Consumer satisfaction with credit card perks is facing challenges as debt balances reach new peaks, as indicated by a recent report. The J.D. Power 2023 U.S. Credit Card Satisfaction report highlights that credit card rewards are the aspect consumers are least content with, primarily concerning the rewards earned in relation to their spending, particularly among cashback cardholders.
The report reveals that cardholders who paid an average of $100 or more in annual fees expressed the highest satisfaction with the benefits and rewards they acquired, surpassing the satisfaction levels of those with cards featuring lower or no annual fees. On the contrary, cardholders paying $500 or more in annual fees reported reduced satisfaction with the rewards and benefits provided by their credit cards, mainly due to the perceived exorbitant fees they had to pay. For instance, airline cardholders expressed high satisfaction with the rewards and benefits but were less impressed with the terms of their cards.
Furthermore, the pursuit of enhanced rewards programs was identified as the primary motivation for consumers switching card providers in the past twelve months, as per the report.
The pandemic-era savings cushions are gone, the economy is shaky, and consumers are leaning more heavily than ever on their credit cards to cover day-to-day expenses,” said John Cabell, Managing Director of Payments Intelligence at J.D. Power. “This is a make-or-break moment for card issuers.
While high levels of revolving debt and declining financial health typically have a negative effect on cardholder satisfaction and loyalty, issuers do have an opportunity to help customers by encouraging the use of payment plans and taking other steps to build goodwill and trust,” Cabell continued.
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Credit Card Utilization Surpasses $1 Trillion
Mark Consumer utilization of credit cards propelled balances to surge by $45 billion within a quarter. The second quarter of 2023 witnessed an escalation in spending to $1.03 trillion, as per the Federal Reserve Bank of New York’s latest report.
According to the J.D. Power report, more than half (51%) of consumers revealed that they maintain revolving debt on their credit cards. Furthermore, individuals identified as “financially unhealthy” reported an average interest rate of 16.5%. Most of them disagreed that their card assists in managing their expenditures.
Despite increasing dissatisfaction, credit card installment plans stood out as a perk that pleased consumers. Participation in such plans resulted in a 102-point surge in customer satisfaction, based on a 1,000-point scale, according to the report.
These installment plans offer a fixed interest rate or a monthly fee, distinct from the typical variable interest rate. The setup is akin to “buy now, pay later” or an extended payment plan, making it more convenient for cardholders to settle specific purchases by segregating them from the card’s overall balance.
Moreover, numerous consumers expressed contentment with credit card offerings from fintech providers like Chime, Self, Ollo, and others. The enticing card offers from these newer entrants consistently elevate overall satisfaction levels and bolster brand trust compared to traditional bank-branded cards, the report highlighted.
“Fintech issuers particularly cater to younger cardholders burdened with credit card debt, placing a higher emphasis on building credit rather than accruing rewards,” the report emphasized.
Proposed Legislation to Lower Swipe Fees Raises Concerns about Rewards
A bill reintroduced by Senators Roger Marshall (R-Kan.), Richard Durbin (D-Ill.), and J.D. Vance (R-Ohio) in June, originally proposed last year, seeks to reduce swipe fees for credit cards by fostering competition within the industry. The bill may undergo a vote by the end of the current year.
This legislation stipulates the enabling of two competing networks on a credit card, not limited to Visa or Mastercard exclusively. It necessitates the inclusion of a smaller, rival network on the card.
Swipe fees, also referred to as interchange fees, have an average rate of 2.24% but can escalate to as much as 4% of the purchase amount, according to the Merchants Payments Coalition (MPC). Over the past decade, swipe fees have more than doubled, reaching $22 billion in the previous year.
However, the introduced legislation could potentially affect the way credit cards offer rewards, as highlighted by the National Association of Federally Insured Credit Unions (NAFCU).
“Expanding interchange price controls and routing mandates to credit cards is bad policy, pushed by big box retailers who are looking to pad their bottom line,” stated Dan Berger, the President and CEO of NAFCU. “Contrary to merchants’ deceptive claims, data shows consumers end up paying more across the board – from higher prices of goods to more expensive card products at their financial institutions, and fewer rewards and benefits on their card purchases.
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