Are we nearing the end of the credit card era? Voices suggesting so are likely to be overly pessimistic or too assuming, or a combination of both.
That is not to disregard a clear trend, supported by RFi Group’s monthly XPRT study, that the proportion of consumers who hold a credit card has declined from 66 per cent to 60 per cent over the last three years. RFi Group data also shows fewer number of credit cards in wallets, as the share of single credit cardholders rose from 58% to 68% in the same time frame.
In comes the pandemic pushing the question on the future of credit cards to the forefront. On the one hand, the absence of international travel effectively dulled the key trademarks of credit cards with frequent flyer points and exclusive benefits and rewards. On the other hand, cardholders were spending less on credit cards on average and actively paying off their credit card debt. With the credit card market at a precarious state, the imminent threat of Buy Now Pay Later (BNPL) services has become increasingly visible.
New BNPL services are on the rise and more partnerships are blossoming each day hoping to capture a greater share of the market. Younger consumers in particular are drawn to their ability to pay in instalments at zero interest. Commonwealth Bank (CBA) and the National Australia Bank (NAB) have responded with its own interest-free credit card in the hopes of offering customers new and convenient ways to pay, as well as perhaps the opportunity to re-establish dominance in the consumer credit space. RFi Group research revealed only a modest level of market demand with 3 in 10 seeing its appeal, though interest may grow over time as customers become more familiar with this way of making payments or seek products that bridge the gap from BNPL to a credit card.
It is worth nothing the decline of credit card holding has come to a standstill in recent months, stabilising at 60 per cent of consumers with a credit card. After reaching as low as seven per cent in the first half of 2021, credit card uptake intent is also finally seeing an upturn and the prospect of credit card demand reverting to its long-term averages of 12 per cent looks promising. As the pandemic continues to play out, RFi Group’s credit card research consistently shows that two-thirds of credit card rewards earners are happy to hold onto their rewards card for the time-being.
To this, the more fitting question we should all be asking is – ‘Where is the credit card market heading?’. Credit cards are here to stay, at least for longer than some would give it credit for. It is likely the former glory of credit cards will return as soon as borders reopen to restore the allure of earning rewards points. Even so, it is critical that credit card providers quickly adapt to a changing market dynamic.
Consumers are spoilt with choices and competitive fees and rates are largely considered a hygiene factor. RFi research further illustrates a growing importance of recognising customer loyalty for both retention and to drive credit card advocacy. There is significant value in offering customers semi-regular, tangible rewards in recognition of their tenure – fee waivers or bonus points on their card anniversary are likely to be well-received.
Looking further ahead, overhauling the points redemption space will be a key turning point. A change is needed to re-ignite the appeal of credit cards particularly among the younger demographics that are flocking to the likes of Afterpay and Zip. RFi Group found the ability to redeem points at check-out and for gift cards resonates most strongly with cardholders. This will open new doors, only when and if credit card providers make the call for these redemptions to hold comparable value to travel rewards.
There is therefore a wealth of opportunities that credit cards can continue to tap into whilst still retaining the original purpose of offering customers the ability to utilise credit. At the end of the day, demand for credit cards will be likely to be sustained as long as the benefits outweigh the annual fees credit cards call for.