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Credit card issuers target the big spenders

Canada is seeing a boom in premium credit cards as issuers battle for an exclusive brand of customer likely to keep on spending despite the country's record consumer debt levels.

With the average Canadian household carrying more debt than ever, credit card issuers are moving upmarket in an effort to increasingly court customers with more financial flexibility. At the same time, companies are also rolling out more mid-range rewards cards as a way to entice consumers who have grown cautious in the recession to start using their plastic again.

American Express Canada Inc. chief executive officer Howard Grosfield said competition for premium customers has shot up in the past year as major card issuers, such as Visa Inc., MasterCard Inc., Amex and others fight for higher-spending clients.

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"We've never had more activity and investment in that end of the market," Mr. Grosfield said in an interview. "What you're seeing is, in the last 12 to 18 months, almost every issuer in the Canadian marketplace has either refreshed or launched a brand new premium, annual-fee based rewards product … really going after the upper end of the market, the high-spending customer." Specific industry-wide figures on the number of cards issued were not available.

Card issuers suffered higher credit losses at the outset of the recession, but recent figures released by major banks such as Canadian Imperial Bank of Commerce and Royal Bank, show consumers are keeping up better with their card payments.

Rewards cards that offer air miles, cash back and more exclusive incentives, such as trips or tickets, provide issuers with a steady revenue stream from annual fees. In the premium market, competition is on the rise for gold-level cards, which have annual fees of about $100 to $200, while platinum level cards, which can carry fees of $300 or more, are also seeing more offerings.

"As the number of customers who were using credit cards to finance their lives has started to decrease, everybody [the card companies]is moving up to the upper end of the market," Mr. Grosfield said.

Card issuers have different criteria for defining what makes a premium card. Generally, a premium card is one that offers a higher than average level of rewards and is reserved for customers who meet minimum spending or income levels.

MasterCard began introducing higher-end premium cards two years ago, with bolstered rewards programs. They now account for approximately 5 per cent of the company's cards in Canada.

It is a lucrative market; a MasterCard spokesman said the company's research shows that premium cardholders spend three to four times more than average cardholders annually, and up to 47 per cent more per transaction.

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The premium segment of the industry has performed much better than expected in the recession, Mr. Grosfield said. A good example is Amex''s Centurion, which is considered an ultra-premium card and is one of the most exclusive offerings on the market, reserved for the highest spenders. Customers must be invited to apply and pay annual fees of about $2,500. The card is constructed from a wafer of etched titanium.

Amex, which holds about 9 per cent of the Canadian market, was preparing to introduce the black Centurion card to the Canadian market in 2008, just as the economy was taking a nose-dive. The company considered pulling back on the plan to offer the card - which caters to high-spending customers who need no-limit on purchases and want perks like a dedicated concierge service - but instead decided to press ahead.

Projections for the card's uptake in Canada were downgraded and the Centurion was introduced to select customers, believed to be those who spend more than $250,000 annually, though Amex won't comment on the traits of the target market or the terms offered to clients.

Similar appetite for premium cards has been seen in the mid-range of the market as well. A survey by Chase Canada a few months ago showed 45 per cent of Canadian credit card holders select their card based on the rewards program it offers - such as gold or platinum points cards. Of the 1,000 people surveyed, 44 per cent said they were more likely to make a purchase knowing they are getting rewards such as redemptions for air travel or cash back. And only 25 per cent of people said they were not part of a rewards program.

While the rise of rewards cards is by no means a new trend in Canada, the heightened competition over the past year comes as the federal Competition Bureau has become concerned about their impact on the economy. In a case it has launched against Visa Canada Inc. and MasterCard Canada Inc., the federal watchdog argues premium cards pay for their rewards in-part through higher transaction fees placed on retailers.

These higher fees drive up costs for store owners, which flow into the price of goods for all consumers, the Competition Bureau argues. Visa and MasterCard are fighting the case, in which the watchdog is trying to force them to drop rules requiring shopkeepers to accept all cards at the register. Banning that rule would lead to discrimination against points cards, which most consumers want to carry, the credit card companies argue in documents submitted to the federal competition tribunal.

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Competition for the premium credit card customer has heated up in Canada over the past year. Atop the luxury card market is the American Express Centurion card. Launched at the outset of the recession, Amex almost pulled back on introducing the card to Canada in 2008 for fears it wouldn't be received well. But demand for the black card, which is by invite-only, has not been hampered by the downturn.

The card: The Amex Centurion is a charge card, so monthly balances must be paid in full, as opposed to a credit card where the holder can carry a balance.

What it's made of: Cut from a sheet of titanium, which means names must be etched into it.

Annual fee: $2,500, with an initiation fee of $5,000

Benefits: Clients get access to a personal concierge, who can arrange everything from flights and hotels to golf times around the world. Insurance, retail protection and emergency assistance are included, as is an extensive rewards program that can take customers to Wimbledon and backstage at the Oscars.

Spending limit: No preset limits

How to get one: Centurion customers must be invited to apply. Though Amex doesn't comment on its conditions for the card, it has said that existing customers who charge more than $250,000 a year are invited to upgrade.

Grant Robertson

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