Spending on credit cards will continue to grow, but any issuer that decides to take a breath, instead of crafting creative rewards and going after young consumers, runs the risk of being left behind.
That’s according to Chad Peck, vice president of credit product strategy at Fiserv. He recently sat for a discussion with Karen Webster about trends in credit card spending and rewards, for the latest edition of the PYMNTS’ “Walk to the Elevator” podcast series.
First, the good news: Spending on credit cards will continue to outpace spending on debit cards for the foreseeable future, even as data and other signs point to millennials having an enduring loyalty to cash over credit. However, no trend is independent of human action, and issuers will have to work hard to ensure the health of their credit card offerings. That includes making credit cards more attractive to millennials as they get older and seek to gain more economic power.
“I think for the millennial segment, we still have some work to do,” Peck told Webster, highlighting a main theme of their conversation. “As their incomes grow, I think credit will be attractive to them [because] they will have to think about credit scores and buying homes.”
So, how can issuers reach new consumers, especially those younger ones? Rewards.
Credit card rewards offerings have come a long way since those relatively boring, 1 percent or less, cash back offers, Peck said. Even raising the cash back amount to, say, 1.5 percent goes a long way toward enticing consumers to spend more on credit cards — such offers can be hard for spenders to ignore.
“Innovative products continue to grow,” he said, “and marketing [geared] to those segments are an investment focus” for issuers.
Oddly enough, the frequency of data breaches may also offer indirect aid in getting more of those millennial consumers to spend with credit cards. The theft of personal and payment data now happens so often that many consumers have become all but numb to those crimes. In addition, they know that, in Peck’s words, “the bank has their back” for any losses that result from those breaches. “Credit card holders really understand that it’s the issuers’ money at risk.”
That knowledge, in turn, leads to increasing willingness to use credit cards for all types of online purchases and transactions, proving more fuel for the ever-expanding digital economy — along with more revenue and profit for credit card issuers.
“Cardholders are comfortable using cards online,” Peck said.
The new digital world presents a new reality for banks, he said. No longer do deposits and loans constitute the two main “legs” of a financial institution (FIs) — payments has emerged as the third.
That brings us back to creativity. With payments gaining a higher profile — and a more prominent role on the balance sheets of FIs — the marketing and incentives attached to credit cards must also develop. That holds especially true for “smaller issuers,” Peck said, who need to stand out from a pack where the leaders enjoy larger marketing budgets and can afford to offer grander rewards.
One way to crafting better rewards is, perhaps, to first look at potential new markets. Gambling stands as a good example. A recent U.S. Supreme Court ruling opened the door to all states allowing sports betting, which, on first glance, seems like a juicy opportunity for credit card issuers. After all, consumers spend an estimated $150 billion annually on illegal sports bets.
The big issuers are certainly eyeing that market. So far, though, they have struck a cautious tone about whether — or when — they will facilitate payments for gamblers who are certain to bet more often in the wake of the Supreme Court ruling. JPMorgan, for instance, is closely watching “developments from the ruling and will consider any implications to our policy as the states put their own processes in place,” a spokesperson for the bank recently told Bloomberg.
According to Peck, among the most important questions for issuers is this: “Where can we entice spending, and how do [consumers] like to be rewarded?” When it comes down it, cash back offers — traditional, but appealing — might be enough. However, issuers that rely on assumptions and past practices might turn out looking foolish in the years to come.
“Credit cards are competitive,” Peck said. “If issuers are not willing to invest and spend on innovation and unique experiences,” then they could lose out.