The Reports of the Death of Airline Miles Rewards Cards Have Been Greatly Exaggerated
J.D. Power Banking and Payments Insight June 2020
It was supposed to be the year that would change everything for the credit card industry.
After 15 months of Americans curbing their spending and clearing their travel itineraries, conventional wisdom said that the market would all but dry up for credit cards that provided travel rewards. Whether it was for business or leisure, less people were traveling due to the COVID-19 pandemic, and few could envision the next time they’d take to the skies or check into a hotel.
It seemed obvious that credit card companies would have to find a new way to entice potential customers, or the brands that didn’t adapt would risk becoming vestiges of the past. And in a year that has brought on so much hardship, the pandemic did indeed have an effect on how customers shop for credit cards, just not in the way many analysts forecasted.
According to the J.D. Power 2021 Credit Card Shopping Study, travel reward cards might as well be made of Teflon. The study, which polled Americans that applied or considered applying for credit cards in the past 12 months—a period that spanned the bulk of the pandemic—found that 11% of all new credit card co-brand acquisitions were travel cards, a rate that remained stable with the previous year.
People Still Want a Giveaway
While it wasn’t necessarily expected, credit card shoppers were still banking on the eventual return of travel. Among all card shoppers, the most frequently cited element that influenced their card selection is rewards (22%).
Even as younger and older card customers diverged on why they selected a new credit card—with younger customers favoring trust in the issuer and older customers being more likely to place an emphasis on credit limits and interest rates—both groups heavily prioritized rewards. In fact, the ability to earn valuable rewards accounts for a 27% difference between a card that was selected and not selected.
While rewards aren’t necessarily limited to travel—cash back is another key reward incentive that is offered—shoppers that prioritized rewards are seemingly attracted specifically to travel cards. When asked the top reason for card selection, rewards are a key factor for 28% of those who signed up for travel cards vs. 16% who signed up for non-travel cards: a good indicator that travel points are driving this trend.
What’s more, even with travel restrictions, very few customers regret their decision to open a travel-related card (6%), a rate that is identical to those that opened non-travel related cards. That would seemingly indicate that accumulating points for future travel was a major factor driving satisfaction.
Pandemic Spurs Influx of “Revolvers”
Unfortunately, a daydream about a much-needed beach vacation wasn’t the only factor fueling new credit card applications.
Nearly one-fourth (23%) of credit card prospects stated that COVID-19 was a factor in their decision to shop for a new card, with 4% of prospects saying it was the primary reason. These shoppers are more likely to be “revolvers”—customers who carry balances and pay off those balances over time—who say they are worse off financially this year, and have credit scores of 659 and below.
That trend seemingly bears out when the primary reason given for opening a new card is examined further, as Americans were trying to find additional capital in new places. Only 8% said they wanted new terms, such as a lower interest rate or a card with no annual fee; 6% said they needed an additional card; and 6% said they were making a large purchase.
Top Credit Cards Opened
Looking broadly across the study results, consumers report being most likely to open cards with Capital One and Chase. In fact, 1-in-6 shoppers report doing so, and they are led by extensive marketing, the breadth of reward offerings, and low fees. On a smaller scale, Citizens Bank and TD Bank are the most likely to win cardholders among Midsize issuers.
Consistent with consumer behavior pre-pandemic, non-travel bank-branded cards are most often opened by U.S. card shoppers, led by the Capital One Platinum Classic Card among the largest issuers and the First Premier Bank MasterCard among midsize issuers. But for eager travelers, the airline cards most opened are the United Explorer Card from Chase Bank and the Citi AAdvantage Platinum Card.
The Recovery’s Effect
As COVID-19 wanes in the United States, the next phase of credit card applications could be a harbinger for the coming economic and social recovery. By many accounts, Memorial Day 2021 travel exceeded TSA passenger screening numbers seen in over a year. One recent survey found that as many as 85% of Americans plan on either definitely taking or are considering taking a trip this summer, so the market for travel cards will likely remain robust. But when it comes to the trend of “revolvers,” that might not be quite as easy to predict.
As Americans shuffle through the debt they collected through job loss or lower business revenues, cards that offer low-to-no interest rates on both new purchases and balance transfers could still be seen as a lifeline for many struggling to make ends meet. But there is also a new influx of shoppers that are flush with cash savings in the market, depending on how various policy measures (such as the various rounds of stimulus and the expanded child tax credit) affect a cardholder’s financial situation. It won’t be easy, but card issuers that read the market well could tailor their offers to attract a litany of new consumers.
This J.D. Power Banking and Payments Insight is based on data collected between January 14 and February 16, 2021 from a sampling of adult U.S. consumers that have considered opening or opened a new personal credit card within the past 12 months. It includes feedback from 8,710 respondents.
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This J.D. Power Banking and Payments Insight was authored by John Cabell, director of banking and payments intelligence at J.D. Power. Please contact us at the numbers below to connect with Mr. Cabell, or to learn more about the underlying research.