On the heels of the CARD Act implementation in 2010, cardholders using more debit than credit cards, and the Federal Reserve recommending a cap on debit card fees issuers can charge merchants, the world of plastic has been kicked around over the past several years.
To see what might be in store in 2011, we asked experts in the credit card area to tell us what they see ahead for the business and for cardholders.
Curtis Arnold, founder of CardRatings.com, Little Rock, Ark.
Issuers will continue to become more aggressive to attract the best customers. This will mean more robust rewards programs, sign-up bonus offers, and longer introductory periods. APRs will improve some, especially for those with the best credit. Credit criteria will remain stricter than we were accustomed to pre-credit crisis.
I think we will see some new rewards in the airline and reward points categories in an effort to take some market share from the increasingly popular cash-back cards category. I predict we will see more testing of new additional benefits, such as free bag check and other fees paid or reimbursed, airline lounge and other types of exclusive access, bonus points added to new and popular areas, flexible redemption options, and discount incentives.
We're not likely to see a reduction in annual fees or balance transfer fees or see BT waived for 0% intro offers as we did before. I'm not too sure we will see any new fees--or even if we'll see an increase in fees--but I don't think we will see the fees reversed that increased after the credit crisis.
I think subprime issuers will continue to think of new and creative ways to stay in business post-CARD Act. Consumers with poor or limited credit will have to be more careful when applying for cards.
Dr. Mary Ann Campbell, CFP, spokeswoman for IndexCreditCards.com, Little Rock, Ark.
With the need to transfer balances after Christmas, the trend in the new year is new offers. Consumers should card surf and switch to cards with attractive offers. There will be zero percent offers, but those rates will hike when the introductory period is up. Consumers need to beware of the new APR.
Credit cards will be good for good money managers. If you manage your money well, you can be rewarded by these attractive new offers. Issuers are looking to increase their market share, and I think they will have offers that will be good for consumers. It will behoove people to be smart consumers and benefit from it. But if you have a problem, you need to be sure you don't bite on an offer and then find out you've got more than you can chew.
Dennis Moroney, research director for bank cards industry, TowerGroup, Needham, MA.
There will be an uptick in credit card offers this year. The two leaders there are Capital One and HSBC, which both tend to be down-market issuers. They're not marketing to the super-premium customers, but their response rates have been very high.
The Senior Loan Officer Survey, conducted by the Federal Reserve in October, showed that consumer demand for credit started to wane before the banks pulled back. Consumers knew they were in trouble before the banks did.
The deleveraging of consumer debt has been happening for some time. Consumers have adopted a pay-as-you-go mentality. But with debit card rewards being cut back due to potential new rules, we'll see a major restructuring in fees and rewards.
Consumers will be shifting back to credit card use--debit card use will decline because rewards will be cut back.
People used debit cards thinking they were taking control of my expenses. Now for Gen X and Gen Y, the mind-set isn't the same--they tend to be more responsible. They use them for convenience, and have less affinity to a brand.
For issuers, the mobile stuff - being able to make simple person-to-person payments using your phone as a payment method - could be a game changer. Banks need to be careful. With a credit card, there is a bit of reinforcement - you pull the card out and see the Visa or MasterCard logo. If you go to mobile, there's no brand identification. The connection to the brand will be lost. Mobile payments may make cards an anachronism.
Consumers with very good credit who manage their credit well will be rewarded. In 2005, the majority of offers went to riskier consumers; now it's only 18 percent of the offers. And 85 percent of the new offers are for rewards cards for better credit risks.
Credit hasn't gotten any tighter, but it hasn't eased either. I'd say consumer demand for credit is less lousy than it's been for the past few years.
John Ulzheimer, founder of 2stepcredit.com, Atlanta
I think I have a contrarian view. I think most people are pessimistic about the industry. Yet the credit card issuers are already showing the creativity that they stopped showing a few years ago. They were worried about taking cards away from customers. Now they're looking for ways to acquire them.
There will be a significant increase in small-business card offers. They weren't covered in the CARD Act, so it makes sense to shift acquisition effort to small-business customers.
Thirty-five percent of consumers now have FICO scores of 650 and below--that's 70 million consumers. Unless issuers want to sit and do nothing for the next two years, they're going to have to do business with customers in these high-risk ranges.
These customers are attractive to issuers. They're likely to pay 19 percent interest, carry a balance, and be willing to pay an annual fee for the access to credit. Issuers are going to identify consumers who've lost a job or had a mortgage reset, rather than have bad credit. There will be more offers for higher-risk consumers.
The issuers have lost $50 billion to $80 billion income from fees. I see increases in traditional fees, foreign transaction fees, annual fees, but also more compliance types of fees - the cost of doing business passed on to the consumer.
Consumers are starting to get savvy with respect to reward programs. Credit card reward programs are the plastic equivalent of Cash for Clunkers or the First Time Homebuyer tax credit. You spend $30,000 on a car to save $4,000? $200,000 on a house to save $8,000? Consumers realize reward programs are meant to reward the issuer, not the cardholder. Outside of cash back, rewards programs have become too complicated, especially miles. Consumers are picky about rewards programs.
There's an interesting dilemma among issuers now. In late 2007, when this [credit crunch] started, before the CARD Act was passed and changes were being discussed, the issuers had a kneejerk reaction and started reducing limits, raising rates, paying people to close accounts. It seemed clever then, but it angered customers. The customers remember and want something to make them forget how they were treated 12 and 24 months ago.