Issuing banks need to boost rewards to better their credit card spend (JPM, WFC)

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Issuing banks’ Q2 earnings revealed small improvements in credit card spend:

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JPMorgan Chase reported its noncommercial credit card sales volume grew 10.6% year-over-year (YoY) to reach $192.5 billion. This performance is a slight improvement from Q1 2019, when the segment rose 9.8% YoY, and a minor deceleration compared with its 11% YoY growth in Q2 2018.
Wells Fargo announced that its consumer card portfolio’s purchase volume totaled $22.5 billion, increasing 5.7% YoY. Its growth represents a minor acceleration from the prior quarter, when its purchase volume rose just 5.0% YoY, but it did dip relative to the 6.2% YoY growth it posted in Q2 2018.
As we noted yesterday, Citi’s branded card purchase sales reached $93 million, jumping 8% YoY. Like the other issuers, this performance was a small improvement on its growth from Q1 2019, when the segment rose 6% YoY, but it actually surpassed its growth from the comparable quarter a year ago, when the metric increased 7% YoY.

Issuers’ small improvements in credit card sales volume line up with US retail’s performance, which is also making small steps in the right direction. In June, US retail sales rose 3.4% YoY after May’s grew 2.9% YoY. This acceleration is a positive for the industry, but it pales in comparison to the 5.9% YoY growth it encountered in May 2018, for example.

Credit card spend is somewhat correlated to overall retail sales because credit cards made up 23% of US adults’ transactions in 2018, making them the third-most-popular payment method behind only cash and debit. And with the US-China trade war continuing — and threatening to seriously hurt US consumption — credit card spend could slide along with, or even faster than, retail in the near future.

Rewards initiatives may be key in boosting credit card spend despite retail’s mild improvements, as they can encourage additional purchases. Chase turned in the best YoY performance this quarter among these three issuers, and that may be thanks in part to its exceptional rewards offerings, like those from its Sapphire Reserve card.

Because 79% of customers cite rewards as the top reason they choose one card over another, providing robust perks that touch all kinds of spending could help firms boost top-of-wallet status, in turn maintaining or even reaccelerating card spend relative to trends in overall retail. Maximizing performance within card segments is critical for issuers, which are seeing continually declining returns on credit cards, per Mercator.

Hunting for cost-effective ways to entice customers to not only sign up, but keep cards top-of-wallet as credit cards continue to become more popular spending instruments, should be core to issuers’ strategies.

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