Tag Archives: Credit card

Leading credit card issuers reducing outstandings

Coverage of 3Q09 results from the leading U.S. credit card issuers focused–not surprisingly–on trends in their charge-off and delinquency rates, but many of these issuers have been significantly reducing outstandings in recent quarters. This is due to reduced acquisition activity, as well as charge offs.  The following is a list of end-3Q09 managed outstandings for the leading issuers, along with q/q and y/y changes:

  • Chase: $165.2 billion in EOP managed outstandings; down 4% q/q; down 11% y/y
  • Bank of America: $164.5 billion; down 3% q/q; down 10% y/y
  • Citi (Citi-Branded Cards in North America): $83.7 billion; up 2% q/q; down 1% y/y
  • Capital One (domestic credit card): $61.9 billion; down 4% q/q; down 11% y/y
  • American Express (U.S. Card): $51.9 billion; down 4% q/q; down 19% y/y
  • Discover (U.S. Card): $48.1 billion; down 2% q/q; down 2% y/y

And this reduction in outstandings should continue for the next few quarters, as issuers continue to pull back on acquisition activity, charge-offs remain high, and new credit card legislation comes into force.

However, it is worth noting that some of the second-tier bank card issuers, who are focused mainly on cross-selling existing bank customers, have grown outstandings:

  • Wells Fargo: $23.1 billion; up 2% q/q; up 16% q/q
  • U.S. Bank: $16.1 billion; up 10% q/q; up 31% y/y (in part due to an acquisition of card portfolios from Bank of America)
  • PNC: $4.1 billion; up 3% q/q
  • Fifth Third: $2.0 billion; up 3% q/q; up 17% y/y

Impact of credit card legislation on the Marketing Mix

Marketing 101 teaches us about four P’s of the Marketing Mix: Product, Price, Place and Promotion, with Positioning thrown in for good measure.  The passage of new credit card legislation means credit card issuers will have to do a refresher course on these elements, in order to figure out how to market credit cards in a radically changed environment.

Positioning: Credit cards have become a tarnished product category in recent years, having been associated by many with the excessive availability of credit. Issuers will need to figure out how to position credit cards as a useful and flexible source of credit. The largest issuers have traditional run their card units as standalone operations, but we also envisage this will change radically, with credit cards increasing integrated with other financial products and services.

Product: The restrictions on issuer’s ability to generate interest and fee income may lead to the emergence of stripped-down cards with fewer features and rewards. In addition, concern over defaults could lead to growth in secured cards as well as a hybrid cards with secured and unsecured components.

Pricing: The card offer is expected to change significantly with annual fees, less attractive introductory offers and higher APRs.

Place: Banks’ desire to go “back to basics” and focus more on a relationship banking approach means that the branch and online banking platform become increasingly important cross-selling tools.

Promotion: Comperemedia reported in DM News that credit card direct mail fell 72% year-over-year in 1Q09. While an economic recovery could lead to some issuers increasing their DM volume, there is little prospect of DM reaching the historic high levels of 2006. According to Cards and Payments, credit card advertising did increase in 2008, but with most issuers cutting back on acquisition activity and reducing  noninterest expenses, we expect a decline in ad spend in 2009.

Credit Card Legislation Leading to Greater Debit Card Usage

The passage of new credit card legislation may accelerate the growth of debit card spending, at the expense of credit card.

To date, debit card’s growing share of payments has mainly been at the expense of cash and checks. However, the next stage of debit cards growth may eat into credit cards’ share.

Even before the passage of new credit card legislation, data from MasterCard and Visa indicated continued growth in U.S. debit card spend and a marked reduction in U.S. credit card spend. One of the potential outcomes of the new legislation is the re-introduction of annual fees, even for transactors (cardholders who pay their balance in full each month). These transactors may now switch a portion of this credit card spending to credit to their debit cards.

This switch to debit card is being facilitated by the increased proliferation of debit card rewards programs, in particular merchant-funded programs. Merchants have a vested interest in consumers switching to debit card, as they pay lower merchant fees on debit card transactions.

Another impact of the legislation may be a reduction in the average number of credit cards held by consumers. This will lead to greater spending on the retained credit cards, but also some switch in spending to debit card.