Jul 25, 2023
Understanding the consumer’s mind is at the heart of any successful business strategy, and the credit card industry is no exception. As credit card issuers, a clear understanding of the psychological influences that drive your customers’ spending behaviors can help develop strategies that stimulate card usage and help you achieve the coveted top-of-wallet position. With the 2022 State of Credit Report indicating that Americans are twice as likely to have three or more credit cards, this insight becomes even more invaluable.
With the right strategies, you can influence cardholder behaviour and increase the usage of your card. Here are seven effective strategies, each backed by consumer psychology, to help you achieve this goal.
The Allure of Rewards and Incentives
Psychology Behind It: The principle of positive reinforcement. People are more likely to repeat a behavior if it’s followed by a positive outcome.
Strategy: Rewards programs have long been proven effective. The loyalty management market is estimated at $10.2 billion in 2023 and is projected to reach $22.8 billion by 2028. One study showed that 119.8 million cardholders say they’ve used a credit card just to rack up rewards. According to a different study by Deloitte, 25% of consumers would even switch their credit card provider to obtain better rewards.
Credit card issuers can offer attractive rewards and incentives that better align with your customers’ spending habits. Cash back, travel rewards, or points redeemable for goods and services can motivate cardholders to use your card more frequently. Tailor your rewards program to your target demographic for maximum impact. For example, cashback is currently trending as consumers become more interested in saving money and managing their finances. One study showed that brands that offer millennial and Gen Z consumers at least 5% instant cashback will see a significant sales impact.
Strive to balance immediate gratification, like cashback and points, with long-term rewards, such as higher savings rates or discounted insurance premiums. Such an approach encourages card usage and helps inculcate a sense of long-term financial planning among your customers. Simultaneously, it’s crucial to ensure the program is structured to provide frequent opportunities for cardholders to engage with their card benefits, such as allowing points to be used on highly price-sensitive categories like groceries and gas.
Focus on Personalized Offers
Psychology Behind It: The desire for personalization and relevance. Consumers appreciate when brands understand their needs and provide personalized experiences.
Strategy: A study by Salesforce showed that 66% of customers expect companies to understand their unique needs and expectations. Issuers can leverage data analytics to understand cardholders’ spending patterns and preferences. Use this information to provide personalized offers and benefits. This could be discounts at their favorite stores or exclusive access to events they are interested in.
For example, some issuers are leveraging partnerships with external brands – via co-branded credit cards – to better target niche markets, such as pet lovers or sports fans. The rewards on these cards are tailored to the audience’s interests, for example, providing discounts at pet stores or free passes to sporting events. Personalized offers not only increase card usage but also enhance customer loyalty.
Ensure a Frictionless Experience
Psychology Behind It: The principle of least effort. People tend to prefer the path of least resistance, choosing options that require the least amount of work.
Strategy: Make your card the easiest option to use. According to a Mastercard survey, 79% of people worldwide use contactless payments, citing speed and ease of use as the main reasons. Frictionless experiences can be delivered through seamless digital integration, easy online and mobile payments, or contactless payment options. The easier it is to use your card, the more likely it is to become the top-of-wallet card. For example, Apple Card’s integration with Apple Pay makes it incredibly easy for iPhone users to make payments with just a tap, making it a top choice for many cardholders.
Build Trust and Security
Psychology Behind It: The need for safety and security. Consumers need to trust that their credit card provider will stand by them and protect their information and financial assets.
Strategy: Trust is built when cardholders realize they can rely on their credit cards 24/7 for any purchase, anywhere in the world. Issuers should develop strategies to keep false card declines to a minimum. Research shows that 40% of consumers state that if a merchant mistakenly rejects one of their purchases, they will refuse to shop with them again in the future.
To proactively build trust, issuers can implement real-time alerts that notify customers when they approach their credit limit or when an unusually large purchase is made. This paints the card issuer as a ‘good guy” helping consumers manage their spending.
