YOU ARE HERE: LAT HomeCollections


City Card Needs Rethinking

November 03, 2002

Ever the entrepreneurial city, Huntington Beach now hopes to drum up money by issuing credit cards bearing the city's logo.

The city would align with a major credit-card company to offer a Visa or MasterCard to residents. Huntington Beach would get a small percentage of the sales charged by residents to help fund parks, libraries and basic city services. City officials hope merchants will offer discounts to cardholders; in exchange, merchant advertising would appear on city posters.

It's a tiny step commercially for a city that already has an official soft drink and a sponsorship deal with Yamaha personal watercraft. If the Vegetarian Resource Group can have a Visa card in its name, why not Surf City?

But before Huntington Beach's City Council goes forward as expected in January, it should take a look at the tales of other California cities. Redondo Beach rejected a similar scheme in 1995. A major concern was whether a public agency should be pushing its residents to take on more credit when so many consumers are already overloaded with debt.

That's a valid concern. Cities can make a lot of money on cards only when people do a lot of spending. There's a big difference between pushing credit expenditures and slapping ads for household cleaners on lifeguard towers.

Culver City began pushing affinity credit cards in 1995 but shut down the operation two years later because it never generated a profit. People weren't interested in the municipal credit cards.

Huntington Beach hopes to pull in $1.2 million a year by getting up to 50,000 people to sign up for cards. This is in a city with about 77,000 households, 10% of which earn less than $25,000 a year. The city thinks its Surf City "brand" will sell even beyond its borders, especially if a broad band of businesses offers discounts to cardholders.

The city needs to wake up to marketing realities. After five years, only 3,000 people carry the San Francisco affinity card, which brings in an average of $13,000 a year. This is in an upscale tourist magnet with a population three times the size of Huntington Beach. San Francisco does not offer exclusive merchant discounts for its card because studies show they don't work. It's the same in San Diego County, where the tiny city of Del Mar generates just $2,000 in annual revenue despite offering merchant discounts. For the most part, people want cards that carry free air miles, not a free dessert at a local restaurant. Merchants also risk creating ill will among customers by offering selective discounts based solely on the buyer's credit card.

Huntington Beach should move slowly and cautiously before getting into the business of merchant discounts and credit cards. It must consider all the issues, ethical and financial--consider them as carefully as a debt-laden consumer should consider making another big purchase.

Los Angeles Times Articles