- The coronavirus pandemic has forced US credit card providers to adapt rewards, enhance forbearance, and build out digital tools to cope with a volume hit in 2020.
- As we enter the next three stages of pandemic recovery in 2021, how will spending trends and underwriting risk shift for issuers?
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- The following is a preview of one Financial Services report, Credit Cards in the ‘Next Normal’. You can purchase this report here.
Credit card profits and returns have been dwindling for years, but were expected to grow in 2020. The pandemic put a wrench in these plans, as unemployment, store closures, and financial hardship drastically impacted credit card spending and usage.
Will in-store credit card spending rebound as employment rates begin to recover, vaccine distribution accelerates, and the third stimulus plan offers additional debt relief?
Insider Intelligence shares its predictions for the future of consumer credit cards, using credit card debt statistics to determine which credit card trends are likely to shift, and which offerings will best serve providers.
US credit cards usage in 2020
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Stay-at-home orders and travel restrictions caused a steep economic decline in Q2 and Q3 of 2020. Here are some key statistics on how the pandemic impacted credit card usage last year.
- Card payments’ transaction share—roughly two-thirds in 2019, per the Nilson Report—rose to roughly 81.4% of ecommerce transactions and 76.8% of in-person payments in 2020, per FIS.
- However, as gross domestic product fell 2.4% and unemployment reached a record-high at 14.8% in April, risk aversion pushed many people away from credit and towards debit.
- Overall, customers became more cautious with their credit card usage, leading to an in-store credit card spending decline of $1.902 trillion last year, per Insider Intelligence’s US in-store credit card transaction value forecast.
Credit card trends after stimulus
While consumer spending declined across several categories last year, the Biden administration’s $1.9 trillion coronavirus relief bill, which passed in March 2021, could encourage many to turn back to credit cards for essential and nonessential purchases.
Visa and Mastercard credit card data indicates that credit is now outpacing debit in grocery and drugstore purchases, and that credit has returned to growth in goods, services, and dining. This phase of pandemic recovery presents issuers with an opportunity to improve volume and tighten client relationships.
Credit card trends after vaccine rollouts
The US has exceeded its goal of reaching 150 million vaccinations, and as more people get vaccinated, CDC restrictions will continue to loosen. For example, indoor capacities at restaurants and museums have already increased within some states.
And as routines normalize and more time is spent outside the home, unemployment rates are expected to decline by 4.1% by December, according to the New York Times.
We’re already seeing consumer spending increase compared to 2020, particularly when it comes to transacting via credit cards. According to our estimates, in-store credit card transaction value decreased by $114.62 billion in 2020. But, we do expect a slight rebound in 2022.
Additional data from The National Retail Federation (NRF) also points to more consumer spending in the near future. NRF projects that 2021 retail volume will return to pre-pandemic levels, reaching $4.33 trillion. However, insurers may struggle to maximize volume among those with T&E cards, as international travel will remain depressed during this period.
Credit card forecast for 2021
US retail ecommerce sales grew 33.6% in 2020, reaching $799.18 billion. This year, we expect ecommerce sales will grow 13.7% to $908.73 billion.
While much of consumer spending shifted to ecommerce last year, we do expect in-store shopping will rebound as consumers venture out again to brick-and-mortar stores for all their shopping needs. And many will turn to digital forms of payments that have grown in popularity amid the pandemic.
What’s more, issuers can earn primary card status if they offer incentives, ensure customers have the support they need, and embrace shifts in payment preferences. Here’s how credit card offerings, including rewards, credit access, and customer experience, will continue to evolve:
Payment flexibility
Buy now, pay later (BNPL) usage grew 37.7% since last summer, reaching 55.8% of US consumers by March 2021, according to The Motley Fool. Fintech companies like Affirm, Afterpay, and Klarna offer this technology to appeal to customers seeking out lower-risk ways to take on debt as they recover from the pandemic.
While many issuers currently offer some kind of payment flexibility, they will have to employ new strategies to contend with BNPL offerings. Some providers are allowing eligible customers to pay for select purchases over time, or are offering a different interest rate than their typical APR. Some examples include American Express’ Plan It, Chase’s My Chase Plan, and Citi’s Flex Plan.
Issuers are also leveraging partnerships with retailers to better compete with BNPL providers’ buy buttons prominently displayed on ecommerce sites. Goldman’s Apple Card allows customers to finance Apple purchases, and Citi offers flexibility on Amazon purchases over $100. We may also see partnerships with third-party companies, including Jifiti, which would bring BNPL offerings to merchant partners, and ultimately create a competing digital network.
Credit card incentives stats
Issuers are expected to maintain and further target relief programs. Millennials will be a core demographic for issuers to attract, as 56% of this age group saw debt grow during the pandemic—more than their younger and older cohorts. Millennials were also most inclined to use their stimulus checks to pay off debt.
What we’ll likely see is issuers offering relief in the form of forbearance and fee waivers to creditworthy customers in this age bracket. This effort could help banks mitigate risk, enable them to forge long-term relationships with younger customers, and aid lower-income mass market customers who are becoming valuable to issuers’ business.
Issuers will also look to improve access for financially secure or recovering customers to grow spend safely. Capital One has granted credit limit increases to prime and subprime customers, and other financial institutions are expected to follow. These providers will have to carefully review a customer’s payment history, request additional documentation to verify income and cash flow, and lean heavily on data and insights.
Credit card issuers preparing for Covid-19 aftermath
More than a third (34%) of US adults are currently saving rewards they’ll redeem post-pandemic, according to data from Ipsos, which implies that there will be a redemption boom and inflated issuer costs. Issuers will have to use new tactics to win over customers in all categories, especially those with T&E cards. Travel cards are expected to regain favor among many customers and, for some, become their primary cards again.
However, credit card providers will need to entice high-spending T&E and premium cardholders with high-end and exclusive offerings. Credit card issuers can also leverage bonuses to grow acquisition of credit-worthy clients. They may offer tiered systems in T&E categories to scale up perks in accordance with spending growth. Providers may also offer a sign-up bonus on entry-level cards to appeal to younger and fee-conscious customers.
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