Get ready for new rewards and ways to pay, but carrying a balance on your card will become more expensive
The past year has seen consumers rack up recession-era levels of card debt, even as APRs soared to all-time highs. More consumers fell behind on their card payments, but with continued economic strength, the possibility of a delinquency epidemic seemed remote.
The most creditworthy consumers continued to benefit from generous sign-up bonuses, though some issuers scaled back blockbuster offers launched in 2016. Other companies made strides to occupy consumers’ wallets by teaming up with red-hot brands such as Uber and ramping up rewards on dining and streaming media services. Meanwhile, mobile wallets – once thought to be a payment industry game-changer – took a step back, despite incentives designed to encourage more people to pay with their smartphones.
As 2017 comes to a close, we asked industry experts to peer into a crystal ball and see what’s ahead in terms of credit availability, interest rates, rewards programs and payment technology. Here are four top trends to look out for in 2018.
Credit card trends in 2018
1. Most consumers will have little trouble getting credit.
Revolving debt, which is mostly credit card balances, passed $1 trillion for the first time since the Great Recession last September, according to the Federal Reserve. Data from the New York Fed shows 90-day credit card delinquencies continued to rise in the third quarter. And some banks tightened their credit standards and boosted their reserves against losses tied to consumer defaults in 2017.
Nevertheless, experts believe there won’t be a widespread clampdown on credit availability, though some riskier applicants could be frozen out.
“There’s nothing to indicate right now that lenders are pulling back wholesale in any given area,” said Matt Komos, vice president of research and consulting at TransUnion. “My guess is credit card issuers will stay on the same path they’ve been on over the past year. They’ll continue to focus more on prime and above tiers, but not necessarily cutting off everyone below that.”
TransUnion projected in its 2018 credit market forecast that serious card delinquencies will tick up to 1.96 percent next year, contributing to an expected 22.5-percent increase since 2013. But the rate of unpaid card debt is still well below recession-era levels. And with strong job growth and unemployment near 4 percent, consumers are, for the most part, expected to continue managing their card balances responsibly.
“It would not surprise me to see delinquencies start to rise slightly back toward normal levels, but we still haven’t seen any strong moves in that direction,” said James Chessen, chief economist at the American Bankers Association.
2. It’ll cost you more to carry a balance.
The Fed has raised its federal funds rate five times since December 2015 in an effort to normalize borrowing rates after lowering them to near-nothing during the financial crisis. All of the rate increases have been small nudges of 0.25 percent apiece. Three of those rate hikes occurred in 2017.
All the hikes boosted credit card APRs a similar amount. CreditCards.com has conducted a weekly survey of credit card rates on new card offers for more than a decade, and as of Dec. 27, 2017, the average national APR stood at 16.27 percent – an all-time high.
The Fed has indicated that three more quarter-point rate hikes are in store for 2018, but some analysts believe there could be more. A new succession of APR rises could put a significant strain on tens of millions of Americans who carry card balances.
“If it goes up another percentage point, it’s going to start affecting minimum dues,” said Brian Riley, credit advisory service director at Mercator Advisory Group. “For a stretched household, it could make a real difference.”
3. Rewards will be catered to your lifestyle.
Card issuers are getting creative in offering users new ways to redeem rewards and cash back for travel and entertainment.
In 2017, American Express added a $200-per-year Uber credit to its Platinum card, and Capital One offered Quicksilver users 50 percent off their Spotify Premium subscriptions. Capital One also rolled out a new card that gives you 3 percent cash back on dining, and Uber launched its own Uber Visa Card, co-branded card with Barclays.
Marc Bellanger, senior director of financial services at Merkle, said he expects reward partnerships with popular brands to continue in 2018.
“Card issuers love the Ubers and Spotifys of the world because those recurring charges and in-app purchases are sticky,” Bellanger said. “Once you enter your credit card into your app and make that your preferred payment choice, it’s unlikely you’re going to change that too often.”
Meanwhile, the days of 100,000-point sign-up bonuses may be over. Chase’s Sapphire Reserve card ate into the company’s profits after it was introduced in 2016, and many consumers faced tough decisions on keeping the card and its hefty annual fee for a second year.
“One thing we expect on the consumer side is to see some sticker shock,” Mercator’s Riley said. “It was easy to pay a $450 fee because you were getting $1,000 on the front end. Year two isn’t as rich.”
Fortunately for rewards hounds, five-figure point offers with generous travel perks will likely persist as long as issuers roll out new cards and chase new customers.
4. Mobile payments will multiply, but stay stuck in neutral.
A study released in October 2017 by Auriemma Consulting Group found mobile payment usage has bounced up and down, with the most-recent trend downward, and that checkout line glitches may be to blame.
A slow embrace of mobile payment is expected to continue in 2018, even as banks and stores roll out more mobile wallets and tech firms enable more payments with wearable devices and voice assistants.
“We’ve been talking about mobile payments breaking through for almost a decade now, and it really hasn’t happened,” Bellanger said. “Will 2018 be the year? I don’t think so, until someone comes out with the \u2018killer app’ for mobile payments. I wish I knew what that looked like.”
The slow uptake of mobile payments hasn’t been for lack of trying. Banks and credit card issuers are attempting to bait tech-savvy cardholders with mobile-only rewards.
For instance, Chase Freedom users will get 5 percent cash back when they pay with their mobile wallets in the first quarter of 2018. Wells Fargo and U.S. Bank have also added extra rewards or cash back for mobile payments on some of their cards.
“In our research, we’ve seen that offering incentives is definitely a motivating factor for usage,” said Jaclyn Holmes, director of payment insights at Auriemma. “It seems to be a little more motivating for habitual usage as opposed to first-time trial. That’s not to say it can’t encourage first-time trial.”
Some experts believe retailers who create their own virtual wallets, as Walmart and Target have done, have distinct advantages in the mobile payments game.
Auriemma’s research found the biggest mobile pay stumbling blocks include store employees who don’t understand how it works and various issues with payment terminals. But a retailer can train its own workers and design its own app to work smoothly in tandem with the payment terminals in all its stores.
“I think the retailers have a bit of an edge,” said Patricia Hewitt, CEO of PG Research & Advisory Services. “They have control of the assets connected to the wallet, and they now have control over the promotions, the discounts and other things they can offer the consumer.”
How to have a happy credit year
Credit card reward programs will remain plentiful in 2018, but cards with the best perks tend to have higher fees and only middling APRs. With interest rates set to periodically rise, seek cards with 0-percent interest introductory offers if you plan to revolve a balance.
Transfer a balance if you are already carrying credit card debt. Otherwise, pay your balances in full on your existing cards – whether or not they offer any perks – to avoid falling behind on payments or canceling out your rewards savings.
See related: Learn from rewards cards’ 2017 trends, changes, Federal Reserve raises rates for third time in 2017