The state of the credit card industry, like all financial services products, is heavily dependent upon current economic indicators. Factor in changes in technology and consumer spending preferences and you get a good idea of where the market is headed for the year. The outlook for credit cards is expected remain steady in 2019 as credit cards remain as the consumers’ favorite way to pay. However, the consumer profile, types of product offerings and the cost of these products is always changing to meet current market conditions. Following is an overview of what we can expect to see in 2019.
Credit will Grow
Low unemployment rates and increases in disposable income from 2018 will carry over into 2019 and the overall credit market (personal loans, auto loans, mortgages and credit cards) will experience growth as demand for loans remains high. Lenders and card issuers will seek to expand their business by offering more credit to subprime and near prime borrowers. For credit cards in particular, new application levels may decline as interest rates increase and credit cards compete with other loan products. However, current balances are expected to increase and are estimated to be at $840 billion by the end of the year. While credit card delinquency rates are also increasing, they are still considered to be at a normal level.
Credit Card Trends
NerdWallet has identified 5 trends to watch for this year:
- More dining and entertainment rewards
Extra points/rewards earned on spending on things like dining out, ordering food in, transit and streaming services. Some card incentives include triple points on spend in this category and offering no annual fee reward cards.
- More co-branded retail cards
Store branded cards can be lucrative for the merchant and also increase shopper loyalty. From a consumer perspective, the store cards now have improved reward offerings which make them more useful for general spending outside of their favorite store.
- More credit card spending
As more merchants eliminate cash as a payment option, consumers will increase their credit card usage. Businesses such as restaurants say that going cashless saves them time and money by not having to balance the cash register and transactions at the register move more quickly.
- More Contactless Options
Card issuers will continue to offer more contactless payment options that don’t require swiping or inserting. Consumer benefits include speed and convenience.
- Higher interest rates
Interest rates are expected to continue to rise in 2019. Carrying credit card debt could become even more expensive. If this happens, 0% introductory APR offers will get harder to find and lower interest rate cards will increase in popularity.
Rewards Still Rule
Consumers prefer credit cards with rewards. Rewards rank as the most attractive benefit a card can offer – more so than other features such as interest rate, issuer brand, card style/design and flexible payment options. According to Mintel, the response rates for point based reward cards were the top performers (.61%) followed closely by cash rewards (.51%) in 2018. However, The Financial Brand reports that the Cash or Rebate card segment leads in terms of overall application rates (47% compared to points at 23%) as consumers indicate that their favorite reward type is in the form of cash rebates. A trend that analysts are seeing in this card category is a shift away from the bonus upfront to ensure ongoing card usage. Also, watch for restructuring of rewards programs and the elimination of ancillary benefits such as purchase and warranty protection and car rental coverage due to lack of use.
Direct Mail Dominates the Offer and Digital Drives Applications
Direct mail offers generate the most credit card applications – 20%. However, 73% of applications are made digitally. So, people receive the card offer in the mail, but opt to apply online or via their mobile phone rather than mail in the application. This is not surprising. The interesting change is that 33% of applications are now made via mobile phone versus from 29% from a desktop computer.
Areas of Opportunity for Marketers
With insight from The Financial Brand, following is a list of strategy suggestions:
- Incorporate/enhance cash reward programs
As already indicated, consumers love cash rewards and this type of reward is expected to continue to outpace other types of credit card rewards in popularity. If you don’t have a cash reward option, you will be at a competitive disadvantage. If you already have this product in your card portfolio, think of additional ways to enhance it. People love to save money on both brand names and at local merchants. Use data analytics to identify purchase behavior and develop relevant coupons and special offers.
- Reward consistency
Most credit card reward programs are based on purchase amount –points for dollars spent. This encourages using a credit card for big ticket items. But, as every card marketer knows, you want your card to be top of wallet. About half of consumers use the same method of payment for all types of purchases. But, the other half will vary their payment method depending on what they buy. For example, using a credit card on a big purchase and a debit card on small, everyday purchases. Consider basing your rewards on the number of times the credit card is used as opposed to only on dollar amount spent to inspire consumers to reach for the credit card more frequently. Mintel also adds that about a third of your customers actually understand your reward program, so consistently remind them.
Almost half of consumers say that it is important to have all their financial products with the same financial institution. This opens up opportunity for financial institutions to sell payment cards to their existing customers. This might sound obvious, but for regional banks and credit unions who compete with big banks and large national brands, this is an area of opportunity that shouldn’t be overlooked.
- Take location into consideration
Based on Mintel research findings, credit cards are most popular in suburban areas and debit cards are preferred in small towns and rural areas. This is likely due to lower household incomes and concerns about using credit. Marketing messages that offer budgeting advice will be better received and cards without annual fees and a simple rewards structure are more likely preferred.
- Focus on security
Consumers are worried about security and don’t really understand how card issuers make their payments secure. Educating them about security precautions will help to set their mind at ease. In addition, cardholders want the ability to turn their card on and off via their mobile phone and receive alerts about suspicious card activity.
- Address fears about debt
Younger consumers such as Millennials and Gen Z worry about incurring too much debt if they use a credit card, so they prefer other payment methods. Hispanic consumers are another group that is wary of using credit cards. Due to their distrust of financial institutions, both of these groups are also less likely to have a credit history. Financial institutions that focus on education and using credit wisely and offer money management tools have a greater opportunity to resonate with these audiences.
- Create a great digital experience
Since 73% of credit card applications are made online, ensure that the consumer’s digital experience is top notch. Once a consumer is ready to apply for your product, you don’t want to lose them due to a bad online experience. At a bare minimum, make sure the application process is simple and the call to action is clear. Optimize forms for mobile and make it easy for the customer to get help. Create a seamless experience for making payments, checking balances, using rewards etc. Incorporate design and layout best practices to ensure the best user experience at all stages of the customer journey.
Credit cards will remain the top payment choice in 2019. As a marketer of financial services, I find this information fascinating. Credit cards are useful and convenient. However, I would be remiss without adding this note. Credit card debt is on the rise again and is not to be taken lightly. It is a problem for many Americans, so we believe in marketing transparently and responsibly. If you are a consumer, education is important so that you understand all the implications of using credit. https://www.consumer.ftc.gov/topics/money-credit