Credit card lenders attract borrowers with new offers and incentives

New data shows that as the country’s largest card issuer seeks to increase loans, inboxes across the United States are flooded with credit card offers.

According to data from Competiscan, an analysis organization that tracks direct marketing, the online solicitation of new card customers last month increased by 85% year-on-year due to higher incentives, higher credit lines and lower promotional interest rates introduced by lenders.

Although the U.S. economy has Bounce back Faster than expected, loan demand remains the same Stubbornly weak Since most of the customers who consume less, save more and use the excess cash in the stimulus plan to repay their debts, almost no new credit is used.

In the first quarter, the loan balances of the largest credit card banks such as JPMorgan Chase, Citigroup and Discover fell 9% to 14% year-on-year. Now, these lenders are at the forefront of the marketing blitz, and this marketing blitz is accelerating into the summer months.

Poaching loan

One of the main tools of the recovery is balance transfer discounts, which can effectively steal loan balances from competitors.

These promotions gave consumers the opportunity to consolidate debts onto credit cards for up to 18 months of interest-free. After most of them disappeared last year, they quadrupled last month. At that time, most issuers were preparing for it. Waves of default have never happened before. Materialized.

Competiscan payment insight director Jessica Duncan (Jessica Duncan) said: “Balance transfer is really an engine that helps issuers maintain their book balances.”

But she said the customers most attracted to these offers are often at greater risk because they have already been taken advantage of. When the economic outlook becomes severe, these deals are among the first to dry up.

However, as ordinary American consumers emerge from the pandemic in better-than-expected financial conditions and organic loan growth remains elusive, issuers are turning to sweeteners to support their loan books.

“[Lenders] Still have to be cautious, but they just lost every balance they didn’t expect, and they also have a bottom line to keep in mind,” Duncan said.

The data shows that even with a surge, the overall balance transfer offer is still only 50% of the 2019 level, indicating that banks are more cautious when re-entering the market.

Raise the limit

Statistics show that last year’s very rare move to increase credit limits also made a comeback last month, with a jump of more than 300%.

Compared to other cards in the wallet, a card with a higher limit is more likely to act as the customer’s primary credit card and capture most of the spending. Customers with higher credit lines also tend to hold larger balances because most borrowers prefer to keep their utilization rate below 35%.

Sometimes lenders ask customers to provide more data, such as updated salary information and housing costs, and then propose an increase, but usually they will decide to increase the limit on their own.

According to the quotations reviewed by the British Financial Times and Competiscan, last month, Citigroup, Bank of America and Capital One voluntarily increased the credit limits to some customers with good credit records, increasing these limits by one-third.

According to Competiscan data, Citigroup’s notifications increased the most.

Enhanced reward

Credit card rewards, especially high-end cards, have never slowed down during the pandemic, and as issuers take action to get more spending during the economic recovery, credit card rewards will only become more competitive.

Wolfe Research analyst Bill Carcache wrote in a recent report to customers: “Although there are speculations that credit card rewards have become too frothy and that issuers will be forced to cut them during the next economic downturn, the rewards will climb to a historical level in 2020. new highs.”

Cash back cards are popular with reward chasers during the pandemic because of their versatility compared to dedicated travel cards. Last week, Citigroup and Wells Fargo both launched new cash back cards, and the number of products has increased, indicating that this trend will continue.

Travel cards such as American Express’s Delta Airline Card and Chase’s Marriott Bonvoy Card have also increased registration benefits by adding mileage and points to take advantage of the reopening trend.

However, analysts believe that the reward rate will soon slow or be controlled because the cost of benefits has become so high that they are roughly equal to the lender’s income on basic card exchange fees.

“The issuer may be about to pay more to reap the rewards,” Carcache said.

Analysts said that in the short term, due to better-than-expected credit quality trends, issuers have some room to operate, which gives them more leeway to invest in the business without significantly compressing profit margins.

Chris Marinac, a senior analyst at Janney Research, said: “If you are a credit card company, you are likely to see lower-than-budget expenses, which means you have a certain amount of flexibility.”

Overall, analysts said it may take several quarters for marketing to return to pre-pandemic levels, as many lenders remain vigilant about potential credit risks that may be masked by stimulus and tolerance plans.

“Given the completely unique things we observed last year, there is a danger of over-inflation in the credit scoring industry, and it is difficult for credit models to truly determine what credit risk is,” Capital One CEO Richard Fairbanks Said at a recent industry conference.

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

“A lot of wrong conclusions may be drawn.”