Chase Cardmember Services (CCS), the credit card-issuing business within financial services conglomerate J.P. Morgan-Chase, found itself at a critical juncture at the dawn of the 21st century. Faced with an array of converging forces, both internal and external, CCS would have to redefine itself if was to survive going forward. The prior fifty years had seen the emergence and growth of the of credit card industry. The concept began as an issuance of a deferred payment plan (a line of credit) by retailers to their favored customers for purchases on those retailers' goods and services--to be tracked on an imprinted card, each with unique information on it (per customer). Banks got hold of this concept, began issuing credit cards, and thus, the industry was born. Industry Analysis:
As with any emergent industry, the nature of the credit card and its offerings rapidly diversified and segmented. Companies employed a number of differentiation strategies. American Express famously introduced a variation called a 'charge card', in which no revenue was earned on debt, but rather on higher annual fees. This appealed more to business-people and travelers. DiscoverCard led the trend of adding value-propositions, by granting rebates on purchases with the card. Another such example would be co-branding, in which a credit card issuer affiliates itself with a company, such as a flight company, and offers customer rewards on spending towards the company (in the form of airline miles in this case).
A company like Capital one differentiated itself by seeking out the low or subprime market (high risk) segments, which most credit card issuers had ignored, and demonstrated that it could be profitable by slightly modifying the product (Secured Cards). As soon as the capacity for electronic billing arose, credit card companies immediately filled the niche, providing added convenience to the customer by having bills sent and paid-for online. In fact, the Internet afforded an array of new opportunities, as the segment of those who shopped online expanded enormously. Examples include, aggressively marketing on high-traffic websites, particularly those designed for online purchasing; plus, digitally enhanced cards that facilitated the input of payment information online.
Eventually, government regulation would provide a major restructuring of the financial services industry in 1999 through the passing of the Financial Services Modernization act. It essentially dissolved the legal separation between the securities and banking industries, which kick-started a massive wave of mergers and acquisitions between financial institutions. Additionally, the fact of globalization opened a new arena of markets for credit card companies world-wide, and many of the larger financial groups with credit card-issuing subsidiaries were keen on establishing global presences.
By the close of the 20th century, after decades of growth and steadily rising demand, the credit card industry was entering its maturity stage. Differentiation in the areas of products, market segments, technology, and customer services had nearly saturated the market, and most importantly, legislation (see above) precipitated the consolidation of the industry amongst a few big players who collectively had a substantial market share. The smaller to mid-sized credit card issuers were being absorbed by the larger conglomerates, who competed with one another for market dominance. It was therefore critical that a particular cc issuer became the card of choice for customers, and cost leader strategies were used to entice customers, including (unprofitably) low interest rates. As important was retention of these customers, and so the remaining big players battled fiercely to lock customers in with added value propositions. Strategic Issues:
Chase Cardmember services had become one of lone standing credit card issuing firms through the period of massive consolidation, after the...