5 Key Payment Trends in 4Q21

January 11, 2022

As we enter 2022, it is worthwhile to look back on the key trends in the U.S. payments space during the past quarter, as many of these trends should continue this year.

Key credit card metrics continued to improve.

According to the FDIC, credit card outstandings rose 1.2% y/y (to $806 billion) in 3Q21, the first y/y growth rate since the first quarter of 2020.
The Federal Reserve Bank of New York reported that the credit card application rate rose throughout 2021, reaching 26.5% in October 2021 (a significant change when compared to the series low of 15.7% in October 2020)
Purchase volume rose at a 20%+ rate for most leading issuers in 3Q21
Charge-off rates remained at or near at historic lows.

Leading issuers launched new credit cards to fill gaps in their product portfolios and upgraded existing cards in key categories.

Wells Fargo launched a low-rate card called Reflect, featuring an 18-month 0% introductory rate that will rise to 21 months for cardholders who make payments on time.
Capital One (Venture X), American Express (Morgan Stanley Cash Preferred) and Bank of America (Premium Rewards Elite) rolled out new premium cards.
U.S. Bank launched secured card versions of two existing unsecured credit cards; Altitude Go and Cash+.
Climate change-focused challenger bank Aspiration introduced the Aspiration Zero Card.

The Buy Now/Pay Later (BNPL) market continued to grow and evolve, with traditional payments players (e.g., Capital One, Mastercard) announcing plans to introduce BNPL options. Existing BNPL players reciprocated by launching card and pay-in-full options (e.g., Klarna announced plans to introduce a debit card and Affirm announced a pay-in-full option).

Gen Z and Millennials have emerged as key targets for both established and emerging payments firms.

American Express reported that spending by Gen Z and Millennials rose 38% between 2Q19 and 2Q21, while Baby Boomer spending declined over the same period. And perhaps more significantly, Gen Z and Millennials accounted for 75% of new Platinum cardmembers.
TransUnion reported Gen Z and Millennials accounted for 47% of total credit card originations in 2Q21, up from 39% in 2Q19.
However, it appears that traditional banks have not yet adapted their underwriting processes to capture this segment. A survey by Alliance Data found that 27% of Gen Zers claim to have been turned down when applying for their first credit card, a rate two times the level of any other generation.

The strong growth in digital payments (which accelerated during the pandemic) continued in 4Q21:

A Discover Global Network survey found that nearly half (49%) of consumers are more comfortable with making digital payments as a result of COVID-19.
eMarketer predicts that U.S. e-commerce sales will pass $1 trillion in 2022.
Leading person-to-person payments provider Zelle processed $127 billion of payments in 3Q21, up 53% y/y.

We expect that most of these payments trends will continue in 2022 as consumer behaviors and preferences continue to be reshaped by the COVID-19 pandemic, and established and emerging payments providers adapt their solutions, offers and messaging to these market dynamics.

You Complete Me: How Marketing Can Boost Change Management Outcomes

May 6, 2020

In previous blogs, we highlighted six questions common to successful marketing and change management initiatives and common communication requirements across the five stages of audience journeys in adopting change. Now we want to go into the tactical implications of those communication requirements for change management.

There is a trope in love stories and RomComs of one character professing love for another through the words “you complete me.” Like many clichés, it has currency because it’s grounded in an experienced truth: In successful relationships, each partner possesses attributes that shore up weaknesses in the other so that together they are both stronger. That’s how it is with marketing and change management.

As we discussed previously, the similarity of the audience journey in the ADKAR framework to the customer decision-making journey is in the key communication considerations within each framework. Based on this foundation, marketing can help “complete” change management by offering communication best practices and ideas for each stage.

AWARENESS. Communications must highlight the need, bringing to light the pain that needs to be addressed. To be compelling, communication of that pain must be both credible and empathetic.

Examples of marketing communications at this stage:

Emails and presentations that explain the change in terms of its impact on all team members, coming from executive leaders
FAQs that capture and provide honest answers to real questions likely on the minds of team members

DESIRE. Communications must define the proposed change as the solution to the need, i.e., the best way to relieve the pain. To be successful, these communications must reach the “heart” and the “mind” of the audience by appealing to emotions and logic.

