Tag Archives: wells fargo

Credit Metrics for U.S. Card Issuers Continue to Improve

A study of recently-published financials for the leading U.S. credit card issuers reveals that their charge-off rates continue to decline, and that this trend looks set to continue in the coming quarters.

The following table summarizes 1Q12 managed credit card charge-off rates for 11 of the leading U.S. card issuers.  Ten of the eleven issuers reported year-on-year charge-off rate declines of more than 200 bps. The exception was American Express, which had the lowest rate.  The largest decline came from SunTrust, whose rate fell from 8.68% in 1Q11 to 4.83% in 1Q12. Seven of the eleven reported quarterly declines in their charge-off rates.

Of course, many industry observers are questioning when and at what level charge-off rate declines will bottom out.  Trends in 30+ day delinquency rates typically are a predictor of trends in charge-offs, and it is notable that of the seven issuers who published 30+ day delinquency rate data in the most recent quarter, all reported both year-on-year and quarterly declines.

Therefore, we should expect charge-off rates to continue to decline in the coming quarters. However, some issuers are now at or below historic averages (for example, Discover claimed that its charge-off and delinquency rates are at 25-year lows), so will have less scope for further declines.  In addition, these low charge-off rates may encourage some issuers to loosen underwriting criteria in order to grow loans, which can generate some upward pressure on charge-off rates.  Card portfolio acquisitions and disposals can also have an impact on charge-off rates; Capital One reported in its quarterly financials that it expects the acquisition of the HSBC card portfolio to raise charge-off rates by 75 bps.

Mobile banking reaches critical mass for big banks

The 4Q11 financials from both JPMorgan Chase and Wells Fargo underline the extent to which mobile banking has emerged as a key banking channel, while also indicating that online penetration may have reached a ceiling.

  • Chase:
    • Between 4Q10 and 4Q11, Chase grew its active mobile banking customers by 57%, while during the same period active online banking customers increased by 3%
    • Active online banking customers as a percentage of total Chase checking customers rose from 62% in 4Q10 to 65% in 1Q11, but has remained at 65% for the three subsequent quarters.  Active mobile customers as a percentage of checking customers rose from 20% in 4Q10 to 32% in 4Q11
    • Active mobile customers as a percentage of active online customers rose from 32% in 4Q10 to 48% in 4Q11
    • The rate of growth in active mobile customers does not yet show signs of abating.  The quarterly growth rate fell from 13% in 1Q11 to 9% in 2Q11, but then increased to 10% in 3Q11 and again to 16% in the most recent quarter

  • Wells Fargo:
    • Active mobile customers increased 55% between 4Q10 and 4Q11.  During this period, active online customers rose 8%
    • Active mobile customers as a percentage of active online customers rose from 26% in 4Q10 to 37% in 4Q11

Role of social media in growing bank revenues

At last month’s Financial Services Marketing Symposium, a question posted by Tim Spence of Oliver Wyman to kick off the conference reflected an issue on attendees’ minds: where does the financial services industry find revenue growth?  This is top of mind in the industry, as the lower loan-loss provisions, which boosted bank profitability in 2011, are expected to tail off in 2012, so financial institutions are now looking to the revenue side of the ledger to maintain and grow profits.

According to the top 25 banks’ recent forecasts, all 25 plan to increase revenue by growing their market share – which means that some of these institutions will fail do to so.

In an environment characterized by increased competitive intensity, technological advances and renewed focus on customer relationship optimization, banks are investing in a range of new service and sales channels, with social media prominent among these emerging channels. A survey of the FSM conference audience revealed that 67% of attendees’ banks have a presence on Twitter, Facebook and LinkedIn. A recent report by FIS Global shows that many top banks have a social media presence on these three main social media platforms:

What was notable about the social media discourse at the conference is that none of the speakers explained how participation in social media channels improves revenue for their organization:

  •  Paul Kadin of Citibank focused on the fact that Citibank’s social media presence has helped to improve its Net Promoter Scores
  • Julie Berkun Fajgenbaum of American Express OPEN discussed the organization’s social media goal: active participation by message recipients
  • Tim Collins of Wells Fargo emphasized that social media is not the right channel for pushing products; rather, it is a forum for authentic, relevant messages to customers

Given the current environment, what is it about social media that allows financial institutions to justify spending resources on developing a presence in this channel? Many speakers emphasized the value of using social media in a genuine way to add value to customers’ lives; some pointed out the opportunity to make customer service more effective through social media. Perhaps the biggest opportunity of all is to differentiate a company from the pack, since no one has really figured out the “secret sauce” to financial services social media strategy – differentiation that will be crucial in the fight for market share during 2012.

For now, financial institutions see social media as an increasingly important customer service channel, and are now focusing attention on addining new social media functionality, as well as integrating social media with other channels in order to optimize relationships.  Over time, as customers become more comfortable with using social media to interact with their financial institutions, opportunities to leverage social media for new customer acquisition, as well as customer cross-sell and upsell, should begin to emerge.