Banks providing cash back on transactions as an incentive for credit card use have a better chance of seeing their account become the "top of wallet" card, a new Auriemma Consulting Group report says.
Auriemma surveyed 402 credit cardholders in April on the factors that make consumers use a card for the majority of their purchases. Forty percent of respondents say their most recently acquired card offered cash-back incentives. Cardholders are also drawn to retailer co-branded cards, but only 21% say they recently added such a card to their wallets.
"I think an important takeaway from this research for banks is understanding the motive as to why a customer took a certain card in the first place," says Scott Strumello, analyst with New York- and London-based Auriemma. "That is the key to keeping them active in the long term."
Sixty-three percent of respondents say they use their most recently acquired card to make new purchases, the report says.
Consumers contemplating a new credit card fall into two main categories, Strumello says.
"They can be revolvers [moving balances from one card to another] who are mostly motivated by interest rates, or those who get a new card because of its rewards programs," Strumello says.
Issuing banks "are always interested in how to make their cards top of wallet," Strumello says.
The key for banks and retailers is to talk to consumers when they open a new card account and keep an open dialogue about why they acquired a certain card and what would make them keep using it, Strumello says.
"A rewards cardholder tends to be more predictable, but one motivated by rates may stop using a card if that rate goes up," Strumello adds. "An ongoing dialogue can help the bank adjust programs based on various factors."
Higher-income earners are more likely to acquire many different varieties of special-value cards, but those who earn less than $75,000 a year lean toward retailer co-branded cards, auto rebate cards and gas rebate cards, the report says.
"Affluent cardholders understandably like cards that provide air miles or hotel points," Strumello says. "Younger consumers tend to like certain categories of rewards that are a benefit for everyday living expenses."
Nearly four in 10 respondents say the card they use the most often offers the best rewards program in their wallet, while 23% use their primary card because it offers the lowest interest rates.
Card issuers have various reasons for wanting their products at the top of cardholders' wallets. Rewards programs are not a big revenue generator because card issuers have to pay back a portion of a transaction, but "capturing total cardholder spend provides a wealth of data which can be used for statistical modeling," the report says.
That data can assist banks in "everything from customer retention to cross-selling to partnership sales and marketing," the report adds.