In addition to making cost reductions during a time of crisis, more flexible everyday rewards should help credit card providers compete with the likes of PayPal, Sezzle, and Afterpay.
In a marked contrast to the trends of the last decade, credit card providers are reducing the perks offered to customers. In recent months, providers including Citibank, Barclays, Chase, and Discover have all reduced benefits such as price guarantees and travel insurances, citing low sustained usage.
Part of this has been due to the costs that credit card providers have faced through higher insurance claims, as well as changing travel needs that have been hastened and are likely to be sustained by Covid-19. This has reduced the profitability of these schemes at a time when card providers have been hit by a fall in consumer spending, reducing the fees they collect.
Just as importantly, however, has been the increasing competition that providers have faced from card alternatives, particularly Buy Now, Pay Later (BNPL) entrants. GlobalData’s Buy Now, Pay Later Analytics shows that 22% of US respondents used BNPL in the first half of 2019, rising to over 40% for 18–24-year-olds. This contrasts significantly with credit card ownership, where only two thirds of this age group hold credit cards.
Much of this popularity comes from BNPL’s easier use and accessibility, as well as the increasingly prevalent model of offering 0% interest while the merchant pays the fee. This has allowed BNPL to morph away from credit and into a favorable payment option for goods and services that consumers want to buy.
Whether consciously or not, credit card providers are now changing their propositions to match the ongoing usability of BNPL. Citibank, for example, has chosen to simplify its product through Pay With Points, a way for consumers to redeem points on an ongoing basis. The points can be used for dining, shopping, or entertainment, either online or in person. Similarly, the Discover it Miles card now allows Discover customers to redeem their points at petrol stations or restaurants in cash, or online on Amazon or PayPal. These offers should also help card providers secure loyalty at a time when credit card rewards across the board are becoming less valuable.
Forward looking, as spending and travel normalise, credit card providers are likely to return some benefits that were taken away, such as extended warranty or insurance perks for frequent travelers. However, more flexible ways to spend rewards are likely to stay and will be crucial to closing the everyday benefit advantage gap that BNPL still holds over credit cards.