Leading Credit Card Issuers Focusing Growth on Multiple FICO® Score Segments

In a recent blog, EMI discussed some key takeaways from leading credit card issuers’ 3Q16 earnings, one of which was the relatively strong growth in credit card outstandings.  In this blog, we look deeper into outstandings trends to identify what FICO Score segments issuers are focusing on to grow outstandings.

Firstly, it is notable that leading issuers reported y/y growth in credit card outstandings across multiple FICO Score segments.  However, there were important variations among the issuer categories:

  • Largest issuers:  The following chart looks at y/y changes in outstandings by FICO Score for both Bank of America and Chase. (Citibank also published data on the FICO Score composition of its credit card outstandings, but these were skewed by the acquisition of the Costco portfolio from American Express, so we did not include Citibank in the analysis.)  Bank of America generated low growth across most segments, as it struggles to grow overall outstandings following a protracted period of declines.  Chase’s growth was concentrated in the 660+ FICO Score segment, boosted by the recent launches of both Sapphire Preferred and Freedom Unlimited.


  • Monolines: Capital One and Discover both generated strong growth in the lower FICO Score (660 and under) segment.  This segment now accounts for 36% of Capital One’s total credit card outstandings, significantly higher than Discover (18%) and Chase (14%).


  • Wells Fargo: in spite of the fallout from the recent fake-account scandal, Wells Fargo continued to growth credit card outstandings in 3Q16.  It reported strong growth across most FICO Score segments, with particularly strong growth in the subprime segment.  However, it continues to struggle to grow superprime outstandings, as it lacks a card that can truly compete against high-profile affluent cards like American Express Gold and Platinum, and Chase Sapphire Preferred.


  • Regional Bank Card Issuers: SunTrust, Regions and PNC all reported strong overall growth.  SunTrust reported very strong growth across all segments.  Regions’ outstandings growth was concentrated in the low-prime and subprime segments.  However, PNC’s outstandings growth was concentrated in higher-FICO Score segments, driven by the April 2016 launch of the Premier Travelers Visa Signature® card.


As issuers seek to continue to increase overall credit card loan growth, it is likely that they will continue to focus on multiple FICO Score segments.  They will also be looking to identify underperforming segments, diagnose reasons for this underperformance (e.g., deficiencies in cards, offers or communications targeting these segments), and develop initiatives to improve performance.  Similarly, issuers will want to identify if they are overly dependent on certain segments for outstandings growth or share, and whether this dependence leaves them vulnerable to changes in the macroeconomic or competitive environments.

Key Takeaways from Leading U.S. Credit Card Issuer Quarterly Financials

EMI’s review of 3Q 2016 financials for the largest U.S. bank and credit card issuers revealed several trends:

Acceleration in outstandings growth.  Average outstandings rose 6% y/y in 3Q16 for the 13 issuers in the study; this growth rate marks an increase from previous quarters (3% in 2Q16 and 2% in 1Q16).

  • American Express reported a 14% y/y decline, due to the loss of the Costco and JetBlue portfolios; excluding these portfolios, it grew loans by 11%.
  • Bank of America reported no change in average outstandings, ending a protracted period of loan declines due in large part to divestitures.
  • Regional bank card issuers continue to focus their attention on cross-selling credit cards to existing clients.  Regions grew outstandings by 11% and reported that its credit card penetration rate rose 130 basis points (bps) y/y to 18.2%.average_credit_card_outstandings_3Q15-3Q16

Continued volume growth. EMI analyzed volume data for 8 leading issuers, and found cumulative y/y growth of 9% in 3Q16.

  • American Express’s sale of the Costco card portfolio to Citi led to a 15% decline in its card volume, while Citi’s volume rose by 57%.
  • Issuers are launching new rewards cards and enhancing existing rewards programs to drive additional volume.  Discover reported that its rewards costs rose 13% y/y to $368 million in 3Q16, and its rewards rate rose by 13 basis points to 1.20%.  However, Discover has been struggling to grow volumes in recent quarter, with y/y growth of just 2% in 3Q16, down from 4% in 1Q16 and 3% in 2Q16.


Ramp up of card account production.  Related to—and encouraged by—the growth in outstandings, issuers are ramping up new card acquisition.

  • Bank of America issued 1.32 million new U.S. consumer credit cards in 3Q16, the strongest quarterly performance since 2008.
  • Chase benefited from the launch new cards (Sapphire Reserve and Freedom Preferred) to grow new card production 35% y/y to 2.7 million.  Chase reported at the BancAnalysts Association of Boston Conference this week that it opened more than 1 million new Freedom Unlimited accounts in the five months following its launch.
  • Issuers are investing more in marketing in order to drive growth.  American Express grew its marketing and promotion spend 10% y/y for the first 9 months of the year, to $2.4 billion.

