While a recession never materialized in 2023, it was still a tough year financially. Interest rates and costs continued to climb, leaving many consumers turning to their credit cards — and taking on more debt — to make ends meet. According to NerdWallet’s 2023 American Household Credit Card Debt Study, total credit card debt in U.S. households increased by 15.6% from 2022 to 2023. Here’s what we saw happen with credit cards last year:
The credit card industry took a cautious approach, pulling back on those targeted credit card offers you get in the mail or your email inbox, according to Competiscan, a company that tracks and analyzes direct marketing activity.
Consumers sought lower-interest loan products, opting for buy now, pay later plans and borrowing against their credit limits at lower rates. “What I like about that is it’s giving people more options on how to manage their money and what works best for them,” says Beth Robertson, managing director of Keynova Group, a financial services intelligence firm. “I think that will continue regardless of interest rate fluctuations.”
Credit card rewards remained important to consumers who were looking to get more value out of their purchases at a time when costs increased.
Here are some trends we may see in 2024.
1. Interest rates could go down
Interest rates have increased 11 times since the beginning of 2022. The average APR charged for credit card accounts that incurred interest peaked at 22.77% in the third quarter of 2023, according to the Federal Reserve (the average rate as of November 2023 went down just a smidgen to 22.75%). Because inflation is cooling off, the expectation is that the Fed will lower interest rates in 2024.
Regardless, credit cards charge higher interest rates compared with other types of loans. It’s worth considering ways to reduce spending on interest payments, such as using a balance transfer credit card or consolidating debt with a personal loan. Some cards allow you to borrow a portion of your credit limit at a low-interest rate. You can also call your credit card company to see whether you’d be eligible for a lower interest rate.
2. All eyes are on the Credit Card Competition Act
When you make a purchase with a credit card, a payment network like Visa or Mastercard serves as the intermediary between the merchant and the credit card company. For their services, these networks charge an interchange fee, a small percentage of the purchase price. If you use a card that runs on the Visa network — that is, a card that features the Visa logo — then, the merchant must go through Visa to process that transaction and pay whatever fee is charged. The same is true of Mastercard: Present a credit card bearing that logo, and the merchant must run the payment through Mastercard and pay that fee.
The Credit Card Competition Act is a bipartisan measure that would require large credit card-issuing banks to allow merchants more choice in which payment network can be used for processing transactions. The idea is that introducing competition might drive down some of those interchange fees, which many merchants consider excessive. Proponents say merchants may pass those lower costs to consumers, or reinvest in their businesses, leading to an improved customer experience.
Opponents of the proposal, however, point out that it doesn’t require merchants to lower their prices, so there’s nothing stopping business owners from simply pocketing those earnings. They also argue that if credit card issuers lose out on interchange fee revenue, they may diminish their rewards programs to make up for the shortfall.
But for now, at least, all of these possible outcomes are just theories. No one knows for sure what progress the bill could make this year, if any, or what exactly its consequences might be.
3. Rewards will continue to be reimagined
Earning cash back or travel rewards when you use your card for groceries, gas, restaurants and travel expenses is certainly nice, albeit a little unimaginative at this point. To attract and retain millennial and Generation Z consumers, credit card issuers are continuing to rethink rewards.
According to Jacqueline White — president of i2c Inc., a global provider of banking and payment solutions — more personalization helps younger consumers feel seen by the credit cards they carry. “It comes down to marketing specifically to you as an individual, knowing your age, stage of life, financial goals,” White says.
Matthew Goldman, founder of Totavi, a financial technology consulting firm, says that financial technology companies will continue to bring unusual credit cards to the market. “A lot have failed, but that won’t stop people from trying.”
Expect more cards that earn rewards in relatively new categories that appeal to the next generation, like electric vehicle charging, online shopping and rent payments. “The innovation is exciting, because a more personalized card for what you need is going to be a better card for you,” Goldman says.
4. Issuers want to keep cardholders close
One way card issuers are keeping their customers loyal is by welcoming them into a complete ecosystem, according to Jessica Duncan, assistant vice president of research and insights at Competiscan. Travel rewards cards do this by encouraging cardholders to use brand-specific portals to book upcoming trips, as opposed to booking directly with airlines and hotels. Duncan says you also see this with credit-building cards that require users to open a bank account within the same institution to fund the card’s credit limit.
Short-term promotions that allow cardholders to earn more rewards are another way to keep card use higher, Robertson says. For example, there was a recent limited-time promotion for select Chase cards that offered a statement credit if you used your card to pay for certain bills, including utilities, internet, transit or gym memberships.
5. Magnetic stripes are going extinct
Beginning this year, newly issued Mastercard credit and debit cards will no longer be required to include a magnetic stripe, with a plan to completely phase them out by 2033. With so much valuable real estate getting freed up on the backs of cards, their designs could look quite different.
Meg Cipperly, vice president of client services at Competiscan, says this could pave the way for additional cards with vertical designs, which are more in line with how people hold their cards when inserting them into chip readers.
Thankfully, wallets with vertical card slots already exist.