It is no secret that the COVID-19 pandemic has turned the economy on its head. With record unemployment and forced business closings, financial services firms–and credit card issuers in particular–must grapple with a host of challenges, including rate slashes from the Federal Reserve, local and federal governmental regulations, and consumer panic. Firms have been forced to make practical changes, not only to their sites but to business strategy. In the credit card space, these changes have fluctuated, ranging from adapting reward earning structures to the newly decimated travel and hospitality industry landscapes, to eliminating and later bringing back gift card reward redemption options. Of the major changes the industry has undergone, perhaps the most notable relate to two main areas: credit lines and payments, and credit card rewards.
Firms adapted to card holders’ credit needs but face an uphill battle in the long term
At the beginning of the pandemic, firms boldly responded to a wave of widespread layoffs by offering credit line increases for impacted consumer card holders. Some firms also announced new payment plans, forbearance programs, and even fee and interest waivers. Among Corporate Insight’s Credit Card Monitor coverage set firms, Citi proactively announced credit line increases and collection forbearance programs for affected card holders in March, while U.S. Bank introduced reduced fees on short term loans and reduced rates on personal loans along with similar reductions on fees and rates for small business loans. Goldman Sachs, which issues the Apple Card, even announced it would waive March payment requirements for card holders negatively impacted by the pandemic; American Express and Capital One soon followed suit. Bank of America announced financial accommodations to card holders by adding an authenticated site and mobile app loan and credit card payment deferral interface.
Despite all these beneficial changes, in late April, issuers like Discover and American Express reported that spending by card holders on travel and leisure was down by 95% to 99%, while retail, transportation and restaurant spending also plummeted. As a result, firms continue to set aside billions to cover losses, while preparing for missed payments and low revenues in a variety of ways:
- Most dramatically, some firms began decreasing credit lines for new customers; Discover and Synchrony–which issues cards for retail giants like Gap, American Eagle Outfitters and C. Penney–moved to the defensive, announcing efforts to reevaluate customers’ creditworthiness and act accordingly
- Discover will also cut costs by $400 million this year and has already limited balance transfer offers; the firm also reportedly enrolled 1.6% of active card accounts (454,000) in its payment deferral program, amid handling 600,000 customer service requests due to coronavirus
- JPMorgan Chase and Wells Fargo temporarily halted home equity lines of credit due to “economic uncertainty”
Rewards and card benefits changes proved necessary
With travel and hospitality at a standstill worldwide, card issuers the world over–along with their cobrand partners at airlines, hotels and cruise lines–have adapted to travel cancellations and low demand haphazardly. A rush to cancel travel plans, paired with the financial hardships of unemployment and a general uncertainty about the future, has spurred high demand for card-related assistance and customer service. Notably, card holders who booked travel with rewards or who purchased travel with their cards face an uphill battle for refunds and cancellations, especially after multiple firms eliminated travel insurance and related card benefits just last year. Still, of the remaining firms to provide such card benefits, many referred card holders to the card insurance carriers, which in turn informed customers that pandemics are not covered by their policies. To combat this demand issue, coverage set firms and other card issuers instituted a variety of policies and approaches to encourage card holders to stagger their requests for help or to avoid calling the firms at all.
- Some firms’ cobrand travel partners and loyalty programs paused all reward travel booking so as to prevent more future cancellations while the end of the coronavirus remains out of sight
- Capital One sent an email to Venture and VentureOne card holders indicating that it will allow them to redeem miles for non-travel purchases in takeout, delivery and streaming services categories through June 30, 2020; previously, the redemption option was only applicable to travel purchases
- American Express and Chase adjusted card earning rates and statement credit benefits to move away from rewarding travel spending and instead encourage grocery, takeout, streaming service subscriptions and phone services
- Capital One and USAA both discontinued gift card reward redemption due to the coronavirus before bringing back the option in a limited capacity mere weeks later
Corporate Insight is closely monitoring how firms are responding to the COVID-19 pandemic. Read our continuing coverage on our company blog, and for our clients, we have launched an authenticated site section that collects messaging across all firms we track in the following industries: Banking, Healthcare, Insurance/Annuities, Investing and Retirement.
If you are not a Corporate Insight client, follow the links provided to learn more about our Credit Card Monitor research and Credit Card Digital Audit.
