In the wake of the recession, there has been a fair amount of confusion in the public mind about the appropriate role of credit, with cards often being reserved only for emergency use or even stigmatized as an easy way to overspend. Now as the economy is showing signs of rebounding, we are seeing a resurgence in the use of credit cards, as they once again become a cash-flow management tool for savvy consumers.
Banks should capitalize on this trend by reinvigorating their credit card business with more attractive and innovative offerings. They should also reinforce the message that credit can be an instrument of fiscal responsibility—rather than a way of spending wantonly.
Credit cards are helping to drive cash and checks displacement. Based on an analysis by MasterCard, this is especially true for high-value transactions. Some of the recent activity is due to rewards-conscious consumers taking advantage of the benefits of using a credit card. The inherent grace period on paying for purchases might be part of the appeal too.
Our research shows that affluent people tend to have a stronger preference for credit. This can help banks leverage stronger financial relationships with these customers. The credit card product can become a central element in a rewards program that encourages consumers to bring more business to the bank.
Our research also shows that consumers with higher levels of financial assets are increasingly using their credit cards, particularly for discretionary spending. The climb in discretionary spending is tied partly to an improvement in consumer confidence.
Credit cards provide consumers with detailed spend information, the capability to analyze purchases by segment, a grace period to repay, and the bonus of reaping rewards for spending they would do anyway. Consumers also can dispute unauthorized charges with no financial impact. This adds comfort for those making a purchase online or traveling abroad. With the marked swing of sentiment against credit cards in recent years, banks may be forgetting to convey the very fundamental message of these benefits to their customers. Used with discipline, a credit card can truly be an important and beneficial tool.
All of this underscores the terrific opportunity banks have to create credit products with features that are relevant to today's customer needs. Research we conducted in 2009 and 2010 shows that control and real-time information are factors that resonate with consumers. Nearly everyone we surveyed—95 percent—expressed interest in receiving electronic messages, including reminders about upcoming monthly payments, transaction notifications, and balance alerts.
Beyond monitoring account activity, consumers are also looking for an easy way to analyze their spending and apply greater levels of oversight. Providing a service that addresses this need can enhance customer satisfaction. For example, MasterCard inControl, an online personal financial management tool offered through issuers, allows cardholders to establish customized spending limits and receive real-time alerts if they exceed their thresholds.
Issuers offering such a platform allow their customers to set up and manage detailed budgets for their credit cards; determine in advance exactly where, when, how, and for what types of purchases their cards may be used; and establish spending limits for particular kinds of purchases.
Credit cards have played a central role in the development of the modern global economy and continue to be vital to the growth of commerce around the world. Precisely because the recession has put the fear of debt into the public's mind, now more than ever it's important that we advance the message of credit cards' value proposition to consumers, as well as address their needs with ever more innovative and relevant products.
