Daily Management Review

Big US Banks Confident Of Post-Pandemic Rebound Of Credit Card Usage


Big US Banks Confident Of Post-Pandemic Rebound Of Credit Card Usage
With the easing of pandemic restrictions and with the stimulus checks from the United States government ending, major banks in the US are getting ready to see an uptick in credit-card balances again this year which now puts the banking industry for a surge in one of its most profitable businesses.
According to Andrew Davidson of marketing-tracker Mintel Comperemedia, more promotions are being sent out by large banks such as Capital One, Citigroup and JPMorgan to attract more new customers towards their credit cards while encouraging existing customers to spend more. According to the estimates of the firm, about 260 million offers were sent by the lenders in March.
Davidson said that the use of social media platforms such as Facebook and Instagram and video sites and podcasts for marketing has also been increased by the banks.
"The big banks are ramping up in anticipation of the recovery post-pandemic," Davidson said. "They are really trying to make up lost ground from last year."
And according to a recent Federal Reserve survey and public comments by bank executives, including from Bank of America Corp, the banks are also easing credit standards at the same time to entice more new users.  
Compared to the current strategy of the lenders in this regards, their position was completely different last year when easing credit standards were halted by the banks and had scaled back credit limits because of concerns over major losses because of rising unemployment.  
However any such loss did not take place. The stimulus checks and enhanced jobless benefits along with forgivable loans to prop up small business owners were provided by the United States government. Those measures prompted many of the credit card reliant Americans to spend while also paying down balances. And other Americans focused on higher housing prices and thereby borrowed cheaply against their homes instead of using credit cards. That resulted in the credit card business in the lurch – profitable but generating less revenue.
There was a 14 per cent fall in credit card balances during the pandemic, according to data from the Federal Reserve Bank of New York. And according to the American Bankers Association, the proportion of accounts with revolving balances dropped to 39.7 per cent at the end of 2020 compared to 44.1 per cent year earlier.
Those trends were also reflected in the quarterly financial reports reported by the major credit card lenders including JPMorgan Chase, Citigroup and Capital One. However executives of the banks have expressed confidence of consumer spending more and borrowing more in the days ahead because of the easing of the lockdown measures imposed duyr4ing the pandemic and the return of indoor dining, lifting of travel restrictions, announcements of concerts reopening of offices and the masks coming off.
Capital One CEO Richard Fairbank told analysts last month that rebound in card spending was being witnessed in rebounding card charges used primarily for travel and entertainment – which was down by 80 per cent at the beginning of the pandemic.
He said that Capital One is encouraging the spending revival by gradually increasing credit limits. "That represents an extra part of growth opportunity," Fairbank said.