Credit card debt has spiked as consumers struggle with the cost of living crisis. According to UK Finance, there were 321.3m credit card transactions in January 2023 — 9.9% more than the same month a year earlier. The total spend of £18.8bn was 16.4% higher than January 2022, too.
“Credit cards are strongly linked to market conditions,” Abe Smith, chief growth officer at Paymentology, tells Sifted. “In a post-Covid world and with recession fears, consumers are shifting back to credit card spending from debit cards.”
Given this, where can credit cards innovate next? We asked the experts.
Managing debt responsibly
“Traditional credit card usage has seen an increase in outstanding balances on credit card accounts as people struggle financially. This has resulted in cardholders revolving their debt and paying interest charges,” says Smith. “Some cardholders may also look for balance transfer offers to convert debt into cheaper loan products.”
However, Smith notes that credit card providers are taking steps to help their customers manage debt responsibly. He says they are doing so by recommending higher minimum repayments and offering the option to convert large purchase items into a fixed-term loan, giving customers a clear path towards debt repayment.
Traditional credit card usage has seen an increase in outstanding balances on credit card accounts as people struggle financially
There is also an increased focus on responsible lending, which is an encouraging step towards helping individuals achieve financial stability.
“While credit cards can be a useful tool for managing finances, it is important to use them responsibly,” says Smith. “It is advisable for businesses and consumers to read and clearly understand the terms and conditions of any credit card offer and to have a plan in place for paying off the balance in full each month. By doing so, they can avoid accumulating high levels of debt and take advantage of the benefits that credit cards can provide.”
Card issuing
In response to the shift in credit card usage, the card issuing market is transitioning towards providers who can support a variety of interconnected debit and credit products. This includes revolving credit and instalment loan accounts.
As a result, more financial institutions and fintechs are seeking all-in-one services from processors to offer customised solutions that meet the needs of their customers.
“We’re already seeing moves from industry giants like Visa and Mastercard in their introduction of instalment services that enable credit and debit card providers to offer credit options to their customers, whether online or in-store — picking up what buy now, pay later (BNPL) has started,” says Smith.
Smith believes the market is calling for card issuer processors to be more flexible and allow for customisable credit products to suit different customer segments. This could involve providing various interest rates, fee structures and minimum repayment calculations.
“Looking ahead, it's possible that the lines between loans and credit cards will blur, allowing for customers to make larger purchases with greater flexibility and value for money, over time,” he adds.
Buy now, still pay later?
A significant change in the market is the rise of BNPL credit products. While BNPL can encourage spending and benefit merchants, it can also lead to customers building up debt. To address this, regulators are introducing measures for more responsible lending to help customers make informed decisions on their spending and understand their total debt.
The growth has demonstrated the customer appetite for flexible and intuitive borrowing options at the time of purchase. The opportunity is there for credit card providers to leverage technology changes and launch their own flexible credit card alternatives.
With a better understanding of every customer based on real-time data, banks can be sure that they offer the right amount of credit at the right time to the right people
Curt Hess is chief operating officer at 10x Banking, an operating system for banks. When it comes to credit card innovation in the future, Hess believes that, as a continuation of the BNPL trend, we'll begin to see more fluidity between traditional credit product lines. This could be demonstrated with flexibility to move between credit cards, BNPL facilities and loans as customer needs change over time.
“The most significant innovations will likely be in the core data and how banks use it to serve their customers better,” says Hess. “Today, it's very challenging for banks to pull the data together that gives them an up-to-date picture of their customers.
“With a better understanding of every customer based on real-time data, banks can be sure that they offer the right amount of credit at the right time to the right people. If banks can more accurately spot the early signs of distress, they will be able to step in and help the customers who need it.”
Credit and debit cards
Smith says another significant change for the market is the introduction of API-first models. These models allow cardholders to have greater control over their finances by providing data insights and enabling adjustments to be made to their account through API calls.
Combined credit and debit cards are another new change. They provide customers with more choice in how they pay for purchases. Customers can choose whether to use funds from their available debit account or their credit account
For example, a cardholder can view their debt breakdown and estimate how long it would take to pay it off, and they can even change their minimum repayment to reduce their interest charges.
“Combined credit and debit cards are another new change,” says Smith. “They provide customers with more choice in how they pay for purchases. Customers can choose whether to use funds from their available debit account or their credit account.
“This is useful when a customer has insufficient funds to complete an unexpected purchase, but it also provides flexibility for delaying payment to the next credit statement or spreading the cost of repayment across multiple statements.”
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