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Posts by Jim Stewart:

Consumers Still Have Low Yield Savings!

Jim Stewart

Three Things We’re Hearing

  • Money markets expand as saving balances shrink
  • Consumers still have low yield savings
  • Card balance transfer volume grows

A three-minute read

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Money Markets Expand as Savings Balances Shrink

  • As savings account deposits have fallen $870 billion (21.8%) since their Q1 2022 peak…
  • Money market assets have expanded by $800 billion (16%)
  • However, there are still over $3 trillion in “traditional” bank savings accounts earning an average of .46%, that might be lured by the 5.00%+ returns on money market and high yield savings accounts
  • Marketing spend for savings accounts has spiked since mid-2022 with the bulk of spending on direct mail followed by national television
  • Chase and American Express have been the dominant marketers
  • Marketing has focused on “hybrid” checking and savings offers as well as high yield savings, CDs, and money market accounts – some with generous incentives

Many Consumers Still Have Low Yield Savings Accounts

  • Despite the availability of 5%+ yields on savings and money market accounts, a large percentage of consumers still have low yield savings accounts
  • Epic surveyed consumers regarding their attitudes towards savings accounts

Card Balance Transfer Volume Grows

  • Other than deposit-related marketing volumes mentioned above, marketing for other products has remained fairly stable this year at levels 15% - 60% lower than 2022
  • As card APRs have risen, it is no surprise that balance transfer volume has more than doubled
  • Online search volume for “credit card balance transfer” is up 100% since Q4 2021
  • Recent news reports signal the end of the Goldman Sachs consumer finance venture:
  • In early November, Goldman informed employees that it was beginning a process to find a new issuer for the GM Card. It will be interesting to see how much interest there is for the stagnant, decades-old program
  • Additionally, a Wall Street Journal headline has Apple “pulling the plug” on its Apple Credit Card and savings account relationship with Goldman Sachs
  • Given the reported Apple-friendly revenue sharing terms plus the large size of the portfolio, there may be very few potential bidders to take over the program
  • These developments follow the October sale of the GreenSky home improvement finance company and the earlier sale and cessation of new originations of personal loans
  • Monday morning quarterbacking this one seems like piling on, so we’ll leave that up to you!
  • In case you thought you were missing something about the basic Neobank model, this article by a Neobank founder confirms all doubts you might have had about the basic economics of the product

“During my time at Daylight, I got close with many other neobank founders and realized that everyone is facing the same problem: Customer acquisition is too expensive and the unit economics suck” (emphasis ours)

  • Budgeting app Mint will shut down on January 1, 2024, as owner Intuit transitions the Mint customer account data to the Credit Karma platform, which does not currently have similar budgeting functionality
  • Mint’s free model depended on advertising and sponsorships, which did not generate enough revenue to make Mint viable
  • Personal Finance Management software in general has had difficulty attracting large numbers of users
  • Discover will stop accepting student loan applications on February 1, 2024 and is exploring the sale of its student loan business
  • Discover is the number two provider of student loans
  • If completed, it would benefit number one Sallie Mae as well as Citizens, College Ave, and other providers

Thank you for reading.

Jim Stewart
www.epicresearch.net

The Epic Report is published monthly, with the next issue on January 13th.

Please email me with your comments and suggestions on future topics or to have someone added to our distribution list.

Epic Research is a marketing company that helps our financial services clients acquire new customers via organic growth. Click here to find out how we can help you.

To read our previous newsletters, click here. 

It’s Top Card Issuer Season!!!

Jim Stewart

Three Things We’re Hearing

  • HELOC opportunity???
  • It’s top card issuer season!!!
  • Marketing trends

A four-minute read

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HELOC Opportunity???

  • Mortgage interest rates have more than doubled since January 2022
  • And the average sales price for homes is up 37% since 2020
  • Factors that have combined to more than double average monthly mortgage payments
  • Consequently, first mortgage originations have dropped 45% in 2022 and 47% YTD 2023
  • However, as first mortgage originations have slowed, interest in Home Equity Lines of Credit has soared as consumers tap the increased equity in their homes generated by rising home values
  • HELOC originations were up 42% in 2022, and while year-over-year growth has slowed in 2023, new HELOC originations are still well above the pace of 2020 and 2021
  • HELOC advertising spend is down 28% YTD from 2022, and, considering the spike in consumer interest, there may be an opportunity for home equity lenders to lean in

It’s Top Card Issuer Season!!!

