The COVID-19 pandemic caused quite a bit of upheaval in the credit cards industry, as it did everywhere else. While accelerating digital transformation and enhancing digital capabilities became an urgent need, changing the rewards environment also emerged as a pressing concern.
Rewards have always been a primary attraction driving customers to apply and spend on their credit cards. In fact, research shows that 40% of consumers use multiple credit cards because the additional cards offer rewards and benefits that their current card doesn’t. While 66% of consumers said that they use their rewards, during the pandemic the rewards ecosystem experienced a setback. More than 34% of consumers reported not using their rewards and 55% stated using fewer rewards or changed the way they used their rewards.
In the rewards hierarchy travel miles have always ranked higher than the other rewards. Well, that was the case until COVID-19 announced its arrival and made travel plans and traveling something that we ‘used to do’.
Even as the world starts to gradually move towards normalcy, consumers are traveling less, if at all. You don’t need to be Sherlock Holmes to deduce that with travel becoming harder, travel rewards have slipped in the desirability matrix.
The co-branded airline credit cards that offered lounge access and travel benefits now simply draw more scrutiny especially since we don’t even know when we’re boarding an airplane again. Even those cards that offered great rewards on entertainment like concerts and movie tickets are lying wasted amidst ongoing event cancellations and lockdowns.
The situation and the impact
A lot has changed in the past year. While that includes how cardholders use and gain value from credit cards, it does not signal that reward cards are now unattractive. Program managers in the cards industry just need to roll out rewards programs that are relevant to the pandemic and post-pandemic era.
While card issuers tightened the lending standards for new applicants, they had to simultaneously increase their effort to retain their card members. When the pandemic started, many credit card issuers realized that travel was on hold and cardholders would become wary of paying annual fees without reaping the benefits. Paying annual fees becomes less of a priority and comes under scrutiny especially when news of job losses and financial strain becomes omnipresent.
Companies like American Express, for example, added dining and grocery benefits for co-branded credit cards. Others like Citi, Capital One, Wells Fargo, etc. put in place, even if only temporary, everyday spending benefits to their travel rewards cards.
The road ahead need focus, flexibility, and speed
Reports show that consumer dissatisfaction with credit cards is on the upswing. The primary reasons being challenges with problem resolution, long wait times for customer service and reward, and credit limits that no longer align with cardholders’ usage, their needs, and their financial stress. However, according to the U.S. Credit Card Satisfaction Study, even though grocery shopping and takeout dining expenses became eligible for reward points these changes were insufficient to boost satisfaction with reward earnings.
Credit card program managers are now navigating an extremely complex business landscape that demands cardholder benefits must evolve to accommodate the needs of this environment. Building greater flexibility, in this situation, emerges as a key priority.
Program managers thus have to focus on offering changes that deliver relevance and value to their customers. Strategies such as shifting Uber rides to Uber Eats, moving rewards away from travel and restaurants by offering collaboration tools, and partner perks are emerging. As are adding accelerators for earning rewards on multiple popular co-branded airlines and hotel cards, or enabling earning airlines miles when purchasing from specific brands. Cards are also allowing cardmembers to bid for airline mileage for exclusive virtual experiences. These represent a few directions where the rewards ecosystem is evolving towards.
Simultaneously, program managers need to build in capabilities to recalibrate rewards programs fast as the world gradually returns to normalcy. Travel plans might be up in the air for some time now, but will not remain so forever. However, program managers have to understand that even as travel rewards make a comeback, users may now be focused on more permanent benefits that are not entirely travel-focused.
For program managers keeping their eye on the pulse of the market, identifying rewards opportunities, and rolling out relevant and contextual rewards programs using the right partnerships will be important today and in the future. Getting creative with card programs, determining big spending categories to design contextual and personalized programs and identifying opportunities to maximize rewards programs, and rolling them out efficiently, will be crucial in the months ahead.
Card program managers will have to get fresh approaches to maintain customer engagement in card loyalty programs. Recognizing the shifts in consumer priorities, whether due to personal financial circumstances or concerns over leisure or business travel, become imperative for program success.
Connect with our team of experts to know how to build greater flexibility into your card programs. Technology can allow you to roll out changes fast and respond to this changing market dynamically, create more value and maintain high levels of customer engagement.