Key Features in the Latest Crop of Small Business Credit Cards

April 19, 2019

In spite of the emergence of new electronic business-to-business payment forms, and the continued popularity of checks, U.S. small business owners continue to grow their small business credit card usage. According to The Nilson Report, U.S. Visa and MasterCard small business credit card volume rose 15% in 2017 to $223 billion. And American Express also reported that its Global Small Business Services loans rose 13% to $12.3 billion in 2018.

In order to capture their share of small business card spend, leading U.S. banks have launched a range of new small business credit cards over the past year. These credit card launches are summarized in the table at the end of this blog. The following are the key trends and features that stand out for these new cards:

Pricing:

There is a mix of 0% purchase-only and purchase-and-balance-transfer introductory offers, with durations of 9 or 12 months.
Most cards have an APR range. The only exception is U.S. Bank’s Business Leverage Visa Signature Card, which features a non-tiered go-to APR of 18.74%.
As demonstrated by both M&T Bank and BB&T, there tends to be a 200 basis-point gap between rewards and non-rewards business card versions.
Business credit card APRs tend to be lower than their consumer card counterparts. BB&T launched Spectrum Cash Rewards (consumer) and Spectrum Cash Rewards for Business at the same time: the business card’s lower tier was priced 300 bps less than the consumer card (and the business card’s upper tier is 100 bps less than the consumer card).

Rewards:

New business cards offer either a 1.5% earn rate for all purchases with no limits or a tiered earn rate.
For tiered programs, the business cards either offer higher earnings on specified spending categories (such as at restaurants and gas stations) or on the top spending categories during the month (U.S. Bank Business Leverage Visa Signature).

Bonus Offers:

Issuers are now deploying different approaches to incentivize business card usage.
- We continue to see acquisition-and-activation offers for reaching a spending threshold within the critical 90-day initial period. However, new American Express Amazon Business Card cardholders receive a $100 Amazon gift card on approval.
- To promote relationships, some business cards now offer bonus earnings on cumulative spending over the first year. Recent examples include Discover it Business Card and U.S. Bank Business Leverage Visa Signature. Furthermore, the new U.S. Bank card also enables cardholders to earn rewards for accepting credit card payments.

Fees:

Most business cards launched over the past year have no annual fee, the exceptions were BB&T’s Spectrum Travel Rewards for Business and U.S. Bank’s Business Leverage Visa Signature.

New business credit cards show significant variation in the percentage (3-5%) and minimum fees ($5-$15) for both cash advance and balance transfer fees. However, some new cards deviated from the standard approach:

The Discover it Business Card carries a 5% balance transfer fee with no minimum.

The U.S. Bank Business Leverage Visa Signature Card has a different fee for balances transferred with the card application vs. the ongoing BT fee.

Mirroring consumer cards, many new business cards now come with no foreign transaction fee. This include non-travel cards, such as the American Express Amazon Business Card and the two new M&T business credit cards.

10 Considerations to Boost Credit Card Activation Rates

June 14, 2018

In recent years, leading U.S. credit card issuers have changed their focus from simply acquiring new customers to optimizing relationships with existing cardholders. A key element to the overall success of this strategy is the ability to motivate newly-acquired cardholders to start—and continue—to use the card. According to The Nilson Report, the average credit card activation rate (active accounts as a percentage of total accounts) for the top 50 Visa and Mastercard issuers was 57% in 2017. However, there is significant variation among issuers. For example, Citibank had a credit card activation rate of 68%, while Fifth Third’s was just 49%. Low activation rates represent a lost opportunity in optimizing customer lifetime value, as well as a waste of marketing resources expended in cardholder acquisition.

Here are 10 key considerations for boosting credit card activation rates.

