Issuers Report Strong Credit Card Loan Growth Across FICO Segments in 2017

According to the latest FDIC Quarterly Banking Profile, U.S. credit card loan growth accelerated in 4Q17, rising 8.2% to $865 billion.

Given the strong overall growth in credit card receivables, are issuers focusing their growth ambitions on particular FICO Score categories? To address this question, EMI analyzed 10K SEC filings for leading credit card issuers.  Overall, we found that issuers reported strong credit card loan growth across their FICO Score segments. We also studied trends in different issuer categories.

  • In the aftermath of the Financial Crisis, the three leading issuersChase, Bank of America and Citi—focused attention away from near-prime and sub-prime segments and towards superprime consumers.  This led to significant declines in both outstandings and charge-off rates.  More recently, as economic growth and consumer confidence returned, these issuers have refocused on loan growth and are once again targeting lower FICO Score segments.  This is seen in the chart below that shows changes in outstandings by FICO Score segment between end-2016 and end-2017.  As these issuers are pursuing loan growth, their credit card net charge-off rates have also increased (+26 bps y/y at Bank of America, +30 bps to at Chase, +59 bps at Citi-Branded Cards North America).  However, charge-off rates remained below 3% for each of these issuers in 4Q17, and issuers should continue to focus on loan growth while charge-off rates continue at these low levels.

  • Second-tier national credit card issuers—Discover, Capital One and Synchrony—reported relatively strong growth, but with different FICO Score segment trends.  Discover reported 9% y/y growth, with no y/y change in share of outstandings for the <660 and 600+ segments.  Capital One had a similar overall growth rate (8%), but this was driven in part by the acquisition of the Cabela’s card portfolio, which boosted the >660 FICO segment’s share of outstandings.  It is also worth noting that the <660 FICO segment accounted for 34% of Capital One’s credit card portfolio at the end of 2017, compared to 25% of Synchrony’s portfolio, and 18% at Discover.

  • Regional credit card issuers present a mixed picture when it comes to the FICO Score segment composition of their credit card portfolios. This is driven by a number of factors, including a large variation in portfolio sizes, as well as their credit card underwriting standards.  Most issuers report growth across their portfolios, with strong growth rates in the low FICO Score segments.  Fifth Third reported very strong growth for its <660 segment, but this segment only accounts for 3% of its portfolio.  Regions’ 20% growth in its <620 FICO segment was driven by its launch of a credit secured card in July 2017.

Finally, as most issuers reported strong growth in their credit card portfolios in 2017, charge-off rates are also on the rise, growing 45 bps y/y to 3.61% at the end of 2017.  While the overall charge-off rate has risen from a low of 2.19% in 3Q15, it is down both from post-recessionary highs of 13.13% in 1Q10, and even the 4% levels in 2007, prior to the Financial Crisis.  With charge-off rates still below 4%, the leading issuers continue to be comfortable with promoting credit card loan growth.

Banks Use Surveys to Cover Small Business Topics of Interest

In May 2017, EMI published a blog that discusses how banks use surveys to build small business engagement.  In that blog we reported that many leading banks publish recurring surveys that track general business optimism as well as key challenges and opportunities.  In addition, banks also carry surveys that cover specific topics on a one-off basis.  The following table looks at the topics covered over the past six months:

The banks cover these topics of interest to achieve a number of objectives, including:

  • Raising general awareness of the bank and affinity among small businesses
  • Positioning the bank as a small business banking thought leader
  • Communicating their understanding of the changing issues impacting small businesses
  • Highlighting their areas of strength
  • Differentiating the bank from its competitors

In fact, the desire for differentiation is leading banks to conduct surveys on specific small business sub-segments or on specific product areas.  Recent standalone surveys of this type include:

  • U.S. Bank surveys of Asian-American small business owners (October 2017) and Hispanic small business owners (October 2017)
  • Surveys by both Bank of America (September 2017) and American Express (November 2017) on women-owned businesses
  • Bank of America Small Business Payments Spotlight (October 2017)
  • American Express Small Business Saturday Consumer Insights Survey (November 2017)

The proliferation of small business surveys that cover specific topics of interest indicate that they are effective tools in helping banks build awareness and engagement with their small business clients and prospects.

Low FICO Score Categories Drive Loan Growth for Leading Credit Card Issuers

In a March 2017 blog post, EMI highlighted growth in credit card outstandings across the credit spectrum for leading credit card issuers.  Our recent analysis of 3Q17 10Q SEC filings for these companies shows that this trend is continuing.

The top three issuers—Bank of America, Chase, and Citigroup—reported growth across all FICO Score segments, with strongest growth coming in the lowest segment.  In the aftermath of the Financial Crisis, issuers pulled back on lending to low-prime and sub-prime consumers.  With the return to steady economic growth in recent years—and with issuers now believing that they have more robust underwriting and pricing systems—issuers are now refocusing on consumers in lower FICO Score categories.

Assets at both Capital One and Discover skew heavily towards credit card loans.  Discover generated 9% y/y rise in credit card outstandings, led by 16% rise in loans to consumers with a <600 FICO Score.  Capital One bucked the overall trend, with lower growth for its <660 FICO Score segment.  However, it should be taken into account that this segment accounts for 35% of its total credit card outstandings (vs. 15% at Chase, 16% at Citi, and 19% at Discover), so it has less scope for strong growth.

The leading regional bank card issuers—who focus on cross-selling credit cards to existing bank clients—reported a similar pattern.  SunTrust has continued its very strong growth trajectory, with overall growth of 16% led by the <620 category.  Regions followed a similar pattern, with 7% overall growth in outstandings driven by a 35% rise in the subprime (<620) segment. PNC had strong growth across the credit spectrum.  Fifth Third had strong growth in the <660 segment, but from a very low base.  The y/y decline in outstandings in its 720+ category resulted in Fifth Third overall credit card outstandings remaining unchanged.  Wells Fargo’s overall growth rate (+4% y/y) has slowed considerably in recent quarters.  It generated steady growth across most categories, with the exception of the 600-680 FICO range.