By Ray Birch
BIRMINGHAM, Ala.—With potentially tougher economic times on the horizon, credit unions should brace for their high-FICO-score members to become big targets for the major card issuers in 2023.
That’s what Bill Hardekopf is forecasting, given the current trends in the economy—slower GDP growth, rising interest rates and increasing credit card delinquencies.
“I think this year you will still see those credit card rewards that are being offered now, but credit standards will be tightened,” said Hardekopf, senior industry analyst for MoneyCrashers.com. “So, to get those same rewards you are going to have to have good or excellent credit. I don’t think issuers will tweak the type of rewards programs they have, and instead, as I said, raise standards.”
Hardekopf’s insights come at a time when the nation’s biggest banks have been tightening loan underwriting standards and adding to their allowances for loan losses in preparation for potential problems with credit card loans in the future, as CUToday.info reported here.
Consumers are still going to spend, despite where the economy is headed, said Hardekopf, adding that a deep recession would change his prediction.
‘Intense’ Competition
Hardekopf pointed out that competition for credit card business is intense, and that marketing dollars from the big issuers will focus on the consumers whose budgets are in the best shape.
“Despite economic conditions possibly tightening, issuers still want to capture not only new, good, customers, but they also want those consumers who already have their card—along with three others—to place their plastic at the top in their wallets,” he explained.
Hardekopf said that smaller issuers, such as credit unions, should be thinking about how they can structure card offers for higher-net-worth members who are not struggling with inflation and have very good credit.
“Small issuers have an opportunity to be aggressive with rewards, say cash-back rewards, when it comes to people with good credit scores,” he said.
A Watchful Eye
But Hardekopf emphasized that as rewards offers are reviewed the credit union must keep an eye on rising delinquencies.
“They have to be extra cautious about their credit standards this year because we don't know where the economy is going to go,” said Hardekopf. “Credit card debt, and the defaults and the delinquencies, can have a dramatic effect on the smaller credit card issuer, much more so that the major issuers.
“The underlying theme is to be cautious, especially with those borrowers who scores are lower, and be more aggressive with higher scores,” continued Hardekopf. “If I were to illustrate this point, it’s almost like a water spigot. You turn it on full blast for the people with very good credit and then slow down the flow for those people who might be struggling.”
A ’Shifting of Tactics’
Hardekopf pointed to reports that have indicated credit defaults have been rising.
Bill Hardekopf
“Overall I think we will have a competitive credit card market in 2023, but just a shifting of tactics,” he said.
“It’s just going to be tougher to get a new credit card and tougher to qualify for all of the rewards,” Hardekopf said.
He added he does not believe issuers will need to shift away from the types of rewards that have been emphasized as the health crisis has subsided and consumers, with pent-up demand from sitting at home for almost two years, wanted to get out and travel.
The travel rewards will remain a focus, Hardekopf predicted, noting those ramped up after issuers pulled back on overall rewards offers when COVID arrived.
A ‘Surprise’
“We saw what happened when the health crisis hit the U.S.,” recalled Hardekopf. “Issuers reflected back on the downturn from 2008 to 2009 and quickly thought what was ahead was going to be really bad. A lot of issuers’ credit standards went sky high, and they withdrew a lot of rewards offers. They thought people were going to be financially strapped, and then the government ended up giving them money. And, then, what we saw was surprising—people began paying down their debt at record levels. We also saw issuers shift their rewards to things like groceries and Netflix.”