Rewards Cards in the U.S., 3rd Edition

2010 brings a perfect storm to the credit card industry, driven by recession-induced changes that are reshaping its core. At the same time, card rewards have become ubiquitous. In the face of some of the most significant changes the credit card industry has ever faced, some argue that rewards programs are simply no longer feasible in an era of constrained revenue and profits. However, as detailed in Packaged Facts’ Rewards Cards in the U.S., it is not a matter of eliminating reward programs, but rather about adapting them to some of the most significant changes the credit card industry has ever faced.

In its most consultative report in the series, this 3rd edition of Rewards Cards in the U.S. helps position industry participants to navigate this reengineering in card rewards by assessing the following industry trends and challenges:

• How does continued migration to electronic payments shape the future of rewards?
• Which regulatory changes are most relevant to rewards?
• Understanding the macroeconomic and credit factors that shape the pool of current and future credit card customers.
• How large is this pool of customers?  
• Does the current credit environment effect migration from credit to debit? Why? How?
• Which fee structures are being implemented—or could be implemented—to counteract regulatory change?
• How are card issuers’ credit card portfolios adapting to change? How can they share in tapping a smaller pool of cardholders while growing profits?
• What will happen to affluent, credit worthy cardholders? Less credit worthy cardholders? How do rewards play a role?
• Can rewards help grow transactions and help extend card reach beyond a shrinking consumer base?
• How does closed-loop versus open-loop competition and significant industry consolidation affect competition?
• What is the fate of co-brand rewards?
• Which reward types best fit the needs of specific consumers?
• Over the course of the recession, which consumers are active card users? Multiple card users? Transactors? Revolvers? How has this changed over time?

In addition to (or as part of) addressing these issues, this report trends consumer use of credit cards, analyzing usage patterns from 2007 to 2010, identifying specific consumer groups according to active card usage, cards in wallet, and classification as transactors or revolvers. In doing so, Packaged Facts assesses some factors most integral to credit worthiness, including net worth, home value, and HH income.

Rewards Cards in the U.S., 3rd Edition also contains:  

• In-depth competitive profiles of the associations and major issuers written by industry experts
• Selected strategic card players assessments
• Comprehensive, holistic assessment of macroeconomic and credit trends
• Complete market size and forecast

For a full assessment on how regulatory changes is reshaping consumer banking—and reshaping consumer relationships, preferences, and attitudes about banking—please see Packaged Facts’ upcoming Regulatory Change: Consumer Banking and the New Consumer Relationship.

Market Insights: A Selection From The Report

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Consumer Credit Trends

As reflected in the Macroeconomic Influences, Regulations and the Rewards Card Market chapter, consumers have a decidedly pessimistic economic outlook, as they struggle under the burden of higher unemployment and lower household wealth. But along with that burden, they must also contend with an unfortunate—and related—chicken-and-egg phenomenon: their own reluctance to use credit and an unforgiving credit environment. In this chapter, Packaged Facts assesses the direction of consumer credit and debt trends and their relationship to the credit card industry. As part of doing so, the chapter concludes with trended assessment of the “Big Six” credit card portfolios (Bank America, JPMorgan Chase, Capital One Financial, American Express, Citigroup, and Discover Financial Services).

Debit Rewards

According to Packaged Facts’ Co-Brand and Affinity Credit Cards: The U.S. and Global Markets and Opportunities, 3rd Edition (November 2009), debit cards continue to increase in popularity, and while their growth rate has slowed, it has outstripped that of credit cards. Many of the same conveniences of credit cards can be found in debit cards. For example, as with credit cards, debit cards relieve consumers of the task of having to withdraw cash from the bank. Debit cards also offer an added cash-related advantage in that most larger merchants allow debit card users to withdraw cash from their registers in limited amounts. In addition, debit cards are just as quick as credit cards, permitting consumers to make purchases with a swipe and a signature or punched-in PIN. Importantly for consumers struggling with debt and bad credit, it’s also much easier to obtain a debit card than a credit card. For many consumers, debit cards are also budgeting tools. Since debit cards draw on funds that account holders already have, undisciplined...

