Recent consumer research indicates that about 19% of consumers plan to switch credit cards; that is, nearly one-fifth intend to substitute a new card for what they’re using currently. With signs that 2021 acquisition activity is heating up, we wanted to better understand what is motivating cardholders to seek new cards.
Let’s start by course correcting any belief that, coming off the pandemic, loyalty to a primary card may have deepened, further entrenching it in the consumer’s wallet. It appears instead that consumers are welcoming – and applying for – an array of new credit cards. It will not come as a surprise that rewards continue to attract new cardholders, including the desirable mass affluent segment.
Issuers are doing their best to encourage switch behavior, as they pump up direct marketing activity, invent and launch new credit cards, freshen existing ones and serve new segments (like the underserved consumers or consumers with debt) – all in response to consumer preference and payment behaviors.
Consumer attitudes about switching credit cards
Ipsos survey results from late 2020 provide insights on these current consumer attitudes, going deeper into the “apply for a new card” mindset, including why a cardholder might not be loyal to their existing card.
First, Ipsos reports that one in five Americans says that they plan to get a new credit card in 2021 (18%). Those “most likely to agree” when asked if they would consider getting a new card in 2021 further breakdown as follows:
- male (24%)
- adults under the age of 35 (36%)
- those with children living at home (27%)
- those with no college degree (22%)
- those who do not currently own a credit card (26%)
According to the Ipsos data, the biggest motivating factor among consumers reporting that they would like to get a new card is to earn better rewards (41%). In order of importance, consumers also identified other reasons to seek a new card: a better APR, increased line of credit and avoidance of annual fees.
When it comes to rewards, 60% of American consumers surveyed by Ipsos state that credit card rewards “are very important,” with the popularity of cash back rewards making them, by far, the favored rewards currency.
What’s your preferred (or what would be your preferred) type of credit card rewards?
|Points that are transferable||10%|
“2% cash back wars” boosts new card acquisition
In the month of March 2021 alone, eMarketer reports that 6 million new credit card accounts were opened. Comperemedia’s most recent Direct Marketing Snapshot1 tracking direct marketing of credit cards shows year-over-year growth for overall card marketing – including acquisition marketing – to be +212% in May 2021, by far the largest increase in activity amongst all sectors tracked.
The current increase in card acquisition aligns with Ipsos’ findings of intent in late 2020. It appears that issuers have their fingers on the pulse of consumers and are rapidly giving them what they seek – simple cash back rewards. In fact, Comperemedia refers2 to the flurry of recent credit card activity as “the 2% cash back wars,” with high visibility from three players tapping the popularity of cash back rewards with similar value propositions: Citi Double Cash, TD Bank Double Up and Wells Fargo Active Cash. (The latter two are new card entrants.)
Bank of America, another new entrant into this flat cash back trend, launched Unlimited Cash Rewards with 1.5% cash back on all spend categories. Not to be outdone, although not quite a flat cash back card by strict definition, Citi just launched the Custom Cash Card with 5% cash back automatically applied to the cardholder’s highest spend category.
How credit card issuers can retain existing cardholders
The Ipsos research we’ve cited underscores that the “majority of Americans say credit card rewards are very important to them and make them want to use their card more.” This key finding should rationalize, at best, enhanced value propositions to compete with new entrants or, at the very least, use of frequent cash back promotions designed to retain existing cardholders.
Part of the appeal of flat cash back is the simplicity of the construct, so issuers must keep all value prop enhancements and cash back promotions simple, easy-to-understand and easy to achieve. And given the consumer proclivity to switch cards for better rewards, issuers should be prepared with a ready-to-implement “save strategy” for when cardholders call to terminate (or when silent attrition is evident).
Although rewards clearly drive card preference, issuers should also be proactively looking for opportunities to increase credit lines, eliminate annual fees and lower APRs where feasible. These actions are in line with what consumers are looking for beyond cash back rewards.
We can expect to see additional credit card acquisition efforts as issuers also go after new segments, including the estimated 53 million American adults with no credit history. By this fall, the big issuers will be launching pilot programs to issue credit cards to Americans with no conventional credit score using offers based instead on unconventional data, such as applicant savings and checking accounts.
1. Comperemedia. Direct Marketing Snapshot. May 2021.
2. Comperemedia. T.D. Bank Enters the 2% Cash Back Wars. July 2021.