Anyone in the credit card business will tell you that rewards drive card applications and usage. But as the ability to more finely tune offers and card features grows alongside consumer's knowledge of how to leverage these offers, the market is entering a new phase in portfolio management, where success and profitability is weighed against more than just absolute cardholder numbers.
This article from Vox, speaks to some of these trends, namely that the big credit card issuers in the U.S., like Chase and Discover, are pulling back features as they confront a larger cohort of informed cardholders gaming the rewards system.
Let's be honest and recognize that credit card issuers actively court rewards-hungry cardholders due to the competition for high-transaction, prime credit applicants. It's no wonder that cardholders are happy to take advantage of these offers, like a trip to Europe or new MacBook and then toss the card on a pile. Or, rack up lots of points or cashback each month on everyday spend and pay off the balance in full.
Younger consumers are proving themselves more debt savvy, or debt wary depending on your point of view, which should result to some degree in an increase in convenience users and decrease in application volumes, but that's not the near-term results based on the December 7, 2018 release of the G.19 report. But what happens when rewards and features get mixed together in a more complex soup?
I think there are going to be three results of these dynamics:
First, I believe that issuers that aren't already fine-tuning their features and rewards programs jump in to that analysis as fast-followers. This is going to put pressure on the card networks to maintain their brand value through helping issuers absorb more of the cost of these programs and on processors to deliver the data necessary to better understand portfolio profitability.
Second, I look for tighter alliances between merchants and issuers to drive offers and promotions more equally balanced between them. These could be national, regional or local, but the premise is to distribute the cost of the reward and its benefits more equitably between partners.
Third, Don't be surprised to see new fees or higher fees for rewards cards and perhaps incremental fees for features previously free, either to purchase the feature or charged on usage.
Credit card rewards and card features are as ripe for innovation as any other aspect of the value chain and all indications are, their time has come.