The credit card industry has come a long way since the first credit card was introduced in the 1950s. Today, bankcard balances have reached a new record of $930 bn in the US alone, and the industry as a whole is growing rapidly across the globe. With rapid growth comes stiff competition, so issuers are constantly looking for ways to attract new customers and retain existing ones.
With economic uncertainty shaping financial services worldwide, flexibility and creative thinking have become necessary for issuers and other lenders trying to reduce risk and default as much as possible. Traditional approaches include adjusting lending criteria, reducing credit limits, and increasing interest rates to protect against potential losses. However, forward-thinking lenders have chosen to embrace macro trends like digitization to provide better customer service and financial inclusion to expand the addressable market.
More specifically, trends like alternative credit cards, offering BNPL functionality, and hyper-personalization are not only strengthening lenders’ risk positions and growing their business, but are changing the way we use and think about what a credit card can be.
Explore the three innovative trends driving change in the credit card industry:
Trend 1: “Alternative” Credit Cards
Alternative credit cards are credit cards designed for new-to-credit (NTC) consumers with thin credit files or no credit history, including college students, immigrants, and low-income earners to help build credit and improve creditworthiness. Unlike traditional credit cards, these do not require hard credit pulls and often come hand-in-hand with features like financial literacy education, auto-payments and rewards to help users build credit while promoting responsible card usage. Alternative credit cards could be a great entry point for the 1.4 billion adults who are unbanked across the globe.
Why they’re popular:
Alternative credit cards offer consumer lenders an opportunity to attract new users who wouldn’t typically qualify for traditional credit cards due to a thin credit file, no credit file, or low credit score. By offering cards that teach users how to build credit, with low spending limits and auto-payments, lenders can help consumers establish good credit and build a relationship with them for future financial products.
How to offer them:
Perhaps not surprisingly, alternative data is the key to alternative credit cards. Alternative data refers to all the financial information that is not included in a credit report, like utility bills, rent payments, employment history, and sometimes even social media. Since these cards are built for consumers without traditional bureau data, lenders can create their own credit scoring models by integrating a wealth of alternative data into their decisioning engines. If you’ve got alternative data, you’ve got the foundation for alternative credit cards.
Trend 2: BNPL Payments
Buy Now Pay Later (BNPL) functionality is becoming increasingly popular in the credit card industry as credit card lenders look to carve out space in their direct competitors’ $19.5 billion market. Adding BNPL-style payments to credit cards allows consumers to spread out the cost of their purchases over time, typically with a short-term, interest-free period between three and six months. It also allows credit card lenders to take back some of the business they’ve lost to BNPL players.
Why it’s popular:
BNPL functionality is becoming popular because it offers increased flexibility and accessibility to consumers while adding additional revenue streams and competitive advantage for credit card lenders. Consumers get more time to pay off larger purchases and don’t have to create an entirely new BNPL account or download yet another app to benefit. An added bonus is built-in rewards they already receive with their credit card. Lenders can enjoy boosted revenue from BNPL interest, but the major draw is the potential to attract new customers and retain existing ones – if your credit card already offers BNPL, there’s no need to make purchases with another financial service provider.
How to offer it:
To use BNPL functionality effectively, issuers need to increase the flexibility of their platform. This can be achieved through the use of advanced decisioning capabilities, which can identify users who are most likely to use BNPL functionality, determine personalized offers, and even monitor behavior to optimize plans based on payment activity – all while reflecting your risk appetite.
Trend 3: Hyper-Personalization
80% of consumers want credit card offers tailored to their needs – personalization is no longer a bonus, but a basic requirement. From onboarding through the entire customer lifecycle, hyper-personalized credit cards are meeting customers where they are and supporting them on their financial journeys. As economic conditions vary, these cards – which are powered by machine learning and advanced decisioning and analytics – can help ensure consumers can still pay off their cards and credit card lenders can maintain low risk portfolios.
Why it’s popular:
Hyper-personalized cards are attractive to new users, looking for tailored benefits and rewards built specifically for their spending patterns, behaviors, and even lifestyle. A hyper-personalized credit card may offer rewards for specific categories of spending that the user frequently engages in, such as travel, dining, or online shopping. The card may also offer exclusive benefits such as discounts, cashback, or concierge services, which all drives customer loyalty. The data-driven approach behind hyper-personalized credit cards can also help users to better understand their spending habits and make more informed financial decisions, while helping lenders gain insights into their customers’ spending habits and preferences, reduce risk and minimize losses from delinquent accounts, and ultimately identify potential risk factors and take proactive measures to prevent defaults.
How to offer it:
Hyper-personalized credit cards run on data, decisioning and machine learning technology to provide advanced analytics. This technology enables lenders to gather and analyze vast amounts of alternative and traditional data to gain a deeper understanding of a borrower’s financial profile and build a credit card experience just for them. Decisioning technology can also be used to automate the credit card application and approval process, allowing lenders to quickly assess a borrower’s creditworthiness and make personalized credit offers in real-time.
Go From Trending to Thriving
The credit card industry is evolving rapidly, and these three trends represent just a few of the innovative changes taking place. Alternative credit cards, BNPL functionality, and hyper-personalization are reshaping the way consumers access and use credit while helping contribute to the growth of the global industry.
By embracing these trends, credit card lenders can reach new, creditworthy thin file or no file users, compete with rising BNPL players, and meet the exact needs of current customers. However, companies must leverage advanced analytics and alternative data sources to get the most out of these new features. As the industry continues to evolve, it’s clear that credit cards will remain an essential financial tool for consumers, and those who embrace innovation will be best positioned to thrive.