In 2018 we saw more credit cards enter the market while some were retired (RIP Toys R Us partner card). As the market becomes flooded we anticipate even more change and evolution moving ahead to 2019.
To put the universe of credit card ownership into perspective, the American Banking Association states that there were 364 million open credit card accounts in the US at the end of 2017. That includes 185 million super prime, 104 million prime and 75 million subprime consumers. The number of US credit card accounts increased 4.1% since the end of 2016.
1. Increased Efforts to Woo Affluent Millennials
Card issuers are now shifting their attention from older affluent customers to millennials, and the competition for this segment is just as strong. Amex appears to have a bit of a head start, but it can be anyone’s game moving into 2019.
Amex has had a bit of a facelift over years, shifting from the card for the serious spender to the card that helps you achieve your dreams supported by marketing efforts that are shifting younger.
American Express released its new no annual fee Blue Delta SkyMiles Credit Card in September 2017 – targeting younger consumers that are only starting to travel. Amex used insights about younger consumers to tailor benefits for the card by offering 2 miles per dollar spent at US restaurants, as dining out make up a large proportion of discretionary spending for younger consumers.
The Amex Delta team believes the next couple of years will be critical for bringing in millennial customers that have yet to become loyal to an issuer.
According to Engine’s youth insights firm, Cassandra, Millennials are truly the experience generation, they are more likely to say they want experiences over products from brands (56% vs. 44%). It is important for issuers to keep a pulse of experiences that makes this young cohort tick.
2. Let’s get personal. Cardholders will increase demands for personalization.
Leveraging big data and creating more personalization could be an issuers’ best bet to overcome weak cardholder engagement.
Airline cardholders, in particular, are not always able to take advantage of their airline rewards cards, which is causing frustration and can lead to churn.
1) Not all cardholders receive benefits equally – A 2017 U.S. News survey indicates 20% of cardholders lose more money than they get out of their cards
2) The travel publication, Skift, also estimates that 80% of US airline loyalty program members are considered inactive.
Taping into data on consumers’ use of card benefits and suggesting ways to get more out of their loyalty program is one potential initiative that could help card issuers increase customer loyalty and avoid churn.
3. Work With me Here. Rewards Become More Flexible…
Consumer data reveals that top incentives when selecting a rewards-based card includes cash back, gas rewards and retail cards (which includes travel and airfare). For younger consumers, the rewards that come with a card can entice them to select one card over another.
Cash back is seen as the most preferred reward for consumers aged 18 to 44 – given its ease of use and wide appeal. So, the name of the game for 2019 is who can make it easiest to gain the greatest amount of cash back. Since young consumers, those 18 to 34, are opening credit cards at the fastest rate of any generation it is important to cater to their wishes.
According to a 2017 TSYS consumer payment study, of the 75% of people who have a rewards card, cash rebate programs are cited as the most popular feature. The affluent gravitate toward these products. Cash seemingly makes it simple for cardholder to select the right reward to fit their needs.
4.…and Makes Redeeming Travel Easier.
There is a move towards travel rewards cards that offer more flexibility than the traditional co-brand airline cards.
Cards such as US Bank’s Altitude Reserve or Capital One’s Venture Rewards offer more flexibility in terms of earning and redeeming points because they are not tied to one particular airline.
And other issuers are following suit. Bank of America’s Premium Rewards card is also betting on the model of not tying itself to a particular airline while Chase’s United co-branded TravelBank card has opted for more flexible rewards through cash back.
In the rewards game, like many other areas, it is not one-size-fits-all and the most flexible issuers could gain a loyal cardholder base.
5. Acquisition Offers: How High Will They Go?
With new card acquisition offers hitting the 60,000 miles range, thanks to offers from Citi AAdvantage, followed by Amex Gold Delta; it is unclear how high the ceiling may go. Consumers are more educated and accessible, which means that issuers could have a harder time fighting the competition.
For airline cards in particular, these offers could amount to big business: Loyalty miles programs have become so important to the bottom-line, that some are linking the financial performance of their co-brand partnerships to employee bonuses.
Alaska Airlines began linking 19,000 of its employees’ bonuses to the growth of its co-brand card portfolio with Bank of America in 2017.
The part of the business that sells miles to other companies has grown to represent more than half of profits for carriers such as American Airlines. Delta has said it expects its Amex card partnership to bring in $4 billion in revenue by 2021, which represents an annual increase of $300 million until that point.
6. First EMV, Now NFC
EMV chips made a large impact on payments – issuers evolved cards, merchants changed their hardware and consumers got into the inserting instead of swiping. But could EMV be outdated? The US may have been late to the EMV party, and we may see more of an evolution in the coming year to remove physical card contact all together, thanks to the growth of contactless, near-field communication (NFC) options. NFC allows for a digital connection between the card and the reader through a single tap – thus cutting down more time in the transaction process.
A Markets and Markets report found that the global market for NFC is forecast to reach $21.84bn by 2020, growing at a CAGR of 17.1% between 2015–2020. This growth is driven by increased demand for cashless transactions, adoption of smart devices and the growth of commerce.
Consumers have continued to warm up to the idea of NFC thanks to the popularity of wearable devices coupled with an openness to embrace new and emerging technologies. Payment transaction on wearables will reach $501 billion by 2020, growing at a CAGR of 177%. Merchants have embraced QR codes and upgrading systems to NFC terminals may see growth as we move into 2019.
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