Multiple Motivations Drive Credit Card Issuers to Introduce New Plastic in 2016

May 11, 2016

The first four months of 2016 have seen a steady stream of new credit cards entering the market. Issuers have a range of different objectives for introducing these new cards, including:

Filling gaps in the issuer’s product portfolio

PNC lacked a travel rewards card, so launched the Premier Traveler Visa Signature Card in April 2016. The card features an earn rate of 2 miles per dollar, offers a choice of mileage redemption options, and carries an $85 annual fee (waived the first year). The card also promotes a 30,000 bonus miles offer, and an introductory offer on balance transfers (most other travel cards have purchase-only introductory offers)
TD Bank launched the TD Cash Visa Signature Credit Card, which features an unlimited 2% cashback on dining, 1% on other purchases, a $100 cashback bonus, and no foreign transaction fees.

Discover introduced the Discover it Secured Card, which both expands the it suite and enables Discover to target higher-risk borrowers. Applicants for this secured card must deposit at least $200 to open an account. Unlike many other secured cards, the Discover it Secured Card offers 1-2% cashback on spending. It does not carry an annual fees, but does have an APR of 23.24%.

Launching enhanced versions of existing products

Chase’s new Freedom Unlimited Card has many of the same features as Chase Freedom (APR, introductory offer, bonus offer, fees). However, the new card offers unlimited 1.5% cashback on all purchases (Chase Freedom had featured 5% on up to $1,500 spent in categories that changed quarterly).

American Express launched SimplyCash Business Plus, an enhanced version of its main small business cashback credit card, SimplyCash Business. SimplyCash Plus Business Credit Card features charge card-like functionality, which allows cardholders to exceed their credit limit for specific large purchases. However, these purchases must be fully paid for at the end of the billing cycle.
Wells Fargo introduced the Wells Fargo Propel American Express Card, the third in a series of Propel cards. The card offers 3 points per dollar on gas, as well as 2 points per dollar at restaurants. Cardholders who hold qualifying Wells Fargo checking or savings account receive a 10% points bonus.

Introducing new co-branded or private-label cards following new partnerships

Citi announced the launch of the Costco Anywhere Visa Card, following Costco’s well-publicized decision to split from American Express. The new card features 4% on gas spending (on up to $7,000 in gas spend), 3% on travel and at restaurants, 2% on Costco purchases, and 1% on other purchases.
Barclaycard launched a suite of three JetBlue MasterCard credit cards (two consumer and one business), following JetBlue’s decision to switch from American Express. All three cards feature no foreign transaction fees, in-flight savings, and a higher earn rate on JetBlue spending.

American Express introduced two new co-branded cards from Charles Schwab, the American Express Platinum Card for Schwab, and the Schwab Investor Credit Card from American Express.

As issuers look to grow their card volumes and outstandings, they will need to regularly revisit their card portfolios to determine if they are meeting customers ever-changing payment needs and preferences. Issuers should be prepared to act quickly to change elements of their card portfolio, e.g., adding new cards, enhancing existing cards, and even eliminating some cards. And these product portfolio decisions should be supported by other card-related decisions, on pricing (interest rates and fees), incentives (bonus offers and introductory rates), ongoing rewards (earn rates and redemption options), and value-added features.

Positive 4Q15 Performance for Leading Credit Card Issuers

February 5, 2016

In recent weeks, the leading U.S. credit card issuers reported relatively robust 4Q15 financials. The following are some key trends that EMI identified in these results:

Most leading issuers increased net income in the recent quarter, as increases in revenues (both net interest income and noninterest income) more than offset rises in both noninterest expenses and provisions for loan losses.

Growth in average outstandings was led by regional bank card issuers, as well as Capital One and Wells Fargo.

SunTrust led all leading issuers with an increase of 20% to pass the $1 billion threshold, and it recently launched a new consumer card suite in order to continue this momentum.
Wells Fargo’s 11% growth represented a decline from a 14% y/y rise in 3Q15. Although it continued to grow its credit penetration rate (to 43.4% of retail bank households) the rate of increase has slowed over the past year.
The largest issuers (Chase, Bank of America, Citi) continue to report anemic loan growth or declines as they continue to deal with legacy issues.
American Express had the largest decline (-4% y/y), but this was due to the loss of the Costco portfolio.

In spite of their lack of outstandings growth, the leading issuers reported strong new account generation.

Citi is ramping up new account acquisition for its core products (which account for 80% of its U.S.-branded card portfolio), with active accounts growing 13% y/y.
Like Citi, American Express has ramped up new card acquisition, and its 2.1 million new accounts in the fourth quarter were well above its historic average.
Bank of America grew new accounts 6% y/y to 1.26 billion in 4Q15.

Issuers are focusing on new channels to drive new account acquisition, in order to reduce acquisition costs, as well as reflect changing consumer behavior.

