Credit card rewards programs seem to be constantly upping the ante these days, what are consumers responding to the most?
Since the bottom of the recession, the credit card market has roared back to life with lucrative reward cards, solid rates, and great benefits. The current marketplace is very competitive and credit card issuers continually introduce new rewards card offerings which means better rewards and benefits for consumers. We’re seeing that what appeals most to consumers is simplicity and control. Consumers want to be in control of their spending and how they earn rewards.
The biggest competition in the rewards space is airline miles. Issuers are offering traditional airline programs as well as co-branded cards and transferrable miles and points programs to provide more flexibility for consumers.
The ultra-premium credit cards reward space also shows no sign of slowing down. In May, U.S. Bank launched the Altitude Reserve Visa and UBS launched the UBS Visa Infinite to compete with the Chase Sapphire Reserve card, Platinum Card from American Express, and Citi Prestige card. These cards compete with generous sign-up bonuses, impressive earning rates for travel and mobile purchases, and a slew of other premium travel benefits.
While you can get more value in travel rewards, it takes more effort than cash back rewards. Cash back is one of the most popular rewards with consumers because it is simple. In fact, nearly two-thirds (64%) of Wallaby users say they prefer cash back as their favorite type of reward.
Over the past two years, credit card issuers have increased the competition in this space with more lucrative offers, but there’s still room in the market for more cash back cards. Right now, just under 20 percent of all card programs that we track are cash back, so you see some pent-up demand.
Overall, programs that give consumers maximum flexibility in choosing how they can earn and redeem rewards give consumers the perception of control that drives real loyalty.
U.S. revolving debt will surpass the $1 trillion mark again in 2017 – fully rebounded from the 2008–2009 recession. Given this improvement, what is the next big market opportunity for card issuers?
Cards have evolved beyond serving solely as a payment device, and part of that evolution includes custom and real-time rewards programs. Card issuers must make the most of their data and use technology to give consumers highly relevant and timely recommendations about spending, offers and deals.
Because there is so much noise in the market, most people really don’t know about the features and benefits of their cards; and a good cardholder who doesn’t feel like they are getting the most out of their card program is unlikely to keep that card at the top of their wallet.
Card issuers that offer more timely and targeted communications will help consumers to maximize their rewards and gain that feeling of control they crave. This should include new and simple ways to pay with points, and any type of program that gives consumers additional benefits for using a particular card or platform – especially those that are retail or co-branded. These kinds of “hacks” are particularly valued by younger cardholders. For example, an issuer or platform that delivers timely, location-based alerts about available coupons or discount codes is giving cardholders valuable information – and thus control – which drives loyalty.
Much has been made about how to target and acquire millennial customers. Are we over-emphasizing this demographic? Why do they matter?
It’s true that everyone has something to say about the millennial generation, but I also see millennial as a mindset, and I don’t think we’re off base by emphasizing how much the mindset is driving trends in how consumers use credit. Millennials and other savvy consumers, such as frequent travelers, tend to have a more in-depth understanding of digital marketing, and have higher expectations for how they do business with brands.
For example, they want payment capabilities on multiple devices and tend to be more willing to share data, but they want personalized offers and services in return. They are also more pragmatic when it comes to selecting a rewards card. It’s actually about the rewards, not the cache of the brand. For example, we’ve seen a huge influx of millennials sign up for the Chase Sapphire Reserve card – with an annual fee of $450 – because they know that it’s one of the most generous rewards programs on the market, and they understand how to maximize the value of those rewards.
Card issuers should capture this “millennial mindset” now by continuing to offer and merchandise personalized offers, and timely reward “hacks,” and make everyday spending opportunities as frictionless as possible, by enabling offerings like peer-to peer payments via credit.
Mercator data shows that there are more than 450 million active credit card accounts in the US and it’s estimated that one in every four accounts is less than one year old. What should issuers be doing now to retain the best of those young accounts for the long term?
We are seeing more “new” entrants into the credit market than ever – including millennials who were supposed to be credit-averse. But this data demonstrates that consumers are more comfortable with and in control of credit than ever. This is good news for all consumer segments, as a more-informed consumer is a better long-term cardholder.
Naturally, there will be consumer segments – like those with a millennial mindset – that are more responsive to reward programs, and maintain more consistent spend levels over time. Card issuers can raise the bar for all “young” account holders by incenting and rewarding smart, sustainable spending. And those who hone their technology to remove barriers and eliminate spending friction wherever possible can own the coveted top of (physical or virtual) wallet.