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Credit Card Trends Indicating a Major Consumer Market Upheaval
Shopping habits have evolved more quickly than card industry practices. However, true innovation in card issuance and marketing is finally catching up with the rest of the financial landscape. More customized and adaptable offerings help credit card issuers stand out from the crowd.
Fremont, CA: The pandemic has forever altered how we use cards. Likewise, contactless payments and digital wallets have brought about decades of behavioral change in just a few months, and they are here to stay.
According to Juniper Research, total spending via digital wallets will exceed $10 trillion in 2025, up from $5.5 trillion in 2020 — a massive increase was driven by how quickly consumers changed how they pay for goods during the pandemic. Similarly, the trend of contactless payments will continue. According to Global Payments, 74% of consumers said they would continue to use contactless payments after the pandemic. While the way people use credit cards has evolved, many aspects of the credit card industry have not changed significantly in decades. As a result, the business is burdened by legacy technologies and processes, which can be overcome.
According to the June 2020 Nilson Report, the top ten credit card issuers in the United States account for more than three-quarters (77 percent) of credit card volume. Yet, consumers have had little change in the credit approval process or how they can redeem and use rewards for decades. However, we are beginning to see signs of dramatic change. Five of the most significant developments are listed below.
Buy Now, Pay Later is on the rise
The meteoric rise of buy now, pay later (BNPL) services also results in more flexible credit options from traditional card companies. For example, to compete with BNPL companies such as Klarna, Affirm, and Afterpay, Visa is now offering its customers an interest-free payment installment plan (acquired by Square). Giving customers more flexibility at the point of sale appeals to both merchants and consumers, resulting in increased sales and the ability to pay off large and small purchases over time without interest.
New Reward Types Emerge
Consumers benefit from card providers' competition to offer card members more dynamic and flexible rewards. Issuers now have better insight into usage patterns and customer behavior, allowing them to tailor rewards programs and quickly test new offers to see what works. Offering a more comprehensive range of personalized perks is one-way card companies differentiate themselves from the competition.
Tokens as a Means of Reducing Fraud
Tokenization capabilities have grown with new technology, allowing financial institutions to issue cards to users via their mobile devices instead of waiting for a new card to arrive in the mail or to avoid using a physical card. This not only enhances the customer experience but also helps to reduce fraud. For example, according to Visa transaction data, tokens can reduce fraud by 26 percent on average compared to traditional online card transactions in which consumers enter their primary account number (PAN) online.
Segmentation of the Creative
Another new trend for credit cards is truly tailoring their products to a specific demographic. For example, daylight is a digital banking company that caters to the LGBTQ+ community by providing cashback rewards for spending at queer bars and LGBTQ+-related businesses. Other cards target specific groups, such as students or immigrants, with their features and rewards. Credit cards are also becoming a fashion statement. Square's Cash App offers a glow-in-the-dark card and Luxury Card issuing a Titanium Mastercard that promotes its heft while emphasizing its low annual fee. As more people switch to digital payments, having a one-of-a-kind physical card is one way to distinguish themselves.