Credit card lenders attract borrowers with new offers and rewards

U.S. mailboxes are filling up with credit card offerings as the country’s largest issuers look for loan growth, new data shows.

Online applications for new card customers increased by 85% last month as lenders got improved rewards, higher credit limits and lower promotion rates, according to Competiscan, a group of ‘analysis that tracks direct marketing.

Although the US economy has done just that It bounced faster than expected, loan demand has held up stubbornly weak since customers, who largely spent less, saved more, and used excess cash from stimulus programs to pay off debt, have little use for the new credit.

Loan balances fell between 9% and 14% year-on-year among major credit card providers, including JPMorgan, Citigroup and Discover, in the first quarter. Now, these lenders are at the forefront of a marketing boost that is accelerating during the summer months.

SEARCH LOAN

Among the main tools for resurgence are balance transfer offers that effectively achieve competitors ’loan balances.

Promotions, which offer consumers the opportunity to consolidate debt with an interest-free credit card for up to 18 months, quadrupled last month after disappearing most last year, when most issuers issued the hatches waiting for a wave of defaults that never materialized.

“Balance transfers are really the engine that helps issuers maintain their outstanding books,” said Jessica Duncan, Competiscan’s director of payment information.

But customers who are most attracted to these deals tend to be riskier because they are already leveraged, he said. These agreements were among the first to dry up when the economic outlook became painful.

However, as the average American consumer emerges from the pandemic in a better-than-expected financial form and organic loan growth continues to be dodged, issuers are turning to the sweetener to shore up their books. of loans.

“[Lenders] they still have to be cautious, but they have just lost a percentage of balances that they did not anticipate and they also have a final point to take into account, ”said Duncan.

Even with the rise, overall balance transfer offers remain only 50% of 2019 levels, indicating that lenders are more cautious as they re-enter the market, the data showed.

INCREASE THE LIMIT

Initiatives to raise credit limits, which were very rare last year, also bounced back last month, jumping more than 300%, according to the data.

Cards with higher limits are more likely to serve as customers ’primary credit card and capture most of the expense compared to other cards in the wallet. Customers with higher credit limits also tend to have larger balances, as most borrowers prefer to keep their utilization below 35%.

Lenders sometimes ask customers for more data, such as updated salary information and housing expenses before offering an increase, but they often increase the limits at their discretion.

Last month, Citigroup, Bank of America and Capital One distributed unsolicited credit line increases for some customers with a good credit history, raising those limits by up to a third, according to bids revised by data from FT and Competiscan.

Citigroup led the package with more increase notifications, according to Competiscan.

SOUP REWARDS

Credit card rewards, especially on high-end cards, never slow down during the pandemic and are only becoming more competitive as issuers maneuver to capture more spending during the economic recovery.

“Despite speculation that credit card rewards were becoming too frothy and that issuers would be forced to cut them in the next recession, the rewards rose to historic highs in 2020,” wrote Bill Carcache, Wolfe Research analyst, in a recent note to clients.

Return cards became popular among bounty hunters during the pandemic because of their versatility compared to dedicated travel cards. Last week, both Citigroup and Wells Fargo introduced new refund cards with additional offers, in a sign that the trend has come to hold.

Travel cards, such as American Express ’Delta Air Lines card and Chase’s Marriott Bonvoy card, have also sweetened their sign-up offerings with added miles and points to capitalize on reopening trends.

However, analysts believe that reward rates will moderate or be reduced soon, as the cost of benefits has been so high that they are roughly equal to what lenders earn with basic card exchange rates.

“Issuers may be about to pay more in rewards they generate with spending,” Carcache said.

But in the short term, issuers have room to run because of better-than-expected credit quality trends, which has given them more room to invest in the business without significantly squeezing margins, analysts said. .

“If you’re a credit card player, you’re likely to see lower-than-budgeted charge discounts, which means you have some flexibility,” said Chris Marinac, senior analyst at Janney Research.

Analysts generally say it may take a few more quarters for marketing to return to pre-pandemic levels, as many lenders are still wary of potential credit risks that may have been hidden by stimulus and tolerance programs.

“There is a danger in the industry that credit scores are a bit inflated and credit models have trouble determining what credit risk is considering the totally unique things we’ve seen over the last year,” said Richard Fairbanks, CEO of Capital One. he said at a recent industry conference.

His group is also increasing credit card marketing, but at a slower pace than peers.

“Many wrong conclusions can be drawn.”