Issuers must also address consumer sentiment around fraud, considering that 65% of credit card holders have been victims of fraud. Issuers should prioritize security features and communicate them clearly to cardholders. For example, 3DS is a security technology that defends against fraud by using multi-factor authentication to confirm that the purchaser is an authorized cardholder. Other features like fraud alerts, secure online transactions, and zero liability guarantees can further build trust, provide peace of mind, and increase the likelihood of your card being the go-to choice for consumers.
Encourage micro spending
Psychology Behind It: The principle of habit formation. Regular repetition of an action can lead to it becoming a habit, and small purchases are easier to repeat frequently.
Strategy: Encourage cardholders to use your card for small, everyday purchases like coffee or public transportation fares. Over time, this can lead to your card becoming their default payment method due to the habit formed. Example: Bank of America’s “Keep the Change” program rounds up debit card purchases to the nearest dollar and transfers the difference to the customer’s savings account, encouraging frequent card use for small transactions.
Consumers worldwide are increasingly tapping their phones for purchases, eliminating the need for cash or carrying cards in their wallets. Partnering with digital wallets is a clear strategy for growth. In 2021, digital wallets accounted for 49% of global e-com transaction value and are expected to reach 53% by 2025.
However, note that frequent, smaller transactions tend to ‘numb’ customers to the loss of money associated with credit card spending. To prevent these small purchases from snowballing into significant debt, consider offering features that allow customers to track their micro-spending.
Capitalizing on Increased Spending with Credit Cards
Psychology Behind It: The pain of paying. Consumers tend to feel less ‘pain’ when paying with a credit card than cash, leading to increased spending.
Strategy: Consumers tend to spend more using credit cards instead of cash. Reports show that the average value of a cash transaction is $22, compared to the average value of a credit card transaction at $57. This propensity can be leveraged by emphasizing the benefits and added security of using credit cards, particularly for substantial purchases. Highlighting perks such as purchase protection and extended warranties can reassure customers and promote greater card usage.
Additionally, consider offering budgeting tools or spending insights to help customers manage their increased spending. Once only offered by neo-banks, more and more issuers are offering spend management tools that can help uncover unusual purchasing trends, suspected-fraudulent purchases, or unauthorized employee spending.
Leveraging Gen Z’s Financial Habits
Psychology Behind It: The desire for financial responsibility. Gen Z, more than previous generations, is keen on managing their finances responsibly, which includes avoiding debt and paying bills on time.
Strategy: Buy Now Pay Later (BNPL) is growing in popularity with Gen Z’ers who want full visibility into the actual cost of their purchase using an installment plan. This strategy can drive significant revenue with Insider Intelligence forecasting that 59% of Gen Z will make a BNPL payment in 2026.
Another common motivation for Gen Z to sign up for a new credit card is to build a credit score or credit history. Position your credit card as a tool for everyday purchases that also helps build a good credit history. Issuers can effectively communicate with this critical segment by marketing “credit-building cards” that use alternative metrics for approval and emphasize financial education. Issuers can also promote features like spending limits, real-time transaction alerts, and easy-to-understand billing statements to appeal to Gen Z’s desire for financial control and transparency. Your efforts will pay off as half of credit-active Gen Z consumers are prime and above.
For example, Deserve® EDU Mastercard for Students is a card specifically designed for Gen Z, offering 1% cash back on all purchases and no annual fee. It also reports to credit bureaus, helping young cardholders build their credit history.
Harnessing Consumer Psychology for Top-of-Wallet Success
The credit card market is dynamic, and staying ahead requires a deep understanding of consumer behavior and psychology. The strategies outlined in this blog post, from leveraging rewards and personalized offers to encouraging micro-spending and capitalizing on Gen Z’s financial habits, are all grounded in psychological principles that drive consumer behavior.
By implementing these strategies, credit card issuers can increase card usage and foster stronger relationships with their cardholders, leading to increased loyalty and long-term customer value. Remember, the key to becoming the top-of-wallet card is consistently providing value to your cardholders. Focusing on trust, security and ease of use ensures the cardholder has the expected positive experience, making your card their preferred choice for every transaction.
As the credit card industry continues to evolve, staying attuned to shifts in consumer behavior and preferences will be crucial. By doing so, issuers can continue to innovate and adapt their strategies to meet the changing needs of their cardholders, ensuring their card remains top-of-wallet.