Charge-off rates remain very low. For many issuers, net charge-off rates continue to operate at or near historic lows, with seven issuers reporting rates below 3%.

  • There is some evidence of upward movement in charge-off rates as issuers chase growth.  8 of the 12 issuers in the chart below reported y/y rises.  And most issuers are reporting y/y rises in 30+ day delinquency rate (which have traditionally been an indicator of future charge-offs).
  • However, issuers expect that rates will not rise significantly in the coming quarters.  For example, Chase reported a charge-off rate of 2.51% in 3Q16, and projects that this rate will rise to about 2.75% in 2017.
  • Capital One did report a 66 bps y/y rise in its charge-off rate; this is related to the fact that it is continuing to target low-FICO segments; the <660 FICO score segment accounted for 36% of Capital One’s outstandings at the end of 3Q16, up from 34% at the end of 3Q15.


Positive 4Q15 Performance for Leading Credit Card Issuers

In recent weeks, the leading U.S. credit card issuers reported relatively robust 4Q15 financials.  The following are some key trends that EMI identified in these results:

Most leading issuers increased net income in the recent quarter, as increases in revenues (both net interest income and noninterest income) more than offset rises in both noninterest expenses and provisions for loan losses.

Growth in average outstandings was led by regional bank card issuers, as well as Capital One and Wells Fargo.

  • SunTrust led all leading issuers with an increase of 20% to pass the $1 billion threshold, and it recently launched a new consumer card suite in order to continue this momentum.
  • Wells Fargo’s 11% growth represented a decline from a 14% y/y rise in 3Q15.  Although it continued to grow its credit penetration rate (to 43.4% of retail bank households) the rate of increase has slowed over the past year.
  • The largest issuers (Chase, Bank of America, Citi) continue to report anemic loan growth or declines as they continue to deal with legacy issues.
  • American Express had the largest decline (-4% y/y), but this was due to the loss of the Costco portfolio.


In spite of their lack of outstandings growth, the leading issuers reported strong new account generation.

  • Citi is ramping up new account acquisition for its core products (which account for 80% of its U.S.-branded card portfolio), with active accounts growing 13% y/y.
  • Like Citi, American Express has ramped up new card acquisition, and its 2.1 million new accounts in the fourth quarter were well above its historic average.
  • Bank of America grew new accounts 6% y/y to 1.26 billion in 4Q15.

Issuers are focusing on new channels to drive new account acquisition, in order to reduce acquisition costs, as well as reflect changing consumer behavior.

  • 72% of new Chase card accounts in the fourth quarter came through the online channel.
  • Synchrony reported a 73% y/y rise in applications through the mobile channel.

Although adversely impacted by sharply lower fuel prices, issuers continued to report steady growth in volume in 4Q15.  It was notable that, for most issuers, the growth rate was virtually unchanged between 3Q15 and 4Q15.  One of the factors driving continued volume growth is the rise in active accountsCiti reported a 13% rise in active accounts for its core products, Synchrony grew active accounts 5%


Charge-off rates remain at historic lows, with continued y/y declines.  However, most issuers reported rises in the charge-off rate from 3Q15.  30+ day delinquency rates also remain very low with little sign of upward movement.  Therefore, we expect charge-off rates to remain at or near these very low levels in the coming quarters.  Chase expects its charge-off rate to be around 2.5% in 2016, close to its current level of 2.42%.  However, it is notable that all of the leading issuers increased their provision for loan losses, led by Capital One (+24% y/y) and American Express (+10%).


In the coming year, we expect that issuers will be looking to new card launches to fill gaps in their product portfolios and drive growth in underpenetrated and/or high-growth segments.  The following recent card launches are indicative of this trend:

  • Wells Fargo Propel American Express Card
  • Barclaycard CashForward World MasterCard
  • TD Bank Cash Visa Signature Card
  • Discover it Secured Card
  • American Express SimplyCash Plus Business
  • U.S. Bank Business Edge Cash Rewards World Elite MasterCard

In addition, the top issuers will try to translate the recent rise in new account generation into steady loan growth.  Issuers in general will be looking to drive both volume and loan growth through initiatives targeting various stages of the cardholder life cycle: acquisition and activation, retention and ongoing usage.  At the same time, they will continue to hope that charge-off and delinquency rates remain close to historic lows.