Barclaycard, which was relaunched in April.

Absa Card managing executive Chris Sweeney, who spearheaded the launch, said Barclaycard has between 2000 and 3000 cardholders. He is pleased with the quality of customers acquired and the quality of business recorded since the launch.

Von Zeuner noted customers were skeptical about applying for credit on line, slowing the take-up of Barclaycard. He might enable applications to be handled by Absa branches, as the Act ruled out direct selling. Online applications have worked well for SAA Voyager, however.

Virgin Money, which has attracted 180 000 primary and secondary cardholders, appeal to a different customer group, which is more at easy with applying online.

Said managing director John Maxwell: “People come to us by choice. We never cold canvassed.”

Many analysts expected Virgin Money to appeal to the youth market. But the average age of clients is 35. Although eight new cards have hit the market since Virgin Money’s launch last June, its clients are mainly in the higher LSM 7-10 brackets.

Aware that credit cards are at the “sharp end” of household-debt priorities when consumers get into difficulty, Maxwell said: “We’ve been conservative on our score cards, and attracted high-end consumers.”

“Virgin Atlantic and Virgin Active are primary brands that position us in the aspirational market. Now, we’ve punched through, and established Virgin Money as a credible brand.”

Jacques Celliers, who become CEO of FNB Card the same day the National Credit Act came into effect, has inherited a card-packed portfolio. Discovery Card has about 500 000 cardholders, Vodacom and Clicks each have between 50 000 and 60 000 cards in issue and kulula.com about 30 000.

“The cycle timing wasn’t perfect, but we learnt a lot from the Discovery launch, and opted for a range of strong brands and loyalty programmes. The secret lies in getting the various propositions into consumers’ minds.”

Celliers is treading carefully. “You can open the floodgates and sign up large numbers of cards, but that can give you problems later.”

“We haven’t flogged credit, chased book size or customer numbers. Getting a card into the wallet is easy, but getting it into the front of the wallet is another thing – it’s all about ensuring utilization, and that’s where loyalty programmes help.”

MTN Banking MD Terry Timson, who launched MTN credit cards with an airtime-based loyalty scheme to select customers last October, said that the launch had attracted “about 60 000 cards”. He said there had been a higher-then-expected take-up of the top-end card.

Overall, the more lifestyle-relevant credit cards and the more conservative risk selection used in issuing them may have created a stable tier of profitable clients for the new entrants and their bank partners.

But,  as FNB Card’s Celliers says: “It’s early days still – it takes a long time before books mature and customers settle down.” Richard Stovin-Bradford (June 17 2007)