Tag Archives: FICO

Leading Bank Credit Card Issuer Focus on Higher-FICO consumers

A recent EMI blog highlighted the differing outstandings growth rates for different categories of credit card issuers, with the top three issuers (Chase, Bank of America and Citi) all reporting reduced outstandings, while regional banks are growing outstandings, albeit from much lower bases.

However, further analysis using data from annual regulatory filings reveals significant variations in outstandings within leading bank credit card portfolios for different FICO credit score categories.

The three leading credit card issuers reported lower outstandings between end-2011 and end-2012.  For each of these issuers, outstandings fell in all FICO categories, but the rate of decline was significantly higher for lower FICO segments, which led to higher FICO categories increasing their share of total outstandings.

  • 740+ FICO share of Bank of America outstandings rose from 38% in 2011 to 40% in 2012.
  • The 660+ FICO segment accounted for 84% of Chase credit card outstandings at the end of 2012, up from 81% in 2011
  • Citi has an even high concentration of outstandings held by consumers with FICOs of 660+, at 95% at the end of 2012, up from 91% a year earlier, and only 74% at the end of 2010.

Most of the leading regional bank credit card issuers grew outstandings in 2012, with stronger growth rates for higher FICO segments.

  • Wells Fargo reported y/y growth in all FICO segments, even in the lowest FICO segment.
  • PNC reported overall outstandings growth of 8% in 2012, fueled by an 11% rise for the 720+ segment, partially offset by a 5% decrease in outstandings held by consumers with FICOs below 620.
  • SunTrust followed a similar pattern to PNC, with a 25% increase in the 700+ FICO segment, and a fall of 12% in the <620 segment.
  • However, Regions bucked the regional bank trend with outstandings declines in the higher FICO segments and increases in the lower segments.

These trends are increasing competitive intensity for higher-FICO consumer credit card spending and borrowing, with new card launches, value-added features, bonus offers to drive acquisition and activation, and enhanced rewards programs to boost usage and retention, as well as cross-sell initiatives targeted at the bank’s private banking and wealth management clients.

In addition, the extent of the decline in sub-prime credit card portfolios means that many issuers are turning to non-credit card payment methods (including debit, prepaid and secured cards) to meet the payment needs of consumers with lower FICOs.

Credit Card Issuers Continue to Target High FICOs

In the wake of the financial crisis, credit card outstandings fell significantly in all segments of the market in reaction to spiraling charge-off rates.  This decline was particularly pronounced in the sub-prime segment.

Over the past two years, the market has stabilized:

  • There have been large decreases in charge-off and delinquency rates (these rates are now at or below historic norms for many issuers)
  • The rate of decline in total outstandings has slowed, with some issuers now reporting loan growth

However, the following charts show that there are significant differences in credit card portfolio growth/decline rates for different FICO credit score segments.  This indicates that the move away from low- and sub-prime issuance, which began in the financial crisis, has persisted even though the crisis has largely passed.  This is driven by a number of factors, include consumer reluctance to borrow and CARD Act restrictions on repricing.

The changes in the issuer portfolios points to a fundamental change in the payments market.  Issuers are increasingly focused credit card product development and marketing on the prime and super-prime segments, while using secured and prepaid cards to meet the needs of the near- and sub-prime segments.

U.S. Credit Card Issuer Emphasis on More Affluent Consumers Reflected in Latest Outstandings

The latest quarterly regulatory filings from some of the leading U.S. credit card issuers reveal that outstandings held by cardholders with higher FICO scores are accounting for an increasing share of total credit card portfolios. Over the past year, there has been ample evidence of issuers targeting more affluent consumers with new products and aggressive offers, while continuing to maintain high underwriting standards.

Although these issuers do not use the same FICO-score categories, the following charts show that all issuers reported continued declines in outstandings held by cardholders with lower FICOs (below 660), while oustandings for cardholders with higher FICOs either had smaller declines or in fact grew over the past year.

  • Chase: Overall, there was no change in Chase end-of-period (EOP) credit card outstandings between 1Q11 and 1Q12. However, cardholders with FICOs of 660+ (which accounted for 82% of total outstandings in 1Q12) rose 4%, while outstandings with FICOs below 660 fell by 15%.

  • Discover uses the same FICO categorization as Chase. It reported a 4% total rise in EOP card outstandings between 1Q11 and 1Q12. FICOs of 660+ rose 10%, while FICOs <660 fell 18%. FICOs of 660+ accounted for 81% of total Discover credit card outstandings at the end of 1Q12, just below the rate for Chase.

  • Bank of America uses different FICO categories, with a cut-off point at 620. Total outstandings fell 10% y/y to the end of 1Q12, but the decline in FICOs below 620 (-41%) was much higher than that for FICOs of 620+ (-6%). FICOs of 620+ now account for 92% of total outstandings, compared to 88% in 1Q11.

  • Like Bank of America, Citibank’s total EOP U.S. credit card outstandings fell y/y (by 4%), and there were declines in all FICO categories, but again higher FICOs reported lower declines. At Citi, FICOs of 620+ now represent 91% of total outstandings, up from 85% at the end of 1Q11.

  • Unlike other issuers, Wells Fargo provides a wide range of FICO categories, which have been summarized into three categories below. Total Wells Fargo credit card outstandings rose 4% y/y, but there was an 11% decline among sub-prime FICOs below 600. For FICOs of 760+, outstandings rose 16% and now represent 25% of outstandings, up from 23% in 1Q11.