The news: The top 10% of US households by income spend almost as much on discretionary items as the bottom 70% combined, per the Bank of America Institute.

Looking at overall spending, the wealthiest 10% of households spend more than the bottom 40%. 

How we got here: Tariffs and the war in Iran have exacerbated the K-shaped economy.

• 90% of the tariff's economic burden falls on US firms and consumers rather than foreign producers, per the New York Fed.
• 65% of consumers said they had changed their shopping habits after the start of the war, per Omnisend. 

Why this matters: Payment providers are focusing their efforts on premium portfolios to win over the affluent consumers driving the most spend.

This means the hollowing out of mid-tiers products will continue as issuers go upstream and other providers focus on winning over consumers who have historically not had the same access to credit.

• American Express, Citi, and Chase all refreshed their premium portfolios in the past year.
• Cash App, Klarna, Affirm and other fintechs, meanwhile, have aggressively rolled out BNPL-enabled cards to help consumers pay for necessities like groceries.

Implications for issuers: The fight to acquire and retain affluent shoppers will require tailoring incentives to meet their needs and wants. 

Expanding reward categories or statement credits for wellness can help issuers build on the momentum that experiential rewards built with millennial and Gen Z consumers.

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