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Credit card predictions for 2021

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2020 proved to be an unpredictable year for all the wrong reasons. But that’s not going to stop us from peering into the crystal ball and sharing our thoughts of what to expect from the Canadian credit card landscape in the next year.

Here are our top predictions for 2021:

Change up in bonus categories 

Groceries and gas are the two most prevalent credit card bonus categories, and while we don’t foresee that changing anytime soon, we do anticipate card issuers will be offering extra rewards in a more diverse range of spending categories in 2021. The unprecedented impact of COVID-19 is one obvious reason why, but another ties into a longer-term shift in millennial spending habits.

Rideshares, streaming services, public transit, restaurants, and food deliveries are some less-traditional bonus categories that have already been rolled into a number of Canadian credit cards – including the recently-launched BMO eclipse Visa Infinite. And we predict more credit card issuers will follow suit.

Another anticipated change includes an increase in “temporary” bonus category offers with specific retailers. The American Express Cobalt, for instance, is currently offering ten times the bonus points on Amazon.ca purchases for new cardholders for their first three months. Meanwhile, in the US, the Marriott Bonvoy Brilliant Card is temporarily offering up to eight times the points at Walmart, Target, and Amazon.

While not technically a bonus category, CIBC just announced on December 17 the ability to earn cash back or points when paying for international money transfers – traditionally a transaction category that never earns rewards. This could be a sign of things to come.

A shakeup in Canada’s retail credit card segment

The retail credit card space is set to experience a major shakeup in 2021.

In October, Capital One Bank made headlines for announcing it will scale back its credit card portfolio in Canada and end its long-standing partnerships with both Costco and Hudson’s Bay next year. 

While neither retail giant has publicly announced plans for the future yet, it’s safe to assume revamped credit cards will be rolled out with all new banking partners. And with the shift in consumer shopping habits spurred on by COVID-19, we anticipate holders of the new credit cards will be rewarded with extra loyalty points when shopping online from each retailer’s own online e-stores (though, again, nothing has been confirmed). It’s a shift Walmart already embraced in 2020 with the launch of their new Walmart World Mastercard, which earns double the rewards when shopping online at Walmart.ca versus physical brick-and-mortar Walmart locations. 

The big question on the minds of many Costco shoppers is whether the change will reverse the warehouse retailer’s policy of only accepting Mastercard credit cards. It’s not unprecedented considering Costco previously partnered with American Express before 2014, and in the US, Costco exclusively accepts Visa-backed credit cards due to its partnership with Citi Bank and its co-branded Costco Anywhere Visa Card.

Travel cards will pivot and offer more flexible redemption options

With COVID-19 continuing to impact the airline and hotel industries well into 2021, points and miles collectors will have more ways to redeem their points for non-travel rewards as card issuers try to retain clients and discourage hoarding of points.

We’ve already seen some changes in the final quarter of this year, with TD announcing the ability to redeem TD points for purchases on Amazon.ca and BMO enhancing its redemption option for everyday purchases with its Pay with Points feature. This trend will likely continue.

Special redemption offers on gift cards and merchandise from certain retailers may become more prevalent too. 

Luxury travel cards, which typically offer annual travel credits or companion tickets, could also follow the lead of their US equivalents like the Chase Sapphire Reserve by allowing cardholders to apply these travel-oriented rewards towards groceries or dining purchases.

Bigger (and more creative) travel sign-up bonuses

Even with a sense of normalcy on the horizon with the potential widespread rollout of a COVID-19 vaccine, it’s unlikely Canadians will quickly resume booking travel as they once did before the pandemic. 

In order to entice people to get back into booking travel, especially in the latter half of 2021 when travel restrictions may loosen, we see a likelihood for larger and more aggressive travel offers and sign-up bonuses

Sign-up bonuses may also become more “creative”, particularly in the case of co-branded credit cards partnered with specific airline or hotel brands. For instance, rather than just giving a large bundle of points, co-branded credit cards may offer a free second companion ticket when purchasing a flight on a specific partner airline or bonus rewards when booking a stay at a certain hotel chain or upgrading to a more premium room. This was a trend some major airline and hotel loyalty programs adopted during the great recession in 2008.

