When in Doubt, Offer Air Miles

A year ago, a survey of credit card users found that 73% of Hong Kongers prefer cash rebates as their reward programme, far more than their next favourite perk, air miles, which was selected by just 20% of respondents.

The real world is more complicated than that, though, and because card issuers can buy air miles at a bulk discount, consumers are usually asked to compare cash-back apples to air-mile oranges. To help understand how these cards compare, our latest study looks at how the multitude of available card types are cohabiting in Hong Kong wallets.

We started with the data of 800,000 Hong Kongers selected at random, each of which carry between two and six credit card accounts, then applied a matching logic to link those card accounts to a list of some of the most popular cards in the market, labelling them on a subjective scale according to their defining characteristic. The net hit rate left us with about 1 in 3 cards being identifiable, and it’s from those that we made these findings.

Air miles soar above cash back rewards

At the highest level, for example, we’re now able to see that while 24% of the cards sitting on top of Generation Z (born 1995 onwards) wallets are cash back cards (more than double the rate at which air miles cards achieve the same position), air miles cards get more spend 6 times out of 10 in a Generation Z wallet. Cash back cards are popular with the youngest consumers right now, as the survey would suggest, but that could be because cash back cards are being marketed to and issued to the youngest consumer borrowers at this point in time. When those same young consumers also have access to an air miles card, it is the latter that tends to be favoured — likely due to a higher pay-out ratio.

And what’s true for cash back cards rings true for the other card types, too. Air miles cards win their head-to-head battles with all other card types regardless of the user’s age or spend, albeit the winning margin narrows and widens as those factors change.

Using data to compare top of wallet share with market share

We can also apply this approach to find the most appealing credit card in the market. While not every card issuer and card type could be included in our study, we found two cards that came out on top which we could compare to one another. I’m not allowed to name them, of course, but if you’re a card issuer in Hong Kong who’d like to test their own portfolio, feel free to reach out to us.

The smaller of these cards is a good illustration of the difference between a top-of-wallet measure of success and a market-share measure of success. This particular card has a market share of just 0.1% in terms of accounts, and although it appeals to a particular niche market, it still ranked in the top 62% of these wallets. This cult appeal is vital to the product’s overall profitability: when this particular card is top of a wallet it receives three times as much spend on average than when it is in second place in the hierarchy — a low number compared to cards with reasonable top of wallet appeal where the average multiple is closer to five.

An opportunity to redesign your products in line with customer preference

This introduces what is perhaps the more interesting question that arises from this new data: air miles cards might dominate the competition, but what happens when one air miles card goes head-to-head with another air miles card? The answer to that question can be very informative to card issuers looking to redesign their products,

If there is a dip in appeal for a specific product, then that segment is clearly looking for something new. Now again, I can’t name names, but we saw the most interesting example of this among air miles cards within the hands of Millennials and younger generations (born 1980 or later).

In this scenario, when Issuer 1’s air miles card found itself in the same wallet as Issuer 2’s air miles card, it came off second best 59% of the time. However, the same victorious air miles card from Issuer 2 found itself lower in the spend hierarchy than Issuer 3’s air miles card on 65% of the occasions. So, we would expect Issuer 3’s offering to beat Issuer 1’s offering quite easily, correct? Not necessarily. When Issuer 1’s air miles card was in the same wallet as Issuer 3’s air miles card, it actually came out on top 51% of the time.

Fair enough, that’s a narrow margin and might not be statistically valid, but I think it still illustrates the different segments might be seeing different value propositions in your product offering.

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For more insights into the Hong Kong consumer credit market, read TransUnion’s latest quarterly Industry Insights Report and other articles here.