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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
‘Transactional Excellence’ and ‘Next-Gen Rewards’ Are Key for Issuers in 2021
- Transactional excellence refers to a constellation of features that motivates cardholders to use the credit card in any environment.
- Immediate card replacement no longer means plastic delivery; now it includes card numbers for online and mobile wallets.
- It is also crucial to remind cardholders about the advantages of using credit over other card types (i.e., Reg Z education).
- Next-Gen Rewards are a tricky challenge since consumers themselves are in the process of rapid change.
- Back-to-school & graduation shopping as well as travel are two examples of massive shifts in spend vs. card rewards.
- The first phase of rewards retooling will be changes to existing features, such as adding new bonus rewards categories or adding flexibility to points.
- Other next-gen rewards categories include digital subscription services, online order/pay/delivery services, and retail e-Commerce.
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.
