Category Archives: Credit card

Small business card issuers offering big incentives to drive spending

BBVA Compass recently promoted its new Visa Business Rewards credit card on its Facebook page.  The card offers 5,000 points in each of the first 6 months if the new cardholder spends at least $500 on the card in that month, so a total of 30,000 points.

This is consistent with a wider trend among leading small business card issuers to offer bonuses of 10,000+ points to encourage small business cardholders in order to activate and continue to use their cards.  Small business cards still have a relatively small share of small business spending, and issuers see significant growth opportunities.

Other small business cards that feature with aggressive bonus offers include:

Latest Nilson Report highlights recovery in small business credit card spending

The Nilson Report has published its annual rankings of the leading U.S. commercial card issuers (by spending volume).  These ranking are broken out into various commercial card categories, such as purchasing cards and small business credit cards. A quick analysis of The Nilson Report data by EMI uncovered the following trends in small business credit card and small business debit card volume:

  • Small business credit card volume rose 6% in 2010, following a decline of 9% in 2009
  • Of the 20 leading small business credit card issuers, only one (Bank of America) reported a decline in volume between 2009 and 2010
  • Small business debit card volume grew by 16% in 2010, compared to a rise of just 4% in 2009
  • Of the top 20 small business debit card issuers, only one (TD Bank) reported a decline in volume in 2010, and 10 of the top 20 reported annual increases of more than 20%

Discover 2Q11 financials: leading indicators for other credit card issuers

Discover Financial posted second quarter 2011 financials this morning.  As Discover reports quarterly financials a month before other leading card issuers, we look to its financials to get an early read on broader trends in the credit card industry

The following summarizes some key credit card metrics in Discover 2Q11 financials:

  • Charge-off rate: continued to improve, with a decline of 95 bps in the quarter to 5.01%
  • Delinquency rate: the 30+ day delinquency rate fell 80 bps to 2.79% (Discover reported this as an all-time low)
  • End-of-period loans: fell 1% y/y, but this decline is tailing  off (y/y was was 3% in 1Q11)
  • Volume: Discover Card sales volume rose 9% y/y, while total Discover Card volume grew 11%

Discover does not break out revenue and provision for loan loss figures for its credit card operations, but rather reports them for the total company.

  • Net interest income: rose 4% y/y, with a 1% rise in interest income, and a 6% fall in interest expense
  • Other income: increased 6% y/y, driven in part by a 16% rise in loan fee income
  • Provision for loan losses: fell 76% y/y to $176MM

In summary, we are seeing a continuation of recent trends: improvement in credit quality metrics; spending but no loan growth; and profitability driven by lower provisions for loan losses, rather than revenue growth.

However, with charge-off rates now close to 5% and 30+ day delinquency rates at an all-time low, Discover is shifting its focus to growing outstandings.  It reported that the decline in outstandings is bottoming out, and it anticipates growth in the coming quarters. And to push this growth, Discover grew marketing spend 27% y/y in 2Q11.

However, issuers’ interest in growing outstandings is limited by continued weak consumer demand.  This is leading to some issuers to looking to acquire card portfolios (e.g., Capital One’s recent private-label portfolio acquisitions, and its bid for HSBC’s U.S. card portfolio), or refocusing attention on acquiring non-card loan portfolios (note Discover’s own recent acquisitions of Tree.com’s Home Loan Center, as well as its earlier acquisition of The Student Loan Corporation from Citigroup).