Benchmark current credit card activation performance. The starting point involves gaining a strong understanding of your current activation rate, how this rate has changed over time, and how it compares to competitors’ rates. Also study previous and current activation rates to identify the primary factors contributing to the current rate.
Conduct customer research. Analyze customer data to size and profile the inactive cardholder base. Conduct additional primary research to identify key card activation triggers and barriers.
Develop a credit card activation plan. With input from all relevant stakeholders in the organization, develop an integrated credit card activation plan. Create a team dedicated to implementing the plan, and assign roles and responsibilities. Develop an integrated series of initiatives, and establish a timeline to roll out these initiatives and measure progress against plan objectives.
Create bonus offers. Most credit card bonus offers are based on acquisition and activation, with the cardholder receiving the bonus (points, miles, cashback) if they meet a certain spending threshold within a period following acquisition (typically 60-90 days). Higher-end cards (many of which carry annual fees) have larger bonus offers. Chase recently launched the Marriott Rewards Premier Plus Card, featuring 100,000 bonus points if the cardholder spends $5,000 within three months of account opening. A variation on the bonus offer is to have higher earn rates on specific spending categories for an initial period.
Develop pricing to drive activation. Set pricing levels (interest rates and fees) to encourage the cardholders to start using the card. One common approach is to have 0% introductory rates on balances transfers for transfers made within an initial period. For example, the new BBVA Compass Rewards Card has a 0% introductory rate for 13 months for balance transfers made with 60 days of account opening.
Focus on cardholder onboarding. Develop a communications plan to engage with new cardholders during the crucial initial 90-day period. These communications should welcome the cardholder, reinforce the card’s key strengths and differentiating features, highlight incentives, and encourage card usage.
Adjust sales incentives. Consider tweaking incentive plans to reward front-line sales people for their customer activation efforts.
Leverage cardholder usage of different service channels. Many cardholders use multiple channels (desktop, mobile, branch, call center, social media) to engage with their financial services provider. Develop messaging across these channels to promote card benefits and highlight the need for activation.
Create financial education tools. Many financial firms are investing in financial education tools using multiple media to boost overall financial literacy and to enable consumers made smart decisions in using a variety of financial products and services, including credit cards. Developing and sharing content around managing a credit card effectively can both build affinity with your company and encourage the cardholder to use the card responsibly.
Review performance. Following the launch of your credit card activation initiatives, identify and address any issues in implementation, track performance relative to objectives, and incorporate learnings into ongoing card activation efforts.

Credit Card Issuers Experiencing Loan Growth Across FICO Spectrum…But Face Rising Charge-Offs

May 18, 2018

Most leading U.S. credit card issuers reported relatively strong y/y growth in outstandings in the first quarter of 2018.

Breaking these growth rates out by FICO Score segment, we see that issuers generated growth across multiple FICO Score categories.

There are important differences in the FICO composition of card portfolios. The <660 FICO Score segment accounted for 34% of Capital One’s portfolio, a much higher percentage than other issuers, such as Fifth Third (3%), Chase (7%), KeyBank (11%), Citi (16%) and Discover (19%).
Among the largest issuers, one of the most notable trends was strong growth in the low-prime/sub-prime and super-prime segments, but low/no growth in their prime portfolio. Bank of America grew its sub-prime (<620) outstandings by 6% and its super-prime (>720) increased 8%. However, its loan portfolio held by consumers with FICO scores between 620 and 739 only increased by 2%.
Most regional bank card issuers (such as PNC, SunTrust and Regions) reported strong growth in their sub-prime and near-prime portfolios. Fifth Third’s <660 FICO Score portfolio rose 43%, but this category only accounts for 3% of the bank’s credit card portfolio, so growth was from a very low base.

As issuers enjoy strong growth in their credit card outstandings—especially for sub-prime and near-prime consumer segments—it is worth noting that charge-offs are also on the increase. Most issuers reported double-digit y/y basis-point growth in their credit card net charge-off rates. Four of the 12 issuers below now have charge-off rates of more than 4%, and only one (American Express) has a charge-off rate of less than 3%.

So, while issuers want to grow credit card loans across the FICO Score spectrum, they need to ensure that various functions are all calibrated to ensure that cardholder delinquencies and charge-offs remain at manageable levels. These functions include:

Underwriting
Marketing: targeting, offer development, and messaging
Pricing: fees and APRs need to be set at levels that balance cardholder ability to pay with an appropriate margin to offset potentially higher charge offs
Customer support: onboarding, financial education, as well as early engagement in cases where cardholders experience payment challenges