When it comes to paying for goods and services, consumers have a lot of options. In addition to cash and checks, there are now various ways to pay with credit and debit cards. How can issuers ensure they reach top-of-wallet?
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Data for today’s episode, on reaching top-of-wallet, is provided by Mercator Advisory Group’s report – Credit Card Products for a New User Environment
7 Top-of-Wallet Strategies for Issuers:
- Position credit as the account to use online and at POS; expedite card replacement services.
- Emphasize contactless cards and wallet programs.
- Highlight Reg Z protections and advantages: account separation from personal assets & dispute rules.
- Position credit as the card that can do it all; aggregate select transactions (e.g., grocery) for ACH auto payments in monthly statements.
- Select large purchases for installment financing; instantly pre-approve large transactions and promo rates via account app.
- Evaluate, update, and replace legacy rewards programs; add points flexibility and non-traditional redemption categories.
- Follow shifting consumer interests for new rewards and account features: online merchants, purchase delivery, online transaction guarantees.
The pandemic changed life as we know it for credit card lenders and cardholders. Being a lender is not so simple anymore. Profitability is under siege, driven by loss provisioning, declining outstandings, changing spending patterns, debit competition, erosion in the power of rewards, and a deep recessionary environment. Primarily driven by the externality of the COVID pandemic, many behavioral changes among cardholders are likely to be long term, if not permanent.
Mercator Advisory Group research, Credit Card Products for a New User Environment, indicates a shift in credit and debit patterns. Contactless payments mean more to merchants, consumers, and issuers than ever. Durable spending is down; consumptive spending is up. And, credit card deferrals do not seem to carry the stigma they once did. Rewards consume a large portion of interchange, and in a shifting market, all costs must receive consideration.
“You cannot simply throw rewards at consumers and expect profitable market share,” comments Brian Riley, Director, Credit Advisory, at Mercator Advisory Group, and the author of the research note “Credit Card Products for a New User Environment.” Riley adds that “Credit cards are certainly not going away, but expect lower returns, higher risks, and shifting purchase patterns at least through 2025. And, do not forget the investor. It might be balance sheet lending or asset-backed securitizations enabling the credit card lender, but without the investment, card lending will cease. Lending is a risk-based business; it requires a return for tolerating the risk.