It is mid-November and the holiday season is almost upon us. With the Thanksgiving holiday only a week away, my mailbox is already starting to fill up with store catalogs, coupons, and flyers for Black Friday shopping deals. There is also one other thing I am increasingly seeing in my mailbox of late – credit card balance transfer offers. As many of us in the industry know, credit card exposure and profitability cycles can change within quarters when underlying fundamentals change either in the economy, regulation or risk tolerance. I chose this topic for my first post to explore the credit card industry trends I expect to see develop in 2014.
With the economy slowly but steadily improving, banks are once again ramping up lending through credit cards, especially through balance transfer offers. Consumers will continue to take advantage of these offers for debt consolidation, lowering their interest rates, and to also enjoy special offers such as limited time zero percent APRs and other incentives for opening a new account. With banks loosening their credit decision rules, the power to pick and choose the right type of credit card is firmly shifting back into the hands of the consumer. Credit card balances rose by $4 billion in the third quarter of 2013 as stated by the Federal Reserve Bank of New York in its latest report on household debt.
Holiday Lending Success with Analytics
With consumers receiving more targeted offers thanks to better big data and customer analytic models, banks need to compete fiercely to offer added incentives to attract new credit card customers and provide differentiated service to retain existing customers. All of this points to the need for banks to closely analyze customer needs and behavior in order to accurately determine what customers really expect and want from their credit cards and understand what would cause customers to consider switching to a competitor. Banks need to continue to leverage the massive amounts of credit card transaction data they currently possess for analyzing spending patterns and also enhance that data with social listening data to create effective rewards and loyalty programs that are individualized and relevant to each customer segment.
Consumer Expectations in Apps and Services
The vast majority of consumers carry multiple credit cards with an average number over 5 cards per capita and this trend will remain intact going forward. Since rewards programs frequently vary by card issuer, time of year, and merchandise category, consumers are unable to easily track what card would offer the best reward for a specific purchase. The use of mobile apps for tracking loyalty programs and suggesting what card to use for specific purchases (like Wallaby) will continue to grow.
Since most consumers complete a credit card application online, recent efforts by banks to simplify the application process and provide transparency about terms/fees/rewards to enable applicants to choose the right type of card will continue going forward. Targeted marketing through social media and mobile channels instead of traditional mail will accelerate as banks adapt to a new generation of increasingly tech-savvy customers.
An increasing number of customers are also expecting their credit card statements to not only track transactions but also provide reporting and categorization of spending so they can use the statement as a financial and budgeting tool. As banks try to reign in operating and account servicing costs, the push towards electronic statements will continue with banks offering incentives for customers accepting a completely paperless interaction model.
What other trends will we see from leading lenders this holiday shopping season?