Monthly Archives: April 2019

10 Key Takeaways from the Latest Crop of Consumer Credit Cards

Leading U.S. credit card issuers continued to roll out new credit cards, as they look to attract new clients, cross-sell and upsell existing clients, and win a greater share of clients’ spending.  

The following are the common trends or standout elements that we identified among these new cards.  (Note that the table at the end of this blog provides a comparison of features/benefits of 10 cards that were introduced over the past 12 months.)

  1. Introductory offers are focused on generating balance transfer volume.  7 of the 10 cards have 0% introductory offers on either purchases and balance transfers or balance transfers only.  6 of these 7 introductory offers have a duration of at least 12 months.
  2. Go-to APRs continue to be prime-based and operate in a broad range.  The APR range of many of the new credit cards is at least 7 percentage points.  Two cards (American Express Cash Magnet®, and Wells Fargo Propel® American Express) have an APR range of 11 percentage points.
  3. Some cards offer a high earn rate on all purchases.  One approach to using rewards to attract and retain cardholders as well as drive more spending is to have an earn rate of more than 1% on all purchases.  The Citizens Bank Cash Back Plus® World Mastercard® stands out with an earn rate of 1.8% on all purchases with no limit and no annual fee.  The Barclaycard Arrival® Plus World Elite Mastercard® offers 2 miles per dollar on all spending, but carries an $89 annual fee (waived first year).
  4. Issuers continue to offer tiered earning structures.  To drive card preference and grow spending in categories where cards have traditionally had a low share, many new cards continue to use tiered rewards structures, with higher earning on categories like travel, gas, dining and groceries.  It is worth noting that these bonus earn rates do not come with monthly or annual spending caps.
  5. Acquisition-and-activation bonus offers persist.  Issuers continue to promote bonus points/miles/cash back for activating the card and meeting a minimum spend requirement within an initial period (typically three months).  Higher-end cards that carry an annual fee also tend to have higher bonus levels.  Wells Fargo Propel American Express Card is looking to differentiate itself from competitors with a dual bonus structure: acquisition-and-activation bonus of 30,000 points and an additional 20,000 points for reaching a spending threshold in the first 12 months.
  6. Cards are offering redemption bonuses.  Some issuers are looking at rewards redemption as an opportunity to engender loyalty and preference.  Cards are offering bonuses:
  7. Most cards have no annual fees, but the cards that do carry an annual fee provide more features, higher earn levels and larger bonuses.  Annual fees tend to be waived the first year, although Navy Federal Credit Union’s Visa Signature® Flagship Rewards card has a $49 annual fee and no waiver. 
  8. Most cards apply a fee on balance transfers, usually a rate of 3% with a minimum of $5 or $10.  Navy FCU’s Visa Signature Flagship Rewards has no BT fees.  For its SavorOne℠ Rewards Card, Capital One imposes a fee of 3% during the card’s 15 month introductory period.  After this introductory period, there is no fee on balance transfers.
  9. Like BTs, most cash advances come with a fee (of 3% or 5%, with minimums of $5 or $10).  Again, Navy FCU stands out with no fee on cash advances.
  10. No foreign transactions fees are quickly becoming the norm, even on non-travel-based cards.

Key Features in the Latest Crop of Small Business Credit Cards

In spite of the emergence of new electronic business-to-business payment forms, and the continued popularity of checks, U.S. small business owners continue to grow their small business credit card usage.  According to The Nilson Report, U.S. Visa and MasterCard small business credit card volume rose 15% in 2017 to $223 billion.  And American Express also reported that its Global Small Business Services loans rose 13% to $12.3 billion in 2018.

In order to capture their share of small business card spend, leading U.S. banks have launched a range of new small business credit cards over the past year.  These credit card launches are summarized in the table at the end of this blog.  The following are the key trends and features that stand out for these new cards:

Pricing:

  • There is a mix of 0% purchase-only and purchase-and-balance-transfer introductory offers, with durations of 9 or 12 months. 
  • Most cards have an APR range.  The only exception is U.S. Bank’s Business Leverage Visa Signature Card, which features a non-tiered go-to APR of 18.74%. 
  • As demonstrated by both M&T Bank and BB&T, there tends to be a 200 basis-point gap between rewards and non-rewards business card versions.
  • Business credit card APRs tend to be lower than their consumer card counterparts.  BB&T launched Spectrum Cash Rewards (consumer) and Spectrum Cash Rewards for Business at the same time: the business card’s lower tier was priced 300 bps less than the consumer card (and the business card’s upper tier is 100 bps less than the consumer card).

