Credit Card Issuers: Adjusting to the “New Normal”

The impact that the COVID-19 pandemic has had on our society and economy is huge, and the effects are likely to persist for some time to come. This blog looks at some of the most important changes affecting the credit card sector, how issuers have responded to these challenges in the short term, and what they need to do as the economy starts to reopen and they look to get the sector back on an even keel.


The trend. The pandemic has led to significant changes in consumption patterns. Overall spending fell as the lockdowns took effect. Spending in categories like travel and entertainment registered huge declines, which were partially offset by increases in everyday spending categories like grocery. There were also changes in purchase methods. As a result of stay-at-home limitations, digital commerce growth rose strongly. And at the point of sale, consumers moved decisively away from cash and embraced contactless payments. According to Mastercard research from the end of April, 51% of Americans are now using some form of contactless payment. The switch to contactless is likely to persist: according to the 2020 American Express Digital Payments Survey, 58% of consumers who have used contactless say they are more likely to use contactless payments now than before the coronavirus outbreak.

The response. Issuers initially responded to the change in spending patterns by:

  • Changing bonus earning categories to encourage consumers with travel-centric cards to use these cards for everyday spending. Chase introduced higher earn rates for grocery spending on its Sapphire Cards and most of its travel-oriented co-branded cards.
  • Extending the eligible period to meet a spending threshold and qualify for activation bonuses on new cards. American Express and Citi extended this period by three months.

Next steps.

  • Issuers need to ensure that contactless payment functionality is available on all of their credit cards.
  • Card networks and issuers should increase the spending limit for contactless payments. Note that this has already taken place in most European countries in response to the pandemic.
  • Issuers should switch from chip-and-signature to chip-and-PIN. A recent Mastercard survey found that 72% of consumers would prefer to avoid signatures.


The trend. The economy retrenched in recent months, and cardholder borrowing has fallen, due to both decreased spending and a desire to reduce debt. This was evident in issuers’ credit card outstandings for the first quarter. EMI analysis of 22 leading issuers found a 4.4% y/y rise in average credit card outstandings in 1Q20. However, the y/y rise in end-of-period outstandings was just 1.7%, indicating a pull back in balances towards the end of the quarter.

In terms of key credit quality metrics, there was no dramatic upsurge in delinquency or charge-off rates, but these metrics take time to register and many consumers have taken advantage of payment relief programs. According to TransUnion, 3.2% of card accounts were in financial hardship programs in April, up from less than 0.01% in March.

The response. At the onset of the pandemic in mid-March, most issuers were quick to introduce payment relief programs (mainly deferrals on minimum payments and waivers on late fees) and they also engaged in the following activities:

  • Dramatically raised their provisions for loan losses in their 1Q20 financials.
  • Scaled back credit card solicitations. Bank of America reported that card loan origination fell 55% between February and the first two weeks of April.
  • Tightened underwriting. In its 1Q20 financials, Discover reported that it significantly tightened underwriting and pulled back on credit line increases and balance transfer offers.
  • Cut credit limits. According to an April 2020 CompareCards survey, 25% of credit cardholders said that their credit limits were cut involuntarily, or that their cards were closed in the previous 30 days.

Next steps.

  • In the near term, issuers will likely need to continue existing actions, such as extending relief programs. However, as the economy returns to some degree of normality, issuers will scale back or end relief programs, inevitably leading to increased delinquencies and charge-offs.
  • Issuers should redeploy staff to engage directly with cardholders on their repayment plans.
  • Issuers should develop information/advice for consumers on how to improve their debt management and make the materials easily available by publishing on various media.

Channel Usage

The trend. Because the pandemic has forced banks to close many branches, there has been a significant rise in digital channel usage for financial needs. More consumers are trying digital channels for the first time, and existing users are depending on digital channels for a broader array of financial activities. This migration to digital channels is likely to persist.

The response. Issuers actively directed cardholders to digital channels for their customer service needs.

Next steps. To consolidate the recent gains made in digital channel usage by credit cardholders, issuers should:

  • Accelerate the promotion of digital channel benefits on websites, in social media and in monthly statements.
  • Ensure that digital channels are providing a positive user experience.
  • Expand digital channel functionality.
  • Promote human channels for cardholders who need to engage directly with the issuer.

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.