The credit card wars are heating up, and the proof is in my mailbox. If it's not an offer for a new card telling me I've been pre-approved, then it's a missive from a card I already carry, telling me about some new service they're offering for only pennies per month.

Increased competition has sent card issuers scrambling to find ways to get new card holders and keep current ones happy, rendering the "plain old charge card" a thing of the past. It's been replaced by a beast loaded with services, options, and enhancements.

How did this come about? First, in the mid-80s the so-called affinity cards sprang up, some with pretty wacky affiliations. For example, why just use a run of the mill Visa card when you can use one affiliated with your favorite football team or radio station? (I half-expect the Resolution Trust Corporation to issue their own card, designed for debt-prone consumers, with a slogan like, "If we can handle the S&L failure, we can handle yours!")

Then, in 1990, AT&T helped make annual fees an issue in credit card choice by unveiling its no-annual fee Universal card. Its success stunned a skeptical industry. More recently, rumblings from Washington, D.C. about capping credit card interest rates drew consumer attention to what they were paying for interest. All of these events have forced card issuers to find new ways to differentiate their cards from the competition.

Savvy users

With more choices available, and a recession staring them in the face, savvy card users are more value oriented, says Anne Moore, president of Synergistics Research Corp., an Atlanta-based financial research firm.

"Some of the enhancements that were added to credit cards in the eighties were gimmicks or frills that went along with the excesses of the times. But in the '90s consumers are much more value oriented. They want enhancements that really give them value, peace of mind, or solve a problem for them, and those they're willing to pay for. But they aren't looking for the gimmicks and the frills and the niceties. They're looking for real world helpful things.

"Consumers are much more attuned to comparison shopping, whether it's for clothes or food or bank services. The media has done a very good job of educating consumers on the various deals. Whether it's for credit cards or mortgage rates or CDs, there are comparison charts in the newspaper and on TV, so the consumer is aware that they better comparison-shop to get the best deal."

Synergistics is looking at these issues and more in a study called "Credit Cards: Strategies for a Price-Sensitive Market." Findings will be based on interviews with 800 consumers who are the financial decision makers in their households and who have used a card in the past year. Of the 800 respondents, 200 will be affluent consumers with household incomes of $75,000 or more. Study results will be available soon.

The study asked respondents about credit card related issues such as the type of card used, pricing, grace period, other services used, satisfaction with the service performance of the card issuer, and attitudes on interest rates.

Grace periods

Moore says that future points of differentiation for credit cards may include grace periods (some issuers are shrinking them) and how finance charges are computed (one cycle, two cycle, etc.) they 're having to come up with what I would call product line strategies or pricing line strategies. We're seeing a lot more providers who have the same product but with different pricing schemes, such as a lower annual fee but higher interest rates. We're seeing a trend toward a number of organizations dropping enhancements and/or charging fees for optional enhancements such as road assistance, life insurance, etc.

"Pricing is not a one shot deal. You have to keep refining and re-tuning your pricing strategy to meet the competition and meet the changes in the economy, whether it has to do with consumer borrowing or changes in interest rates. It's a continuous effort to re-price. It's much more complicated today."

(Recently, I experienced first-hand the lengths - or should I say, depths - some card issuers will go to to make up for lost annual fee revenue. Hoping to save a few bucks by replacing a card that carried a fee, I mailed back an application for a new card that was fee-free. Soon, a cheerful representative from that company called to give me the good news: I had been accepted, but I would only be issued a card if I took a minimum $2000 cash advance. Just as I began to respectfully decline the generous offer - and pick my jaw up off the floor - the woman excitedly told me the amount of my "low monthly payment" on the "advance." What a deal!)

Card marketing efforts may become more complex as well, if grace period explanations and arcane finance charge calculations make their way into ad copy, Moore says. "It's going to be a lot harder to communicate with the consumer if you're one organization and you're trying to sell against somebody else. It's a lot easier to say, 'Our annual fee is 20 dollars a year, theirs is $35' or, 'Our interest rate is 13%, theirs is 17%.'"

Pent-up demand

When consumers finally figure out which card(s) to use, Moore believes there will be a lot of purchasing going on. "There's a lot of pent-up demand. I think when consumer sentiment changes toward the economy, a lot of purchases will be made that have been put off. Obviously if you need a new refrigerator you have to go out and get one but there are a lot of purchases that have been delayed. And until the consumer feels right about it or feels secure, I don't care how much people advertise trying to lend money, consumers just aren't going to go for it.

"There will always be a group who overspends but I think consumers are much more conservative in the '90s. If they aren't unemployed they have a friend who is unemployed or who is concerned about losing their job. We've seen a lot of consumers really cutting back on borrowing until they have that security of the paycheck. They just aren't spending like they did in the '80s."