Examples of marketing communications at this stage:

Case studies of early, quick “wins” that highlight the benefits realized through the change
Infographics presenting the need for change and its potential benefits in simple, visual terms

KNOWLEDGE. Communications must create a solid understanding of the world after the change, in contrast with the current state. To be effective, these communications must make the case that the future state is close at hand and that the path to get there is very simple.

Example of marketing communications at this stage:

How-to videos and one-page quick-reference guides that make the path to implementation seem easy; brevity and visuals take priority over words and detailed use cases

ABILITY. Communications must minimize the perceived effort involved in change and reduce friction to take the first step. Successful communications at this stage offer a helping hand—not condescending but by providing clear, simple guidelines that encourage the audience to move down the path.

Examples of marketing communications at this stage:

Training materials and tools that provide comprehensive information about how to accomplish current tasks in the new state and instill confidence that change can be achieved
Gamification that turns mundane change into activities that confer status or create excitement for team members

REINFORCEMENT. Last, but definitely not least, communications must continue to celebrate the benefits delivered. Many change initiatives fail because they are thought of as a “one and done” proposition in which a single, intense effort suffices. Instead, the initiatives need to be promoted over an extended time period to bring along laggards and solidify the changes already made by early adopters.

Examples of marketing communications at this stage:

Success stories/testimonials highlighting the benefits achieved and improvements gained, not only in quantitative terms but in human, emotional terms
Awards to bring attention to change-driven achievements and, in the process, elicit feelings of aspiration and potentially competitiveness

Here’s the bottom line: if you’re not thinking about change management like a marketer and marketing like a change management leader, you probably missing something that could elevate the impact of your efforts.

Credit Card Issuers Increase Focus on the Subprime Market

September 28, 2015

The American Banker Association’s September 2015 Credit Card Market Monitor found a 28% y/y rise in new subprime accounts, indicating that issuers are expanding their focus as they seek to grow revenues. An analysis by EMI Strategic Marketing of the FICO composition of credit card outstandings at the end of 2Q15 finds that many leading card issuers are accelerating growth in sub-prime and low-prime outstandings.

In recent years, Wells Fargo has reported strong y/y growth in all FICO categories.
- In its <600 FICO category, growth has accelerated to double-digit rates in the past three quarters.
- Its 600-639 FICO category has grown by double-digit rates in six of the past seven quarters.

Among national credit card issuers, Bank of America’s subprime outstandings declined 9% y/y in 2Q15, but the rate of subprime loan decline has been steadily slowing in recent quarters. However, Citi’s subprime outstandings growth performance is less consistent, with y/y growth from 4Q13 to 2Q14 followed by declines for the past four quarters.

BofA_subprime_outstandings

There are also mixed trends when analyzing subprime outstandings performance of regional bank card issuers. PNC reported a 6% y/y decline in <620 FICO outstandings in 2Q15, compared to a rise of 1% in 1Q15. Regions reported strong growth in <620 FICO in recent quarters (double-digit y/y rises between 2Q14 and 1Q15), but this fell to just 2% in 2Q15. However, it should be noted that Regions’ total subprime outstandings were just $49 million, so variations in growth rates are not unexpected. SunTrust reported double-digit y/y increases in subprime outstandings for three of the past four quarters.

EMI’s analysis also shows that subprime outstandings growth continues to trail prime and superprime outstandings growth for several reasons:

The large national issuers continue to deal with legacy issues following the financial crisis.
For issuers in general, underwriting standards continue to favor superprime consumers.
And even though many issuers are ramping up subprime account production, it will take some time before it translates into strong growth in subprime outstandings.

Meanwhile, an analysis of FDIC data for the 2Q15 shows strong outstandings growth for subprime credit card specialists, including Comenity (+23% y/y) and Merrick Bank (+16%). As the card industry in general increase its focus on the subprime market, it will be interesting to see if the acceleration in subprime outstandings growth among some regional bank card issuers is replicated by the large national issuers. In addition, growth in subprime credit card outstandings should result in delinquency and charge-off rates rising from their current historically low levels.