Credit card debt hits $1 trillion
New data from the Federal Reserve shows that consumers in the US accumulated $1.0004 trillion in credit card debt during February, which is a 6.2% increase year-over-year (YoY), according to the Wall Street Journal. Credit card debt has reached its highest mark since the 2008 recession began, which is likely a testament to a stronger economy.
This also points to credit issuers having success getting consumers to both adopt and use their credit card products, which is likely a reflection of enticing credit card rewards.
Consumers are seeking out rewards cards. Almost 60% of consumers rank rewards as a major reason for adopting a credit card, marking the highest rate yet, according to TSYS’ annual US Consumer Payment Study. That’s led providers to begin offering compelling rewards as a move to attract consumers and encourage them to spend.
That’s working — rewards cards have helped credit card issuers promote increased spending, while also collecting more revenue on fees. Not only do premium rewards card holders tend to hold a balance that is likely well in excess of the $3,000 average for the industry, according to payments executive Kameliya Vladimirova, who was interviewed for a UBS study. But these rewards cards also tend to have higher interest rates than other credit card options — for example, the average annual percentage rate on a cash back credit card in 2017 is 20.9%, while a business card averages 15.37%.
It’s important to note that as costs associated with offering rewards continues to rise, issuers will have to seek out new ways to attract consumers. The six largest credit card issuers are estimated to incur a record $22.6 billion in credit card rewards expenses in 2016, which is more than double the expenses seen just 6 years earlier in 2010, according to Instinet data used by the Financial Times.
Peer-to-peer (P2P) payments, defined as informal payments made from one person to another, have long been a prominent feature of the payments industry.
That’s because individuals transfer funds to each other on a regular basis, whether it’s to make a recurring payment, reimburse a friend, or split a dinner bill.
Cash and checks have historically dominated the P2P ecosystem, and they’re still a popular tool. But as smartphones become a primary computing device, top digital platforms, like Venmo and Google Wallet, have enabled customers to turn away from cash and make those payments digitally with ease. Over the next few years, though overall P2P spend will remain constant, a shift to mobile payments across the board and increased spending power from the digital-savvy younger generation will cause the mobile P2P industry to skyrocket.
That poses a problem for firms providing these services, though. Historically, most of these players have taken on mobile P2P at a loss because it’s a low-friction way to onboard users and won’t catch on unless it’s free, or largely free, to consumers. But as it becomes more popular and starts to eat into these firms’ traditional streams of revenue, finding ways to monetize is increasingly important. That could mean moving P2P functionality into more profitable environments, leveraging existing networks of friends to encourage spending, or offering value-added services at a nominal fee.
Jaime Toplin, research analyst for BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on mobile P2P payments that examines what’s driving this shift to mobile P2P and explains why companies need to find a way to capitalize on it quickly. It discusses how firms can use the tools they have to gain in the P2P space, details several cases, and evaluates which strategies might be the most effective in monetizing these platforms.
Here are some key takeaways from the report:
Consumers still want mobile P2P services, and they’re turning to them. Individuals pay their peers on a regular basis, and as smartphones are increasingly used as computing devices, these consumers look to such services for fast and easy ways to pay.
Monetizing P2P is more important than ever. Initially, P2P was a valuable onboarding tool for companies, and when it was still a small segment, taking it on at little value or a loss didn’t have major implications. But as volume grows and user bases scale fast, finding ways to monetize quickly should be a priority for firms looking to stay ahead.
New technology could put some apps ahead of their peers. P2P continues to rely on networks, especially for informal, social transactions. But rather than having a large network, it’s becoming important for firms to understand their user bases and the networks within them. This means that chat apps, and leveraging bot and AI technology, may offer a distinct advantage.
In full, the report:
Forecasts the growth of the P2P market, and what portion of that will come from mobile channels, through 2021.
Explains the factors driving that growth and details why it will come from increased usage, not increased spend per user.
Evaluates why mobile P2P isn’t profitable for companies, and details several cases of attempts to monetize.
Assesses which of these strategies could be most successful, and what companies need to leverage to succeed in the space.
Provides context from other markets to explain shifting trends.
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