In the credit card industry, product innovation tends to come in waves. We are currently in the midst of a wave of innovation in the cash back segment and competition is more intense than ever before. Brands are innovating with new product launches and creative incentives, as well as touting richer rewards and more flexible redemption options in an attempt to capture the attention, and ultimately the dollars, of financial consumers.
Discover was once the only cash-back game in town but, as the great recession took hold, cash back cards became the ideal product for value conscious consumers and most card issuers began to add a cash back card to their existing product suite. The focus of industry innovation, in subsequent years, shifted away from cash back to other segments. In 2013, two notable product launches – the Discover it card and the Capital One Quicksilver card – kick-started a wave of activity which intensified last year and is set to continue for at least another 12-18 months.
Here is where we expect to see ongoing cash back innovation during the next 12 to 18 months:
1) New product launches: Notable launches in 2014 were the Discover it Chrome card and Citi’s Double Cash Card. More new product launches are likely to follow during the coming months as issuers look to catch up with these latest offerings. In addition, Citi will be looking to launch its new Costco credit card in the spring of 2016 and American Express will likely ramp up its marketing efforts in order to retain as many of its AmEx Costco customers as possible.
2) Improved value propositions: Value propositions will continue to improve, not just on new product launches such as Double Cash – which has raised the bar with 1% cash back on purchases and an additional 1% on payments – but also on existing programs. For example, Bank of America customers can now receive a bonus on their cash back from 25%-75% depending on the extent of their relationship with the bank after it rolled out its Preferred Rewards program late last year.
3) Creative incentives: Cash incentives are back on the rise, with Citi and American Express now offering $200 to prospective cardholders. The average incentive was $134 in Q4 2014, up from $124 a year ago according to Mintel Comperemedia. In addition to $200, American Express has been offering a free year of Amazon Prime membership to potential Blue Cash cardholders. As cash incentives continue to rise, card issuers are likely to look to additional and new types of incentives to gain an advantage.
4) Targeted messaging: Messaging will be a key focus this year after the National Advertising Division (NAD) recommended that Chase modify its claim of “5% Cash Back” in Chase Freedom broadcast and internet advertising. The recommendation came after a complaint was issued by Capital One, which conducted research to prove that consumers failed to understand the limitations of the “5% Cash Back” claim.
5) Flexible redemption options: In November, Discover announced that it would provide more flexible redemption options with customers now able to apply rewards to their statement balances, deposit rewards directly into their bank accounts, purchase items directly from several online partners and make charitable donations. Issuers will likely follow Discover’s lead and look to provide more flexibility when it comes to cash back rewards redemption.
6) Omnichannel marketing: Recent cash back card product launches have adopted a truly omnichannel approach. Citi Double Cash marketing has spanned both direct and digital marketing channels including mobile and online display, direct mail and print, not to mention TV, ATM ads and more. Cash back credit card offers accounted for 37% of all credit card direct mail offers in Q4 2014, up from 29% a year ago, according to Mintel Comperemedia. Card issuers are likely to ramp up their cash back card marketing across all channels in the coming months.
Cash back card competition is likely to intensify during the next 12-18 months as we continue to ride the crest of a wave of innovation. Marketers looking to launch a new cash back product in this environment might consider planning in advance for a “launch 2.0” to follow the initial product launch if they want their card to stay on top. Timing will be key in order to launch and sustain a card with a best-in-class value proposition.
Andrew Davidson, SVP Mintel Comperemedia, is a multi-channel marketing and payments expert with 20+ years of marketing research experience. Andrew is a regular speaker at Card Forum and other high profile international industry events.
