To say the US credit card market is crowded is a dramatic understatement. Nearly every financial institution offers a credit card product, as do an increasing number of merchants, fintech companies and non-traditional lenders. Most American consumers have at least one credit card, and according to McKinsey research, credit card payments accounted for 37% of consumer purchases by dollar value in 2021. And after a pull-back in new card applications and overall spending during the pandemic, US consumers opened 229 million new credit accounts in the first quarter of 2022, and total credit card spending is up 15% over last year.
How can credit card issuers compete for new cardholders and keep existing ones in such a crowded marketplace? Lending rates are primarily decided by consumer credit scores and federally set interest levels, so competing strictly on price is a limited strategy. Even the most bare-bones credit products offer some cardholder benefit, making common rewards like cash back or no annual fees table stakes. While these factors are key considerations for consumers when choosing a new credit card, they rarely distinguish one card from another.
Instead, it’s rewards that help card issuers differentiate their credit card offering and stand out from the competition. The right rewards structure attracts new cardholders and can help keep existing customers and boost overall engagement and spending within the issuer’s payment ecosystem.
But there’s plenty of competition in the rewards space, too. Credit card rewards programs can range from straightforward to elaborate and complex and include benefits as diverse as per-gallon gas credits and spa day packages. However, one type of credit card reward has proved consistently effective and popular: travel rewards.
The attraction of travel to engage cardholders
Travel holds a unique position in the average consumer’s imagination. It’s inspirational and aspirational while representing a big-ticket purchase for most consumers. Travel is something they can dream of but also must plan for. In part, this aspect of travel is what makes travel rewards so appealing to cardholders or loyalty program members – they’re rewards designed to help put their dreams within reach.
That’s exactly what consumers use their travel rewards to do. Our Travel Loyalty Outlook 2022 report found that 42% of loyalty program members, including participants in credit card rewards programs, used their points or miles to lower the overall cost of a trip. Smaller percentages used their status to get an upgrade or other perk (24%) or book an exclusive travel product or service available only through their rewards program (11%).
So travel rewards are desirable and utilized. But what kind of travel rewards work best for credit card issuers hoping to attract new cardholders and retain their existing ones?
Demonstrable value comes in different forms
The short answer is the ones consumers perceive as the most valuable. Value for money remains the top consideration for consumers when booking travel, and credit card rewards programs that can demonstrate their ability to deliver value will always have an edge. Unfortunately, this is where many credit card reward programs struggle, even compared to other loyalty programs. Our Travel Loyalty Outlook report revealed that 32% of loyalty program administrators at financial institutions think their travel rewards aren’t seen as valuable enough by consumers, compared to 28% of loyalty providers overall.
To combat this perception, credit card rewards programs should lean into their built-in advantage: their ability to offer exclusive pricing that’s only available to their members. Travel providers, for example, cruise lines and hotels, can release special rates and packages exclusively to those members or groups knowing those rates won’t be made public, which could disrupt their overall pricing strategy. Capitalizing on this advantage allows credit card rewards programs to offer greater value to cardholders that are unavailable through a public-facing online travel agency or discounter.
Having the right options for your cardholders and members
Value is vital, but it’s only part of the solution. For financial services companies that offer card-based rewards programs, the goal is often to reward the top tier of loyalty members who far outspend other tiers while meeting their service expectations. To do this, they need travel and lifestyle benefits that create unique experiences while meeting cardholder expectations for the options available to them.
Most credit card travel rewards programs offer air, hotel and car rental, but relatively few offer the ability to book cruises, experiences, or alternative lodging. To drive the most engagement and spend through their travel rewards strategies, card issuers should consider including more earning and redemption options to meet the needs of as many potential travelers as possible.
Exceptional customer service is essential
While travel options impact the booking and on-trip experience, the level of customer service provided by a credit card rewards program influences the cardholder’s overall experience with the financial services brand. This is another opportunity for card issuers to differentiate their offering and improve current cardholder experiences.
Our Travel Loyalty Outlook 2022 report found that more financial industry professionals (23%) say maintaining appropriate customer service levels is their biggest challenge relating to their loyalty programs. That’s compared to 21% of all loyalty program administrators.
Many credit card rewards programs offer concierge service as a benefit but maintaining a high level of day-to-day customer service can significantly impact cardholder retention. Financial service brands should invest in travel rewards platforms to meet and exceed their cardholder expectations for customer service experiences.
In a crowded credit card market, offering differentiated rewards is the best way for card issuers to compete. Leveraging high-value travel rewards with the array of options cardholders expect and the service experience they deserve is how financial services brands can set themselves apart.
With the right travel rewards partner, card issuers can execute a loyalty strategy that helps them meet their cardholder recruitment and retention goals and create the rewarding experiences their customers want.