72% of new Chase card accounts in the fourth quarter came through the online channel.
Synchrony reported a 73% y/y rise in applications through the mobile channel.

Although adversely impacted by sharply lower fuel prices, issuers continued to report steady growth in volume in 4Q15. It was notable that, for most issuers, the growth rate was virtually unchanged between 3Q15 and 4Q15. One of the factors driving continued volume growth is the rise in active accounts. Citi reported a 13% rise in active accounts for its core products, Synchrony grew active accounts 5%

Charge-off rates remain at historic lows, with continued y/y declines. However, most issuers reported rises in the charge-off rate from 3Q15. 30+ day delinquency rates also remain very low with little sign of upward movement. Therefore, we expect charge-off rates to remain at or near these very low levels in the coming quarters. Chase expects its charge-off rate to be around 2.5% in 2016, close to its current level of 2.42%. However, it is notable that all of the leading issuers increased their provision for loan losses, led by Capital One (+24% y/y) and American Express (+10%).

In the coming year, we expect that issuers will be looking to new card launches to fill gaps in their product portfolios and drive growth in underpenetrated and/or high-growth segments. The following recent card launches are indicative of this trend:

Wells Fargo Propel American Express Card
Barclaycard CashForward World MasterCard
TD Bank Cash Visa Signature Card
Discover it Secured Card
American Express SimplyCash Plus Business
U.S. Bank Business Edge Cash Rewards World Elite MasterCard

In addition, the top issuers will try to translate the recent rise in new account generation into steady loan growth. Issuers in general will be looking to drive both volume and loan growth through initiatives targeting various stages of the cardholder life cycle: acquisition and activation, retention and ongoing usage. At the same time, they will continue to hope that charge-off and delinquency rates remain close to historic lows.

Key takeaways from leading credit card issuer 3Q15 financials

October 30, 2015

The following is a list of several trends that EMI Strategic Marketing identified in leading credit card issuers’ 3Q15 financials:

Regional bank card issuers continue to lead in receivables growth. A key factor: regional banks, such as SunTrust and Wells Fargo, are focused on cross-selling credit cards to their bank customers.

Many national issuers not (yet) growing loans, but are ramping up new account generation. National credit card issuers like Citi and Bank of America reported y/y loan declines in 3Q15, due to continued run-off of legacy portfolios. However, both of these issuers are confident that their portfolios will grow in the near future. Citi reported that it is ramping up card acquisition for its core products, and this is starting to pay off with 6% y/y rise in active accounts. Credit card “monolines” are also investing in new account generation. Discover new account generation in 3Q15 was at its highest level since 3Q07. And American Express reported an 8% y/y rise in marketing and promotion spending, with a focus on attracting new card members. As a result of this investment, American Express generated 2.3 million new accounts in 3Q15, compared to a quarterly average of 1.6 million in 2014.
Card volume grew…but was impacted by low fuel prices. Leading issuers continued to report growth in purchase volume, but the y/y rate of growth was lower than in recent quarters, in large part due to low fuel prices. Discover reported y/y sales volume growth of 2.6%. However, excluding gas, the growth rate was 7%. Issuers reporting very strong volume growth included Capital One (+19% y/y), which is benefitting from its focus on transactors, and Wells Fargo (+15%).
Issuers are growing revenues…and expenses. Six of the largest U.S. credit card issuers have dedicated payment units, which publish quarterly revenue and expense data. Since the financial crisis, revenue growth has been elusive for issuers, but in 3Q15 four of the six issuers reported y/y growth in revenue. Benefitting from loan growth, five of the six issuers reported growth in net interest income. And three of the six reported noninterest income growth. However, as issuers are looking to generate new accounts as well as loan and volume growth, they are increasing their noninterest expenses. Banks with the largest y/y increases in noninterest expense in 3Q15 included American Express (+11%), U.S. Bank (+9%) and Discover (+8%).
Credit card yield shows signs of growth. Of the seven leading issuers who reported yield data in their quarterly financials, four reported y/y growth. In addition, six of the seven reported q/q rises in yield. This indicates that in the post-CARD Act environment, issuers are not competing aggressively on price, but are instead concentrating on enhancing rewards, providing additional value-added features, and making large acquisition-and-activation bonus offers.

Charge-off rates continue to decline…and may fall even further. As we have mentioned in previous blogs, credit card net charge-off rates are well below historical averages. Reasons for this extended decline include tight underwriting on the part of issuers and an aversion to building up large credit card debt on the part of cardholders. In its earnings conference call, Discover characterized the credit loss environment as “remarkably benign.” With continued y/y declines in 30+ day delinquency rates (which have historically been a predictor of charge-off rates), issuers are not expecting the charge-off rate to spike in the near term, and in fact rates may continue to decline further.