By Ayoub Aouad
Synchrony Financial, which issues a number of store and private-label cards for retailers, is pleased with its “strong organic growth” across platforms, but the firm suffered rising charge-offs that ultimately hit its business in Q1 2017. That said, the future is bright, thanks to its vast digital innovation that’s propping up key segments.
Synchrony’s digital gains show that the company has a good handle on the industry.
- The firm’s digital volume is outpacing other business. Synchrony’s online and mobile sales grew 21% in Q1 2017. That number increased to 26% in retail cards specifically. That’s driving up the firm’s overall growth, as total purchase volume grew just 7% in the year.
- That’s important as retail undergoes a key “transformation.” Retail is shifting increasingly online — BI Intelligence forecasts that US e-commerce retail sales will hit $436 billion in 2017, a figure in line with the NRF’s estimate, marking an increase from $385 billion last year. Synchrony noted its digital growth exceeds US growth trends, and said that as retail transforms, the firm is well positioned to shift alongside it and capture that spend, regardless of channel.
And future plans have it set on a solid path to growth, which could help it combat other difficulties. The next hurdle for Synchrony is tackling mobile commerce, as digital spending shifts increasingly from computers to phones. The firm didn’t break out its mobile numbers specifically, so its current success on that channel remains unknown. However, Synchrony is doubling down on mobile technology, including recently buying GPShopper, an app developer that helps retailers build for mobile. That could help it capture rising mobile spend by making it easier for retailers to engage and convert customers on their phones, ultimately driving up purchase volume and increasing Synchrony’s revenue.
Credit card rewards have become so popular in the US that issuers capture headlines just by launching a new rewards card. And with consumers now caring more about the type of rewards being offered than any other card feature, competition to offer the most lucrative and attractive rewards has intensified dramatically.
For consumers, the emphasis card issuers place on these cards has resulted in rewards becoming much more worthwhile and widespread, ranging from big sign-on bonuses to free travel. And with offers continuing to get better, consumers will continue seeking out the best rewards cards.
The value added from these cards is undeniable for issuers — in addition to increasing adoption of credit card products, the opportunity to earn rewards encourages cardholders to spend more money. This not only helps to drive up revenue, but also provides issuers an opportunity to mitigate any losses they may be feeling from the Durbin Amendment, which reduced how much fees issuers could charge on debt card transactions starting in 2011.
But it’s also important to note that offering such high-valued rewards comes at a price — Chase’s Sapphire Reserve card ended up reducing the bank’s profits by $200 million to $300 million in Q4 2016, according to Bloomberg. And as costs continue to rise, issuers will have to adjust to this new landscape by leveraging technology and partnerships to keep consumers engaged without sacrificing profits.
Ayoub Aouad, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed credit card rewards explainer that walks through the new credit card rewards landscape, which now includes rising consumer demand for rewards, increased opportunity for issuers to drive up usage of their credit card products, and increasing costs. After discussing the evolution that has led to this current landscape, the report analyzes how issuers will have to adjust in order to continue reaping the benefits of offering rewards without sacrificing significant profits.
Here are some key takeaways from the report:
- Consumers put tremendous value on credit card rewards, which makes these them a major user acquisition channel for card issuers — almost 60% of consumers rank rewards as a major reason for adopting a credit card
- By offering high-valued and attractive rewards, card issuers are able to drive up card adoption and usage — JPMorgan Chase reported a 35% increase in new card accounts in Q3 2016, after launching the Sapphire Reserve card.
- Offering high-valued credit card rewards does come at a high cost to card issuers — the costs associated with offering credit card rewards have more than doubled since 2010 for the six largest card issuers in the US
- However, major players in the space are already beginning to find ways to cut costs, including rolling back rewards on their most premium products and partnering with well-known brands to develop less expensive, more creative rewards offerings.
In full, the report:
- Identifies the costs associated with offering rewards for issuers and how they have increased over time.
- Details why credit card issuers continue offering high-valued rewards.
- Analyzes how the industry has evolved since 2011
- Explores how credit card issuers will advance in order to continue reaping the benefits of offering rewards without assuming increased costs.
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May 2, 2017 at 10:11AM
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