As financial institutions seek to position themselves as trusted providers of financial advice and solutions, one of their key areas of focus is financial education. Many of these firms have focused attention on establishing comprehensive financial education programs. However, equal attention should be given to how these programs are communicated. If you want to maximize the impact of your financial education program, consider the following methods to build client awareness and engagement.
Partner with national and local organizations seeking to grow financial literacy. Partnering with these organizations can take many forms, including publishing surveys or providing funding. In June 2017, Wells Fargo announced a $100,000 donation to Junior Achievement of Chicago. Operation Hope has partnerships with a number of leading banks (including SunTrust, Regions Bank and First Tennessee Bank), who all offer the Operation Hope Inside financial well-being program in several of their branches.
Host or sponsor events. Events constitute one of the key ways for firms to build direct engagement with their financial education programs. Firms have many options on how they wish to scale and direct their investment. MassMutual hosts FutureSmart Challenge events to provide financial education to middle school students, reaching 40,000 students in 17 cities to date. In June 2017, SunTrust launched the “onUp on Tour” to promote its onUp movement in 45 cities. And In October 2017, American Century Investments partnered with Investopedia to launch a Financial Fitness Tour, featuring a 45-foot bus, called “The Financial Coach.” These firms have extended the impact of these live events with tweets and postings on online portals, and also host virtual events, including podcasts and webinars.
Generate engagement through games and contests. In our highly interactive world, online games and contests can be very effective in enabling people, especially the younger demographic, to gain important financial knowledge in entertaining ways. For the past four years, H&R Block has been running the H&R Block Budget Challenge, an online game that teachers can use to teach financial concepts to high school students. In December 2017, The Hartford partnered with Junior Achievement USA to launch JA MyBiz Builder, an online experience that teaches entrepreneurial concepts to teens. And GOBankingRates recently launched a competition (with a top prize of $1,000) to identify the best tips, tricks and tactics for navigating one’s personal finances.
Reinforce the financial education message via social media. A number of financial firms are using Twitter hashtags to generate interaction around their financial education programs. Examples include Ally Financial’s #WalletWiseWednesday twitter series and Regions Bank’s @FinancialFitness hashtag (part of its Financial Fitness Fridays program). Other ways of using social media to promote financial education include events (Jump$tart Coalition’s Facebook Live event to discuss deposit insurance) and social communities (Canvas Designed by Citi, a beta-testing community that enables Citi customers to co-create products and digital capabilities promoting financial wellness).
Leverage online and mobile banking platforms. As consumers become comfortable with using online and mobile banking to perform a wide range of financial activities, some providers are starting to incorporate financial education tools into these platforms. Bank of America recently added a money management and financial education tool into its mobile banking platform. And Wells Fargo is planning to launch Greenhouse by Wells Fargo, a mobile banking experience that includes financial management tools.
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 issuers—Chase, 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.
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.