U.S. consumers are continuing to use their credit cards despite the economic slowdown. In the latest quarter, spending on Visa credit cards saw a 9.5% YoY increase, while MasterCard saw an even bigger jump of 14%. This growing trend outpaces inflation and is due to the enduring appeal of credit cards.
Why are credit cards such a popular choice for consumers? Credit cards have a vast network, a variable interest rate, low-rate offers, and new features such as BNPL plans. These factors make credit cards a convenient, reliable, and attractive payment option for consumers.
As consumer credit habits evolve, lenders must have a strong credit strategy to stay ahead of the competition and tap into consumer demand. A robust credit strategy can attract new customers, retain existing ones, reduce credit risk, drive growth, and maintain financial stability.
FOUR REASONS CREDIT CARDS ARE THE POPULAR CHOICE FOR CONSUMERS
As a lender, it’s important to keep pace with these consumer spending patterns. Here are four reasons why credit cards remain a popular choice:
Extensive Card Network: Credit cards offer a broad network that captures consumers’ spending habits, making them a reliable and convenient payment option.
Variable Interest Rate: Credit cards often have a variable interest rate that floats along with the prime interest rate. This means that lenders can earn more interest revenue as interest rates rise, offering increased earning potential.
Low Rate Offers: Many credit card issuers offer low-interest rates to capture financing demand via introductory rates and balance transfers. This can be a great way to attract new customers and keep existing ones engaged.
New Features: Credit cards have integrated new features to satisfy the growing demand for buy now, pay later (BNPL) behaviors both at the point of sale and post-authorization. These features, such as installment plans, allow consumers to make purchases they may not be able to afford upfront, making credit cards even more attractive.
WHY A STRONG CREDIT STRATEGY IS CRITICAL FOR LENDERS IN THE CONSUMER CREDIT MARKET
As consumer credit card habits continue to evolve, lenders need to keep up with the latest trends and understand the critical factors behind the popularity of credit cards and why it’s essential now, more than ever, to have a robust credit strategy.
For example, a lender may offer low introductory interest rates to attract new customers and a balance transfer option to retain existing ones. Another lender may provide cashback rewards to incentivize customers to use their credit cards more frequently. These strategies demonstrate how a strong credit strategy can help lenders stay ahead of the competition, tap into consumer demand, reduce credit risk, drive growth, and maintain financial stability.
Let’s delve deeper into the topic by exploring the top 5 reasons why having a strong credit strategy is critical for Lenders:
Top 5 Reasons to have a Robust Credit Strategy:
- Remain Competitive: A strong credit strategy enables lenders to stay ahead of the curve and remain competitive in the market. Lenders can differentiate themselves and attract more customers by keeping up with the latest trends in consumer credit. This can include integrating new features such as BNPL and being knowledgeable about the latest trends in the market.
- Tap into Consumer Demand: A strong credit strategy allows lenders to tap into the consumer demand for credit and capture financing demand. With the extensive card network and low-interest rates, lenders can attract new customers and retain existing ones, leading to increased revenue and growth.
- Reduce Credit Risk: A robust strategy helps lenders mitigate credit risk by thoroughly assessing the creditworthiness of potential borrowers and setting clear guidelines for loan approval. This reduces the risk of default and ensures financial stability for the lender.
- Drive Growth: A strong credit strategy enables lenders to drive growth for their businesses by tapping into the popular consumer demand for credit.
- Maintain Financial Stability: Lenders can ensure financial stability for their business through a solid credit strategy. Lenders can maintain a healthy financial portfolio and ensure long-term success by reducing credit risk.
Considering the importance of implanting a credit strategy, we recommend listening to The Lending Link episode; The Numbers Don’t Lie (Right?): The State of Lending and What to Trust in 2023. Our guest, Tom O’Neill of Equifax, shares his expert credit scores contributing to higher credit limits and other valuable advice on succeeding in the current lending industry. Tune in to gain a competitive edge and ensure long-term success for your lending business.
MAXIMIZE YOUR CREDIT STRATEGY WITH GDS LINK
From originations to customer management to collections, GDS Link presents partners with opportunities for optimization at every stage of the credit customer lifecycle. We harness the power of over 200 global sources of borrower data, giving you access to the tools you need to design, test, and deploy credit decisioning and risk strategies in real time.
Let’s discuss how we can build a solid credit strategy that considers the latest trends in consumer credit. Book a call or demo today and see how we can help you stay ahead of the competition, tap into consumer demand, reduce credit risk, drive growth, and maintain financial stability.
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