When it comes to credit card rewards, more Americans are leaning towards paying for the cost of living rather than gathering points and miles to support a lifestyle. Many are now looking for card programs that provide cashback and low or no annual fees instead of travel perks.
At the same time, J.D. Power reports in its 2024 Credit Card Satisfaction Study that only 46% of cardholders can be classified as “financially healthy” and that 51% of cardholders now revolve their card debt at continuing higher interest rates.
Overall, credit card satisfaction in this edition of the annual study was flat compared to the previous one. However, J.D. Power pointed out the credit card base has rapidly split into two main groups: Customers who feel squeezed by economic factors and people still managing in the face of higher rates and prices.
“Card issuers need to be able to offer options that resonate and deliver value for both segments,” says John Cabell, managing director of banking and payments intelligence at J.D. Power.
Especially critical: Many cardholders think rewards are insufficient in the atmosphere of rising interest rates.
Probing Consumers Who Are Disgruntled with Card Programs
The study found that only 31% of cardholders currently use cards offering points and miles rewards; 58% use cashback cards and 11% use value cards. The latter are generally for credit building and don’t pay any rewards.
Satisfaction levels fell by 12 points year over year for co-branded cards, according to the study, while bank brand cards ticked up by a point. Similarly, people with points and miles cards reported a 12-point drop in satisfaction over the same period, while cashback cards saw a 2-point rise in satisfaction and value cards saw a 14-point rise.
The research also determined that as more consumers have moved into the financially unhealthy group — now 58% of cardholders — a concurrent shift to cashback and value cards has occurred. Among these consumers, some still do use points and miles cards, but that share has dropped to 27% in the current survey from 31% a year ago.
Points and miles cards saw the greatest decline in satisfaction from 2023 to the 2024 study, dropping 24 points on J.D. Power’s 1,000-point scale. Co-brand cards came just behind, with a 23-point drop.
Airline co-brand card programs saw the biggest drop in satisfaction, falling 15 points year over year.
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Points and Miles Cards Have Been Losing Some Luster
This migration away from points and miles cards comes in a period when such cards have been undermined by regulatory scrutiny and negative publicity.
For example, in May the Consumer Financial Protection Bureau released a study citing numerous consumer complaints about credit card points and miles rewards programs. Among the beefs:
- Unclear or hidden conditions that make it difficult to claim rewards;
- The devaluation of rewards by card issuers or co-brand partners, and
- The lack of protection by issuers from partners’ decisions to downgrade rewards.
The bureau accompanied the study with a joint hearing with the U.S. Department of Transportation. In early September, the department launched an inquiry into the rewards programs, including credit card elements, of the four largest U.S. airlines: American, Delta, Southwest and United.
“Points systems like frequent flyer miles and credit card rewards have become such a meaningful part of our economy that many Americans view their rewards points balances as part of their savings,” Peter Buttigieg, Secretary of Transportation, said in a statement. A Wall Street Journal report in August pointed out that “lucrative credit-card offers and partnerships are making it easier to attain higher levels of status” in hotel rewards programs — but that the result has been increased competition for key rewards and dilution of the programs overall.
“Most of the cashback products have lower annual fees or no fees,” says Cabell in an interview with The Financial Brand. “Points and miles cards are typically more lifestyle-oriented and they tend to align with brand affinity of consumers with the issuer’s co-brand partners.” Cabell notes that only one out of four bank-branded card programs feature points and miles cards.
The points and miles rewards offerings tend to make more compelling and memorable marketing, he says. “But cashback products have been there and continue to be there in great quantity.”
For example, U.S. Bank recently opened a waitlist for a pair of products addressing this niche. U.S. Bank Smartly Visa credit card has a baseline 2% cashback reward that can be increased to as much as 4% when the consumer also opens a U.S. Bank Smartly Savings account. (The 4% level kicks in when total deposit, trust and investment accounts total $100,000 or more.)
Read more: Inside the AmEx Brand Strategy Winning Younger Consumers
What Can Marketers Do to Shore Up Their Card Offerings?
“Consumers are more likely to sit tight currently,” according to the study, “but indicate a willingness to jump ship primarily for a higher credit limit, to take advantage of a sign-up offer, for better rewards, or for better benefits.” The study also says that defections may accelerate if the economy approves but perceptions of card value don’t improve.
J.D. Power suggests that issuers work harder to make the value of each card program clear to consumers. “Ensure cardholders are seeing the value of their annual fee, rewards and benefits, especially with current interest rates and service charges,” the firm states. The firm also suggests preventing fee issues where it’s possible — significant in light of the ongoing controversy over bank card late payment fee limits pending at the CFPB and in the courts.
A particular risk is the financially unhealthy consumer, who is willing to open a new card if offered a balance transfer opportunity to a lower interest rate card.
Many financially unhealthy consumers — 43% — also said that they would consider using buy now, pay later service and, among those customers, they would also consider switching to other card issuers. In addition, revolving customers were significantly more likely to open new accounts than other cardholders.
An increasing number of banks are offering buy now, pay later options linked to their credit card programs. Would others not providing that choice yet be well advised to try it?
“There’s a difference of opinion on what is good support for consumer behavior and financial health,” Cabell says. “Is that helping consumers to use a credit card responsibly? Does it give them the ability to spread out payments over a longer time frame, and save them interest?”
Cabell says that some would argue that financially unhealthy customers should be reducing debt, rather than seeking payment over time.
“So there’s not a clear answer here,” says Cabell.
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