Card metrics
JPMorgan Chase analyzes its credit card portfolio on a managed basis, which includes credit card receivables on the Consolidated Balance Sheets and those receivables sold to investors through securitizations. Below, Packaged Facts breaks out card receivables and delinquency rates in three ways: for Card Services, for Card Services minus the Washington Mutual portfolio, and for the Washington Mutual portfolio. In aggregate, JPMorgan Chase attributed these increases to the current weak economic environment, especially in metropolitan statistical areas (“MSAs”) experiencing the greatest housing price depreciation and highest unemployment and to the credit performance of loans acquired in the Washington Mutual transaction.

In The News

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Reward Programs Remain Integral to Success of a U.S. Credit Card Market in Flux

New York, August 16, 2010 — While the credit card industry has suffered from significant account attrition and in some cases decreased spend per card since the recession, rewards programs continue to be integral to the market’s success, according to Rewards Cards in the U.S., 3rd Edition by market research publisher Packaged Facts. Rewards remain a cornerstone of American Express and Discover, while among some of the biggest card issuers in the country, Visa- and MasterCard-branded rewards programs are either being refreshed or are being brought to market for the first time.

“The recession has brought tremendous upheaval to the industry, which has worked aggressively to counteract the financial consequences of the Credit CARD Act and the close of an era where loose credit was the norm,” says Don Montuori, publisher of Packaged Facts. “We don’t believe the trend toward significant account attrition has played itself out yet. But we ultimately predict that though the number of credit cards in force will continue to decline into 2011, rewards will selectively play a more important role than ever before.”

The degree to which cardholders are rewarded is an important issue facing the industry.  The answer will be driven more and more precisely and selectively by the return that cardholders generate for card players based on how much cardholders spend, where they use their cards, and whether they are willing to pay for better rewards.  It’s a quandary that is already being addressed by the marketplace, but will also continue to shape the industry in the future as reward programs become less egalitarian with larger returns in percentage terms dictated by cardholder behavior. The “losers” in the rewards game will be lower spending and higher risk cardholders, whom the market has already deemed marginal returns on investment, comments Montuori.

One countermeasure to the recession has been a move “upstream” by positioning rewards-driven programs to more affluent, more creditworthy customers who promise returns in the form of increased transactions per card and increased usage at points of sale where cash and checks still hold sway.  Based on such efforts, Packaged Facts forecasts the percentage of rewards-based credit cards will grow incrementally from 76% of all general-purpose credit cards in 2009 to 77% in 2010 before reaching 82% in 2013.

Though affluent consumers are perhaps the most obvious targets of the post-recession credit card industry, younger consumers who have jobs are also attractive prospects.  Millennials are currently avid debit card users, but as they enter what historically are peak credit-using years it’s unknown whether they will migrate to credit cards. As a result, some credit card players are introducing products that provide a needed link to younger debit-driven consumers and position their charge cards as debit alternatives. For instance, American Express recently introduced the ZYNC Card, which functions as a pay-in-full charge card that allows cardholders to select bundles of rewards and benefits called “Packs” that are tailored to specific lifestyle interests and spending habits in categories such as music, fashion, food, travel and more.

Rewards Cards in the U.S., 3rd Edition examines the rewards-based credit card industry in the U.S. The report presents the size and growth of the market and several related key metrics within the broader credit card arena, as well as trends and factors affecting the industry. In addition, major key competitors are profiled, along with a focused analysis of consumer demographics and preferences of co-branded credit cards. The scope of the report is limited to consumer-based general-purpose credit cards that have a rewards feature. However, debit card rewards, private label rewards, and business rewards are also discussed within the context of the report

About Packaged Facts - Packaged Facts, a division of MarketResearch.com, publishes market intelligence on a wide range of consumer market topics, including consumer goods and retailing, foods and beverages, demographics, pet products and services, and financial products.  Packaged Facts also offers a full range of custom research services. 

 

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