Credit card issuers are going through their most turbulent times since the introduction of credit cards. Potential new legislation and regulation threatens to reshape their business model, and issuers are facing rising charge-offs and a continued assault from merchants lobbying to cap or reduce interchange rates. Meanwhile, issuers must continue to deal with day-to-day challenges, such as new customer acquisition, card activation, and customer retention and card usage. In that context, issuers expect rewards to remain front-and-center to their strategy - notably merchant-funded rewards that alleviate issuers' reliance on interchange funding. A majority of issuers also expect the branch channel to be their most successful acquisition channel in the next 24 months.
"Given the prevalence of offering rewards as part of their marketing strategy, issuers should step-up their ability to tap merchant-funded rewards," says Adil Moussa, analyst with Aite Group and author of this report. "It is also disconcerting to see issuers betting on the branch to grow their portfolio. While we applaud their efforts to cross-sell existing checking account holders, issuers may be missing out on evangelizing to younger, debit card-oriented generations."