Cash (back) will be king

As we touched on above, it’s unlikely travel will quickly rebound to its “old normal” even with a vaccine being introduced. With uncertainty about travel still high, Canadians looking to rack up credit card rewards will continue to gravitate towards cash back options in greater numbers.

More anniversary and tiered bonus offers

In order to retain more clients and deter “churners” who only apply for a credit card for its lucrative sign-up bonus only to promptly cancel the card afterwards, we anticipate more sign-up bonuses will be dished out over longer periods of time. 

This might be in the form of anniversary bonuses, which offer a boost in rewards every twelve months. Or the introduction of more tiers, where bonus points are offered over many months or after you hit several different spending thresholds. 

Rollback of certain insurance perks

While critical benefits like rental car insurance and travel medical emergency coverage are here to stay, we anticipate some credit cards scaling back certain, “less-critical” insurance perks in 2021. Think flight delay insurance, trip interruption coverage, lost baggage insurance, and roadside assistance.

We’ve already seen hints of this happening as CIBC has announced it’s reducing the travel insurance benefits on its newly-revamped Dividend Visa Infinite Card starting in February. 

Credit card debt loads will remain steady

The combination of lock-downs and higher unemployment levels led Canadians to increase their cash savings and decrease consumer spending in 2020. And a knock-on effect came in the form of lower non-mortgage debt loads, as the level of outstanding credit card debt fell 13 percent from January to September

With uncertainty about the economy set to persist and an unclear picture of when, if, and how lockdowns will be lifted with a vaccine on the horizon, credit card debt loads look to remain steady in 2021 – especially in the first half of the year. Transunion, one of Canada’s two major credit bureaus, forecasts non-mortgage debt levels will be stable in 2021, only increasing  0.2% by the end of the year. The bad news: delinquency rates are expected to go up in 2021, increasing by nine basis points, as those already under financial strain could face more pressure with fewer support mechanisms from the federal government and a halt in payment deferral programs from the banks.

Credit cards will face greater competition from “buy now, pay later” installment services 

With cash use at all-time lows and online shopping on the rise, a greater number of Canadians who need the financial flexability to pace out payments over longer periods of time will rely less on credit cards and turn to a newer alternative: installment payment services like AfterPay and PayBright.

All installment services fundamentally operate the same way; they partner with specific retailers to allow shoppers to buy an item and pay back the purchase price gradually in bi-weekly or monthly installments with little or no interest. The caveat: if you do miss a payment, you could be on the hook for additional fees.

“Buy now, pay later” services, which more often than not target millennials, are designed to appeal to shoppers who want to avoid racking up high interest credit card balances. And their use is only expected to become more prevalent in Canada in the year to come.

AfterPay, an Australian company with over 10 million customers that recently saw its stock price hit record-highs, just entered the Canadian market in August of 2020. Meanwhile, Toronto-based PayBright recently announced an official partnership with retail giant Hudson’s Bay in November and was just acquired for $340 million by the Silicon Valley fintech Affirm.

More credit cards will be refreshed with higher annual fees

A number of credit cards underwent quite significant overhauls in 2020, and if history repeats itself (which it often does), we can assume two trends will persist in 2021.

  • Annual fee increases: Anytime a credit card is revamped, its annual fees tend to increase too. All of Aeroplan’s core and premium credit cards were relaunched in 2020 and most saw annual fee increases, including the popular TD Aeroplan Visa Infinite, which went from charging $120 annually to $139
  • More incentives for adding authorized users: Whether it’s the ability for authorized users to access completely the same perks as the main cardholder (like TD’s new Aeroplan cards) or the ability to earn more rewards per dollar spent after adding an authorized user (like BMO’s new eclipse cards), we expect more incentives for shared credit card accounts.

What do you predict will happen to the Canadian credit card landscape in 2021? Let us know in the comments section below.

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