Rewards:

  • New business cards offer either a 1.5% earn rate for all purchases with no limits or a tiered earn rate. 
  • For tiered programs, the business cards either offer higher earnings on specified spending categories (such as at restaurants and gas stations) or on the top spending categories during the month (U.S. Bank Business Leverage Visa Signature).

Bonus Offers:

  • Issuers are now deploying different approaches to incentivize business card usage. 
    • We continue to see acquisition-and-activation offers for reaching a spending threshold within the critical 90-day initial period.  However, new American Express Amazon Business Card cardholders receive a $100 Amazon gift card on approval.
    • To promote relationships, some business cards now offer bonus earnings on cumulative spending over the first year.  Recent examples include Discover it Business Card and U.S. Bank Business Leverage Visa Signature.  Furthermore, the new U.S. Bank card also enables cardholders to earn rewards for accepting credit card payments.

Fees:

Most business cards launched over the past year have no annual fee, the exceptions were BB&T’s Spectrum Travel Rewards for Business and U.S. Bank’s Business Leverage Visa Signature.

New business credit cards show significant variation in the percentage (3-5%) and minimum fees ($5-$15) for both cash advance and balance transfer fees.  However, some new cards deviated from the standard approach:

The Discover it Business Card carries a 5% balance transfer fee with no minimum.

The U.S. Bank Business Leverage Visa Signature Card has a different fee for balances transferred with the card application vs. the ongoing BT fee.

Mirroring consumer cards, many new business cards now come with no foreign transaction fee.  This include non-travel cards, such as the American Express Amazon Business Card and the two new M&T business credit cards.

The Emergence of Employee Financial Wellness Programs

Over the past few years, financial institutions have significantly increased their investment in initiatives to grow consumer and small business financial literacy.  An even more recent development has been the emergence of workplace-based financial wellness programs: a 2018 survey by Strategic Benefit Services found that 59% of employers offer financial wellness programs or planned to do so.  And recent research by Alright Solutions found that 64% of employers say their organization’s financial wellness program is more important now than it was two years ago.

This rise of workplace financial wellness programs has been driven by several factors, including:

  • The overall growth of investment in financial education programs by the financial services sector in response to concerns about gaps in financial literacy levels, and the proven positive impact that financial education programs have in driving smarter financial behavior by consumers and small businesses.
  • Employer desire for additional benefits and services to attract and retain staff. 
  • Employee need for financial education: PwC’s 2018 Employee Financial Wellness Survey found that 41% of employees say their employer’s financial wellness plan has helped them get their spending under control.
  • Recognition of the value and critical role the workplace channel can play in teaching financial concepts, as well as in providing advice and potential solutions. 

Financial firms providing workplace financial wellness programs include banks, investment firms, and employee benefits providers.  Many of the leading firms in these sectors have launched new or enhanced existing financial wellness programs over the past year:

  • Principal launched Principal Milestones, which provides personalized information based on an online assessment.
  • MassMutual introduced MapMyFinances, a financial and benefits planning tool that features a financial wellness score.
  • Morgan Stanley Wealth Management launched an enhanced Financial Wellness Program for employees of mid-to-large sized corporations, which features a digital portal, a catalog of financial wellness materials, financial assessment as well as the option to collaborate with a Financial Advisor or through Morgan Stanley’s online investing program.
  • Prudential introduced a range of new financial wellness capabilities, including expanded digital and on-demand solutions, as well as needs-based and life-event solutions.

Unfortunately, financial wellness programs do not tend to be immediately embraced by employees.  This can be attributed to a number of factors, including a lack of interest among employees, perceived complexity of the programs, and the lack of resources to manage the program. To overcome these challenges, employers must clearly communicate to employees how they will benefit from engaging with the financial wellness program.  To that end, financial institutions need to support employers in marketing the program to employees. It’s also important to gather feedback from employers in order to enhance features and improve the user experience.

The growth in workplace financial wellness programs shows no sign of abating, and we expect financial institutions to further improve and differentiate their programs through new features and options (such as enhancing access to the program via digital channels), as well as continue to develop financial wellness-related content.