Summarizing 2Q17 Credit Card Outstanding and Charge-Off Trends

August 30, 2017

In a recent blog post, EMI discussed growth trends in credit card outstandings and charge-off rates, and the importance of ensuring that both remain at manageable levels. Now, our analysis of 2Q17 financials for leading issuers, as well as the latest reports from the FDIC and FFIEC, reveal the following trends on these two key credit card metrics:

Issuers continue to report steady y/y growth in credit card outstandings, although the rate of growth has moderated in recent quarters. According to the FDIC’s Quarterly Banking Profile, credit card loans rose 4.5% to $780 billion. The growth rate was unchanged from the previous quarter, but marked a reduction from the 6%+ rates in the first three quarters of 2016.

According to FFIEC call reports, regional bank card issuers like Huntington, SunTrust and City National reported the strongest y/y growth rates in credit card loans in 2Q17. Leading issuers also generated steady credit card loan growth: Citibank (+14% y/y, boosted by the acquisition of the Costco portfolio), Chase (+7%), Capital One (+6%) and Bank of America (+3%).

Leading issuers are growing credit card outstandings across the FICO Score spectrum. Our analysis of selected credit card issuers’ 2Q17 10Q SEC filings found that issuers are reporting loan growth in all of their FICO Score segments, with most experiencing strongest growth in the sub-prime and near-prime categories. However, significant differences remain in the FICO Score composition of different card portfolios. For example, 35% of Capital One’s consumer credit card outstandings are held by people with a FICO Score of 660 or lower, but this segment only accounts for 12% of Chase outstandings and 14% of Citi’s portfolio.

The rise in credit card outstandings is being mirrored by continued growth in net charge-off rates. According to the FDIC Quarterly Banking Profile, the average charge-off rate was 3.66% in 2Q17. This marked a significant y/y rise of 55 basis points. However, the rate was only up 3 bps from the previous quarter, indicating a slowdown in the growth trajectory. Moreover, the current rate remains low by historic standards.

Banks Seek to Leverage Surveys to Build Small Businesses Engagement

May 12, 2017

In recent weeks, a range of leading national and regional banks have carried out small business surveys, many of which were timed to coincide with 2017 National Small Business Week (April 30-May 6). These include new surveys from Citizens Bank (Small Business Pulse) and Fifth Third Bank.

These surveys are designed to:

Generate brand awareness among small business owners
Underline the bank’s commitment to this market
Position the bank as a thought leader in the small business space
Promote the bank’s small business solutions

The following are six approaches that banks are using to leverage small business surveys to drive engagement with their small business clients and prospects:

Establish a branded index. Many banks measure small business optimism via an index. This enables them to both track this metric over time, as well as generate general business press attention. Citizens recently-published survey includes the Citizens Business Pulse Index, which is its measure of the small business climate. Other indexes include the Wells Fargo/Gallup Small Business Index and the Capital One Small Business Growth Index.
Create a recurring survey. Many of the leading banks now conduct surveys on a quarterly, biannual or annual basis, which enables them to track small business metrics over time. Capital One has been tracking a Small Business Confidence Score consistently since 2008.
Survey topics of interest. Most surveys focus on small business optimism and outlook. However, surveys also look to differentiate by covering other issues that should be of interest to small businesses. The U.S. Bank Small Business Annual Survey studies small business owners’ personal satisfaction as well as the desired attributes they want from their business bank.
Use infographics to summarize survey findings. Presenting key findings from the survey (which will typically include a series of statistics) in a visually-appealing format allows readers to quick grasp important points the bank wants to make. Wells Fargo published a lengthy survey report, but it also created a one-page infographic that summarizes key takeaways.
Version the survey for target markets. Bank of America creates versions of its Business Advantage Small Business Owner Report for 10 target markets (Atlanta; Boston; Chicago; Dallas/Fort Worth; Houston; Los Angeles; New York; Miami; San Francisco; and Washington, D.C.). Similarly, PNC publishes its Spring Economic Outlook Survey findings for 10 regional markets.
Position the bank (subtly) as a small business solutions provider. Fifth Third’s recent small business survey included findings on funding growth, while also positioning the bank as “committed to the development of small businesses throughout the Bank’s footprint.“

Credit Card Issuers Looking to Grow Loans Across the Credit Spectrum

March 6, 2017

An analysis of 10-K SEC filings by EMI Strategic Marketing has found that leading credit card issuers are looking to grow outstandings across a wider range of FICO Score segments.

In the aftermath of the Financial Crisis and Great Recession, issuers narrowed their focus, moving away from lower FICO Score segment, and concentrating their efforts on prime and superprime consumers. In recent years, issuers have reduced charge-off rates to very low levels. With the steady growth in the economy and rising consumer confidence, issuers see an opportunity to grow their credit card outstandings and many are willing to take on more risk in order to achieve the desired growth.

The four largest credit card issuers—Chase, Bank of America, Citibank and Capital One—all reported growth in each of their FICO Score categories in 2016. Three of these issuers (the exception was Citi) had strongest growth in their lowest credit score segment. Citibank had double-digit growth in large part due to the acquisition of the Costco portfolio from American Express, and this acquisition influenced the relative growth rate of different credit score segments. Note that 36% of Capital One’s outstandings are held by consumers with credit scores below 660, compared to only 14% of Chase’s and 15% of Citibank’s (Citi-Branded Cards unit) outstandings.

Leading monoline credit card issuer Discover followed a similar pattern, with stronger growth for the <660 FICO Score segment, which accounted for 18% of total outstandings at the end of 2016.

Among the regional bank card issuers, Wells Fargo reported very strong growth (+19%) in the <600 segment, and consistent growth across most other segments. However, it had a 7% decline in the 800+ segment, as it does not appear to have an affluent credit card that can compete effectively with American Express, Chase (which launched Sapphire Reserve in 2016) and Citibank.

Other regional bank card issuers are also looking to drive growth across the credit spectrum. SunTrust, KeyBank and Regions have some of the strongest credit card loan growth rates in the industry, with very strong growth at the lower end of the spectrum. In contrast, PNC had strongest growth in the 650+ FICO Score segments.

The following are some key considerations for issuers looking to grow outstandings across the credit spectrum:

Compare the FICO composition of the issuer’s credit card portfolio to its peers. Assess the organization’s appetite to expand into new credit score segments.
Understand the financial needs, characteristics and behaviors of different credit score segments
Have products, offers and pricing in place for a range of consumer segments.
Invest in new marketing channels (and develop messaging) to reach different segments
Partner with other bank units that have strong connections with particular segments (e.g., wealth management and consumer financing units) in order to drive cross-sell to underserved segments
Ensure that company underwriting reflecting company objectives (while maintaining underwriting discipline).