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Data for today’s episode is provided by Mercator Advisory Group’s report – Credit Card Products for a New User Environment
Consumers Adjusted Payments Quickly When the Pandemic Struck:
- As the health crisis unfolded quickly, cardholders reacted promptly in requesting assistance and accelerated their use of contactless payment technology.
- One in three users of smartphones and smartwatches reported their use of the contactless payments tech has increased.
- Similar increases have been noted in contactless payment cards since the pandemic began.
- Credit lines have also been adjusted quickly: 18% of credit card users noted a reduction in their credit line.
- Of the consumers who noted an adjustment in their credit line, over half had missed a credit card payment (11% overall).
- 19% of credit card users requested more time to pay their bills due to the pandemic.
- Three-fourths of those applicants received deferrals on at least one account.
About Report
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.
