Tag Archives: Capital One

5 Key Payment Trends in 4Q21

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.

5 Key Financial Education Trends in 3Q21

Numerous surveys continue to highlight financial literacy gaps among U.S. adults and children, illustrating the ongoing need for financial education programs (according to a Step survey, 97% of teens believe that financial literacy is important). Many financial firms and their partners have been at the forefront in developing and distributing innovative financial education programs. The following are noteworthy financial education trends in the 3rd quarter of 2021.

  1. Build engagement with younger segments through financial education programs and content. Firms are looking at a wide range of channels to reach younger demographics:
    • HSBC created a new world in Minecraft – Fintropolis – designed to improve financial literacy.
    • Bank of America launched a 7-part series on YouTube that aims to share financial know-how with both parents and students.
  2. Develop financial education partnerships with associations and advocacy groups.
    • OneMain Financial partnered with EverFi to launch the Money LaunchPad financial literacy program for students in grades 9 to 12.
    • BancorpSouth committed $1.5 million to Operation HOPE for financial literacy programs and announced six additional HOPE Inside locations.
  3. Target specific consumer segments with financial education programs and thought leadership tailored to their unique needs, including:
    • LGBTQ: Capital One published an article, “The Debt Free Guys: Financial Obstacles Facing LGBTQ+ People”, and Ally published an article on “Financial Considerations for LGBTQ+ Couples.”
    • Couples: Ally Bank launched a marketing campaign targeting couples’ fears over the “Money Talk”, and Morgan Stanley listed “6 Money Questions to Ask Your Partner Before You Commit.”
    • Widows and Widowers: MassMutual published “A financial checklist for widows and widowers.”
  4. Brand financial education programs to bring together various financial education initiatives as well as raise consumer awareness and engagement. Recent examples:
    • Charles Schwab launched MoneyWise America™ program for teens.
    • Regions introduced the Next Step podcast, the latest resources from the bank’s Next Step financial education program.
    • Capital One launched the Money & Life program, which builds on its former Money Coaching program.
  5. Position financial education as part of broader ESG and CSR initiatives. Financial education efforts are now more prominently featured in financial firms’ annual ESG and corporate social responsibility (CSR) reports.

5 Business Banking Trends in 3Q21

Established and challenger banks responded to key changes in the small business landscape (ongoing economic recovery and the ending of PPP loans) in the third quarter of 2021 with new business banking solutions and thought leadership.

  1. Banks published surveys that gauged small business owner optimism and addressed current hot topics, such as inflation (PNC), supply chain disruptions (Umpqua Bank), access to funding (Goldman Sachs) and relationship with their financial service provider (Kabbage).
  2. FinTechs took on the established banks with new solutions. This effort was led by Square, which launched both Square Banking and Cash App Pay during the quarter. Other products from challengers during the quarter included the QuickBooks Card Reader, Credit Karma Money for small business employees and Brex Venture Debt.
  3. Leading small business credit card issuers launched new cards with high earn rates to capture a greater share of the increased card spend following the pandemic. Noteworthy examples include Capital One Spark Cash Plus (2% cash back on all purchases) and U.S. Bank Triple Cash Rewards Visa Business (3% cash back on four core categories). In addition, American Express launched a business-to-business marketing campaign (“Built for Business”) promoting its business cards.
  4. Financial firms continued to generate small business content, with new podcast services added to the suite of content options during the quarter (e.g., Regions Next Step for Business and Comerica’s Small Business Summer Series on LinkedIn).
  5. Banks rolled out initiatives for historically-underserved business segments, including black-owned business (Ally’s $30 million commitment to help grow black-owned businesses) and women-owned businesses (BMO Harris’s Women in Business Credit Program).