US Credit Card Issuers Up The Rewards Ante To Attract Cardholders

U.S. credit card companies are scrambling to get households to borrow more as families participate in the country’s economic rebound using money they saved during the pandemic rather than the fresh borrowing that usually accompanies and drives economic upticks, the Financial Times (FT) reported.

Online offers by companies seeking new customers increased 85 percent in May 2021 compared with May 2020, FT reported, citing data from Competiscan, an analytics company.

Balances owed on credit cards issued by the country’s biggest banks fell between 9 percent and 14 percent for the first quarter of 2021 compared with the first quarter of 2020, according to FT.

Credit card companies are in part resorting to the time-tested tactic of offering interest rates of zero percent on transferred balances for up to 18 months, FT reported.

“Balance transfers really are the engine that helps issuers keep outstandings on the books,” Jessica Duncan, director of Payments Insights at Competiscan, reportedly told FT, adding that those same customers tend to present greater credit risks, creating a challenge for the lenders.

“[Lenders] still have to be cautious, but they’ve just lost a percent of balances that they didn’t anticipate, and they also have a bottom line to keep in mind,” Duncan said, per FT.

Competistican also found that credit card companies moved to expand borrowers’ credits three-fold during the first quarter of 2021 compared to the first quarter of 2020, according to FT.

Rewards programs also were more popular among credit card companies in 2020 than had been widely anticipated, analyst Bill Carcache of Wolfe Research reportedly told FT.

“Despite speculation that credit card rewards were getting too frothy and issuers would be forced to cut them in the next downturn, rewards climbed to all-time highs in 2020,” he wrote in a memo to clients, per FT.