The credit card rewards race in a post-COVID landscape

Credit card rewards, whether they’re cash back, points, or airline miles, are table stakes for a credit card provider. Over the course of the last year, consumer expectations of their credit cards and the rewards available to them have changed. COVID-19-related lockdowns limited a consumer’s ability to earn rewards, especially for travel-based cards, and credit card owners have started to look for different ways to earn and spend.

In October 2020, we conducted a survey with Propeller Insights of 2,400 consumers from the U.S. and U.K. to find out how consumers feel about their current credit cards. We gained insights into consumer attitudes towards their credit card rewards and what they’re looking for next from their card providers.

As credit card innovators such as digital-first brands, fintechs, and challenger banks, provide more flexibility in how consumers earn and redeem their rewards, consumers are taking notice and are demanding new and alternative rewards programs.

Why rewards matter

Credit card rewards aren’t going anywhere anytime soon. Individuals have built careers, even empires, out of analyzing and providing tips on which rewards cards provide the best bang for your buck, and consumers are listening. According to our survey, rewards are the number one reason why people use multiple credit cards. Forty percent of consumers surveyed said they have multiple cards because the additional card(s) had different rewards categories and benefits. Consumers want variety and it’s driven them to seek additional credit card providers.

The majority of consumers surveyed (66%) said they take advantage of their accrued rewards. However, that leaves over one-third of survey respondents with unspent rewards sitting in their accounts. A substantial number of consumers surveyed (36%) said the credit card rewards available to them weren’t relevant to their lifestyle. Over one-third of respondents said they are looking for a credit card with rewards to better fit their changing spending habits. In the year of COVID-19, this was a driving factor in their search for a new credit card.

The COVID-19 effect on credit card rewards

Throughout the COVID-19 pandemic, consumers were forced to find alternative ways to spend their credit card rewards. Travel was largely out of the question for most of 2020, and social activities, events, and dinners out were limited or non-existent. As noted above, over one-third of all respondents said they are not taking advantage of the rewards currently available to them. Credit card providers, however, did not change course to meet consumers where they were . Half of respondents (50.6%) said their credit card provider did not adjust how they earned or redeemed their rewards during the COVID-19 pandemic.

Although the majority of survey respondents indicated that credit card providers haven’t updated their rewards features, consumer behaviors began to shift anyway when it came to their rewards. Over half of consumers surveyed (55%) said that they either redeemed fewer rewards during the pandemic, or have changed how they spent their rewards. Global lockdowns impacted consumers’ ability to earn and redeem rewards, but credit card providers didn’t keep up with the growing demand for more innovative options that reflect actual spending behavior.

Goodbye cash back on restaurants, hello cryptocurrency

The vast majority of consumers surveyed (76%) said they would like their credit card provider to provide more flexibility in how they can earn and redeem their rewards, and 61% said they’d look to a non-traditional financial institution if it offered more flexibility. As we emerge from COVID-19, credit card holders are showing more interest in credit cards that provide alternative features.

In the last year, there have been a number of new rewards propositions brought to market that venture beyond traditional travel, gas, and restaurant rewards categories. One category starting to gain popularity is cryptocurrency-based rewards, which allow users to earn and invest in digital currencies. Unlike cash back, which is typically earned as a statement credit, cryptocurrency rewards are essentially an investment and can increase (and decrease) in value. Other cards are now focusing on spending patterns and automation. A consumer’s spending can look very different from one month to another: During one month, a card holder might spend the most on travel due to a honeymoon, and the next spend mostly on dining out. Cards can now account for these fluctuations by automatically rewarding users in their highest spending categories each month.

Our survey showed that COVID-19 lockdowns changed the way consumers interacted with their credit cards and credit card rewards programs. However, most credit card providers failed to keep up with their customers’ new spending habits. By bringing consumers the flexible rewards they want, credit card providers can hold on to customers and win over consumers looking for a better way to spend and earn.