Citigroup Bets Big On Credit Cards

Despite the continuing drop in the United States’ economy, Citigroup Inc. pushes for a zero percent interest rate for balance transfers.

The New York-based card issuer offers up to 21 months of zero-interest for balance transfers. For a small fee, customers can get no additional charge when transferring all their balances from another credit card to a Citigroup card.

According to a Nilson Report, Citigroup Inc. is among the third-largest US card issuer with the most aggressive zero-interest balance transfers. The company’s profits for credit cards account for the largest share in its overall revenue.

Experts fear that this promotion and scheme can cause an economic slowdown when things go south. Because balance transfers are considered high-risk, making people pay no additional charge can mean easy financing to accumulate more debt.

Some people with more than two cards are moving their balances to a new card with zero-interest for balance transfers. Although this is still a good move, some banks like Citigroup allows only a limited timeframe for this promotion. Meaning, after 21 months, customers can expect a fee every balance transfer transaction.

Meanwhile, Citigroup defended their card strategies saying that they have tough underwriting standards and they will protect the bank from ‘major losses’ in the events of a recession.

Boost Card Profits

According to Reuters, the company is still earning a huge amount from the interest of credit cards. After the promotional period, a charge of 10 percent is added on top of the bill. This has boosted the company’s profit on consumers is up to nine percent.

On the other hand, Citigroup rivals are taking precautionary measures to avoid a downturn caused by a slow economy. Discovery Financial Services used to flood mailboxes with promotions and offers but now, it has tightened offers for personal loans.