OBSERVATIONS FROM THE FINTECH SNARK TANK
Every so often, one financial services observer or another proclaims the death of card cards. Back in April 2013, Motley Fool, in an article titled The Slow Death of Credit Cards declared:
“Great news: Americans are giving up on one of the most ruthless destroyers of wealth the numerically challenged have ever known: credit cards. We’re more interested in debit cards these days. Old style American consumerism, one built on debt, may be coming to an end. Good riddance, credit cards.”
In December 2017, CNBC trumpeted “the age of credit cards may be coming to an end—and that’s a good thing” and added:
“You have to admit there are some problems inherent to credit cards. The most glaring of these is that credit cards often aren’t 100 percent secure. Users face issues ranging from hackers and fraud to lost and stolen cards.”
Like that wasn’t a problem with cash. And who would ever dream of writing a fraudulent check?
Meanwhile, in the six years following the publication of the Motley Fool article, credit card debt grew by 50% to $930 billion at the end of 2019.
So much for the “end of American consumerism.”
Credit Card Volume is Charging Ahead in 2022
Fast forward to 2022, and large credit card issuers like Chase, Citi, and Wells Fargo are seeing strong credit card volume growth. In the first quarter of 2022, the three issuers’ volume grew 29%, 24%, and 33% year-over-year, respectively.
JPMorgan’s CFO credited the growth, in part, to a “re-acceleration” of travel and entertainment spending. According to eMarketer:
“The bevy of new and revamped card products to recently hit the market should help issuers sustain volume heading into the spring and summer months, especially cards that include T&E-centric rewards: Chase, for example, recently launched the IHG Rewards Premier Business co- brand card and updated IHG Rewards Traveler and Premier consumer co-brand cards.”
Young Consumers Are Fueling the Credit Card Boom
Many people mistakenly believe that older consumers are driving card card volume growth. Not so.
According to a recent consumer study from Cornerstone Advisors, 65% of Gen Zers (21 to 26 years old) and 67% of Millennials (27 to 41) have at least one credit card. Not surprising or out of line with other studies.
But the Cornerstone study found that among Gen Zers, Millennials, and Gen Xers with at least one credit cards, members of those generations spend, on average, 47% of their monthly expenditures (excluding bills) on a credit card.
3 Innovations Rejuvenating the Credit Card Market
While major issuers try to top each other by outdoing each other on reward levels, a few new entries in the credit card market are worth noting:
Curve aggregates multiple payment cards, allowing its users to make payments and withdrawals from a single card. Users link their debit and credit cards to the Curve card and either set a default card from which to make payments can then be set, or establish rules to assign certain types of payments to particular cards.
Curve also lets users switch the card they paid with after a transaction is complete, as long as it’s within the payment cycle.
According to Cornerstone Advisors’ research, among consumers with a credit card, half of Gen Zers, 57% of Millennials, and nearly two-thirds of Gen Xers have two or more credit cards.
Add to that the fact that 35% of Gen Zers, four in 10 Millennials, and a third of Gen Xers have two or more checking accounts—each with its own debit card—and the number of payment cards today’s consumers have really starts to add up.
Originally available in the UK, Curve announced its US launch in March 2022.
The concept of merchant branded (aka private label) credit cards has been around for a long time, but the economics of the arrangement makes it nearly impossible for merchants below a certain size to participate, thanks to onerously high initial implementation costs.
Tandym makes it easy for merchants with less than $1 billion in revenue to offer their own branded- or private-label cards. Via an API-based direct connection that cuts out the intermediaries, Tandym’s core product converts a merchant’s transaction costs into future revenues by diverting processing fees into a customer loyalty program.
With Tandym, merchants of any size can offer a payment product with their own branding and logo throughout their eCommerce experience and enable customers to earn points towards future purchases at the merchant.
Founded by former Capital One
execs with deep experience in the co-branded credit card space, Tandym will help expand store-branded credit to a wider range of consumers—and merchants—than has been feasible so far.
3) Crypto cards
Crypto debit cards have been in the market for a few years, but now crypto credit cards are beginning to emerge.
According to FCC Intelligence:
“Crypto cards primarily come in two types: cards that convert cryptocurrency into fiat so that it can be used to make a payment, often with additional crypto rewards, and fiat-based cards that provide crypto as a cashback reward.”
BlockFI was the first in the US market with a crypto credit card in July 2021, offering 15% cash back after a 3.5% rewards for the first three months. Gemini and Nexo launched their offerings in April 2022.
Many of the cards (both credit and debit) require cardholders to maintain a crypto balance with the issuer. With the Nexo Card, for example, cardholders use their crypto assets to open a line of credit and make purchases in fiat currencies while using their crypto holdings as collateral, according to FXC Intelligence.
Neither the Gemini or BlockFI cards charge transaction fees, but with the Nexo card, FX fees kick in after a certain amount of transactions.
The Death of Credit Cards is Wishful Thinking
There’s a segment of the population who wish credit cards would go away, and they jump on any negative change in the credit card market as evidence of the decline and impending death of credit cards.
It’s just not realistic thinking.
The use of physical cards may decline, but there is simply too much supply and demand for credit in the market. In fact, the Nilson Report projects that credit card purchase volume in the US will grow 39% between 2021 and 2026, with outstandings increasing by 35% over the same period.
And as the latest Fed data shows, buy now, pay later (BNPL) debt is additive to credit card debt, not a substitute. So how are the BNPL providers going to grow? By offering a broader line of credit offerings (ie, credit cards) as young and thin file consumers’ responsible use of credit increases.
Add in innovative new offerings from Curve, Tandym, and companies offering crypto credit cards, and the future of credit cards has never looked better.