August 2022

The Economy and Your Credit Card Program

If you’ve paid attention to the news lately (or visited the gas station), then you know that the U.S. economy isn’t thriving. So what exactly does that mean for businesses looking to launch credit card programs? Let’s take a closer look at how we got here, what to anticipate, and how to push forward with hope.

Macro mayhem

The economy implodes for a reason. Economic downturns are usually the result of a number of macroeconomic factors and challenges. The severity of the overall situation depends on how difficult those problems may be to solve and our ability to make meaningful improvements before things get out of control. It’s been over two years since the emergence of COVID-19, and despite the fact that infection and death rates are down considerably in the U.S., the economic turmoil caused by the pandemic has far from subsided. Supply chains have yet to fully recover, with China’s ongoing lockdowns continuing to drag down consumer sentiment. The Great Resignation, in which millions of American workers quit their jobs, may not be over. Excessive relief spending also may have contributed to rising inflation.

Speaking of inflation, it reached a 40-year high last month, and US consumers are beginning to cut back on spending in an attempt to keep pace. And while inflation may seem difficult to understand, it’s all about supply and demand. When consumers spend less at their favorite businesses, those businesses have a harder time bringing in revenue, which often results in layoffs and higher rates of unemployment. In order to ease inflation, the Federal Reserve is rapidly hiking interest rates to cool off demand and incentivize saving over spending. While this has been shown to be an effective approach, rising interest rates mean consumers will pay a higher premium on home loans, car loans, and yes, credit cards.

And of course, just when it seemed the economy had more than enough on its plate, Russia’s invasion of Ukraine tossed another unexpected wrench into the mix. Its negative economic impacts are many, but the main economic impact in the U.S. is the rise in gas prices. Until the conflict comes to an end, many expect additional pain at the pump for the foreseeable future, with JP Morgan even expecting an average price of $6 per gallon.

What does this all mean? 

Unfortunately, plenty of economists and institutions believe we are headed toward another dreaded recession. After the great financial crisis that led to a devastating recession in 2008, most Americans can hardly bear to hear mention of the word. But before descending into panic, we need to consider two important points. First, no one has a crystal ball, and simply because the economy appears likely to enter a recession, it isn’t an absolute guarantee. Secondly, while many of us understandably associate recessions with utter devastation, they are actually pretty common and, in most cases, are significantly less severe than what we experienced in 2008.

By definition, a recession is simply when economic growth, as represented by gross domestic product (GDP), declines for two consecutive quarters. This is usually accompanied by rising inflation, high rates of unemployment, and an extended period of generalized economic hardship.

According to former senior advisor at the U.S. Department of Treasury, Stephan Miran, who spoke to Fortune recently about the possibility of a recession, it normally takes about 10 months for unemployment rates to fall and for the economy to ultimately recover. This isn’t to say that you shouldn’t be concerned, but that the magnitude of a recession in the near future won’t be known until it actually happens. Should you prepare? Absolutely. Should you panic? Not necessarily.

In terms of preparation, individual consumers might want to cut back on spending and focus on building up their cash savings, which might include taking advantage of higher interest rates on traditional savings accounts. For businesses, preparing for a recession might mean focusing on the value you can create for your customers, both while the economy continues to struggle and in anticipation of a return to positive growth.

Launching a credit card in today’s economy 

In a recent article from The Los Angeles Times, Bank of America Institute economist  David Tinsley, noted a rise in credit card use among BofA customers, as well as robust savings and checking accounts on average with “households [continuing] to have high buffers relative to before the pandemic.” While an economic slowdown can lead to decreased consumer spending, credit cards can also provide needed cash flow in tight times. 

Loyalty programs are increasingly innovative and more popular than ever, and despite recession fears, there is reason to believe that American consumers might be financially prepared enough to handle it. So in order to launch a successful credit card program in these times, businesses should focus on making life easier for consumers, like with innovative rewards programs and intuitive user experiences.

Most importantly, Deserve is moving forward with confidence because we know that credit cards can help consumers create financial freedom, especially in times when they need it most. Check out our website and join us today!

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