NEW YORK (MainStreet) – At the start of 2011, credit cards were coming off of a bad year. Consumers were understandably credit shy in the aftermath of the recession, so much so that the debit card became people’s payment of choice for the first time ever, and new regulations severely hampered issuers’ ability to entice consumers who hadn’t been burned (namely students) into the marketplace.
But as the year wore on, issuers – bolstered by the fact that debit cards were suddenly a whole lost less lucrative – found more (and oftentimes unique) ways to incentivize credit card use. At the same time, the memories of being burned by a tiny piece of plastic seemed to dim. But what’s in store for the industry in 2012? MainStreet breaks down what it expects consumers will see.
Prepaid debit cards will continue to invade the space. Issuers started to take an interest in the prepaid space even before the Federal Reserve’s 21-cent interchange fee cap made traditional debit cards much more expensive for them. Both American Express (Stock Quote: AXP) and Capital One (Stock Quote: COF) introduced low-fee versions well before the cap (which prepaid cards are conspicuously exempt from) was official.
But MainStreet thinks consumers should expect to see even more innovative prepaid offerings in 2012, perhaps even with rewards, as Card Hub CEO Odysseas Papadimitriou has speculated. That’s because prepaid cards help issuers get around another piece of legislation: the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, which put limits on the student card credit consumer base.
An attempt to tap back into the younger demographic spanned several new business models in 2011 that consumers should expect issuers to either copy or build upon in 2012. Amex, for instance, introduced a prepaid card this year that also functions as a student ID.
Lucrative sign-on bonuses and innovative rewards will continue to thrive. The extra-competitive marketplace in 2011 forced issuers to find a way for their rewards cards to stand out, resulting in some of the bigger sign-on bonuses or promotional offers we’ve seen in a while. At one point, Chase (Stock Quote: JPM) was offering $300 back to new Freedom cardholders who spent $500 in the first three weeks of having an account open. Discover (Stock Quote: DFS) and Citi (Stock Quote: C) were also offering $100-plus sign-on bonuses on some of their no-annual fee cards this December as well.
Experts told Mainstreet just this month that they expect this trend to continue through 2012, and we’re inclined to agree. Those looking to add a credit card to their arsenal next year should look for high sign-on bonuses with low spending thresholds, and there should be plenty available to choose from.
Credit card delinquencies will increase. After remaining steady throughout all of 2010 and half of 2011, the proportion of borrowers who are 90 or more days past due on their bills inched up from 0.6% to 0.71% during this year’s third quarter, TransUnion reported in November. The uptick was attributed to issuers’ renewed interest in subprime borrowers, a trend the credit bureau – and MainStreet – believes will lead to more delinquencies in the new year.
What can you do to repair or build your credit score in 2012? Find out in MainStreet’s year-end credit checklist!