New data shows mailboxes across the United States are filling up with credit card offers as the nation’s largest issuers seek loan growth.
Online orders for new card customers jumped 85 percent last month on a year-over-year basis, as lenders raked in boosted rewards, higher credit limits and lower promotional rates, according to analytics group Compiscan, which tracks direct marketing.
Although the US economy bounce back Faster than expected, the demand for loans remained stubbornly weak Whereas, customers, who spent considerably less, saved more, and used surplus funds from stimulus programs to pay off debt, have little use for new credit.
Loan balances fell between 9 and 14 percent year on year among the largest credit card lenders including JPMorgan, Citigroup and Discover in the first quarter. Now these lenders are at the forefront of a marketing campaign that accelerates in the summer months.
Among the primary tools that lead to resurgence are balance transfer offers that effectively steal loan balances from competitors
Promotions, which give consumers the opportunity to consolidate debt into an interest-free credit card for up to 18 months, have quadrupled in the past month after having mostly disappeared last year when most issuers slammed the doors waiting for a wave of defaults to happen. Start. realized.
“Balance transfers are the driver that helps issuers maintain their edge on the books,” said Jessica Duncan, director of payments insights at Compiscan.
But customers who are more attracted to these offers tend to be riskier because they are already beneficiaries, she said. These deals were among the first to dry up when the economic outlook worsened.
However, with the average American consumer coming out of the pandemic in better-than-expected financial shape and organic loan growth still elusive, issuers are turning to sweeteners to prop up their loan books.
“[Lenders] “They still have to be careful, but they just lost a percentage of the balances they didn’t expect, and they also have a bottom line to consider,” Duncan said.
The data showed that even with the increase, total balance transfer offers remain at just 50 percent of 2019 levels, indicating that lenders are becoming more cautious when they enter the market again.
Initiatives to increase credit limits, which were extremely rare last year, also made a comeback last month, jumping more than 300 percent, according to the data.
Cards with higher limits are more likely to be the primary credit card for customers and get the bulk of the spend compared to other cards in their wallets. Customers with higher credit limits tend to carry larger balances because most borrowers prefer to keep their usage below 35 percent.
Lenders sometimes ask for more data from clients, such as updated salary information and housing expenses before offering a raise, but they often raise limits at their discretion.
Last month, Citigroup, Bank of America and Capital One distributed unwanted credit limit increases to some customers with good credit histories, raising those limits by up to a third, according to offers reviewed by FT and Competiscan data.
Citigroup topped the group with the most notifications, according to Competiscan.
Credit card rewards, especially on higher-quality cards, have never slowed during the pandemic and are only becoming more competitive as issuers maneuver to get more spend during the economic recovery.
“Despite speculation that credit card rewards are getting too frothy and that issuers will have to cut them in the next downturn, rewards have risen to an all-time high in 2020,” Wolfe Research analyst Bill Carcache wrote in a recent note to clients.
Cashback cards have become popular among bounty hunters during the pandemic due to their versatility compared to dedicated travel cards. Last week, Citigroup and Wells Fargo both unveiled new cashback cards with enhanced offers in a sign that the trend is here to stay.
Travel cards such as the Delta Air Lines card from American Express and the Chase’s Marriott Bonvoy Card have improved their subscription offerings by adding miles and points to take advantage of reopening directions.
However, analysts believe that bonus rates will moderate or be curbed soon as the cost of perks has become so high that they are almost equal to what lenders earn on exchange fees for base cards.
“Issuers may be on the verge of paying more of the reward they derive from spending,” Karkas said.
But in the short term, issuers have some room to work due to better-than-expected credit quality trends, which have given them more freedom to invest in the business without purposefully compressing profit margins, analysts said.
“If you’re a credit card player, you’re more likely to see spending cuts than you budgeted, which means you have some flexibility,” said Chris Marinac, senior analyst at Janie Research.
Overall, analysts say it could take a few more marketing quarters to return to pre-pandemic levels, as many lenders remain wary of potential credit risks that may have been masked by stimulus and tolerance programs.
“There is a risk in the credit score industry that is kind of exaggerated, and credit models have a real problem in determining what credit risk is given the very unique things we have observed in the last year,” Richard Fairbanks, CEO of Capital One, said at a recent industry conference. .
His group is also increasing credit card marketing, but at a slower rate than its peers.
“There can be a lot of wrong conclusions.”