  • If you are like us, you eagerly anticipate the Nilson Report’s “Top Credit Card Issuer” list that is published at both mid-year and year-end
  • We have segmented the mid-2023 list of Visa and Mastercard issuers into four categories:
  • National
  • Specialty
  • Regional
  • Near- and Sub-Prime
  • Amongst the top National issuers, there has been little change in the rankings since 2015, with only Bank of America and Citi switching places in the top 5
  • 12-month growth was consistently in the mid-teens, other than US Bank
  • “Specialty” issuers – generally those without large branch networks – showed more varied growth rates
  • Goldman Sachs (GM portfolio acquisition) and Synchrony grew fastest, while Bread and USAA were below market growth
  • Regional banks were the slowest growing segment
  • BMO benefitted from the Bank of the West acquisition, and only TD Bank, Citizens, M&T, and Huntington matched the growth rate of National issuers
  • The Near and Sub-Prime segment showed the highest growth, with Mercury, Mission Lane, and Ally (FairSquare portfolio acquisition) leading the pack
  • As issuers grow larger, growth becomes more challenging and the largest have mammoth growth engines. For example:
  • Chase’s net growth in this period was 15.6%, or $28.5 billion – the equivalent of roughly the size of number seven issuer Barclays
  • Allowing for an estimated “natural” attrition rate of ~15%, that adds another $25 billion of growth needed for Chase – just to keep outstandings flat
  • When added to the $28.5 billion in net growth, Chase added $53 billion of total new outstandings in 12 months!
  • Direct mail has consistently accounted for 60%+ of new credit card accounts, and National Issuers Chase, Citi, Capital One, and Wells Fargo mail at similar levels relative to their size, with Bank of America and US Bank mailing less
  • Near- and Sub-Prime issuers – smaller and less dependent on co-brand partners – have over twice the mail intensity of the National issuers
  • Brand strength and national advertising also result in strong organic search volumes for the national issuers, with Chase and Capital One well above the others
  • Capital One is dominant in online activity
  • However, mail volume and organic search do not tell the entire story, as portfolio acquisitions, partner channel volumes, and aggregator generated accounts – metrics that do not appear in most industry tracking services – can add substantially to growth

Marketing Trends

  • Consistent with earlier in 2023, YTD mail volume is down across all products, again except for Checking which is up 24% vs. 2022
  • Spending in social, display, TV, and online is similarly down across all products, apart from Student Lending, which is up 30% vs. 2022
  • The Private Student Loan “peak season” lasts about 90 days over the summer and this year wrapped up with mail volume down 18% from 2022
  • The drop is driven primarily by dominant mailer Discover, who has reduced student loan mail volume for each of the past three years
  • The top six card mailers have consistently accounted for two-thirds of monthly mail volume over the past two years
  • The card is targeted at the credit builder segment and includes Experian’s “Boost” service
  • We’ve always envied the credit bureaus’ business model
  • Banks pay the bureaus to collect banks’ data
  • Banks pay the bureaus to use their (own) data
  • Now Experian is using their customers’ data to compete against them!
  • Speaking of credit cards, the recent hysteria surrounding credit card balances exceeding $1 trillion failed to mention that credit card debt as a percentage of overall household debt is lower that it was in 2015
  • Except for student loans (near zero delinquency due to the pandemic-era payment pause), all types of consumer loans show delinquency rising to “normal” pre-Covid levels

Thank you for reading.

Jim Stewart
www.epicresearch.net

The Epic Report is published monthly, with the next issue on December 9th.

Please email me with your comments and suggestions on future topics or to have someone added to our distribution list.

Epic Research is a marketing company that helps our financial services clients acquire new customers via organic growth. Click here to find out how we can help you.

To read our previous newsletters, click here. 

What in the BNP-L?

Jim Stewart

Three Things We’re Hearing

  • Student loan payment consumer spending impact
  • What in the BNP-L???
  • Education refinance payment...

Apple Card Holders Love the Card!!!

Jim Stewart

Three Things We’re Hearing

  • Apple Card holders love the card!!!
  • What happened at Goldman Sachs???
  • Online savings rates plateau

A four-minute read

If the Epic Report was forwarded to you, click here if you’d like to be added to our mailing list

Apple Card Holders Love the Card!

  • The Apple Card was launched in the fall of 2019 and by March of 2020 a report cited over 3 million US card holders, a number that then doubled by early 2021
  • Epic surveyed 172 Apple Card holders in July regarding their opinions of various Apple Card features

What Happened at Goldman Sachs???

  • Goldman Sachs entered the consumer banking business in 2016 with a goal of diversifying Goldman's earnings
  • The “go big or go home” approach they adopted led to rapid growth in both the Apple Card and consumer loan business
  • However, problems later surfaced with Goldman announcing in the Fall of 2022 a restructuring of the business and a cumulative loss of over $3 billion about which CEO David Solomon commented "We tried to do too much too quickly"
  • Recent reports focus on Goldman’s decision to exit the consumer business
  • As reflected in our survey, the Apple Card is wildly popular amongst its holders, was earlier lauded by Goldman CEO David Solomon as “the most successful credit card launch ever,” and is, by all accounts, an enormous success for Apple
  • However, things have changed in the four years since the card launch as more recent news articles suggest Goldman is looking to offload the program
  • The Wall Street Journal pointed to American Express as a possible successor Apple Card issuer
  • More recently, The Information described possible contractual issues with the Apple Card Mastercard deal that runs until 2026, which might lead to a partnership with a Mastercard issuing bank
  • In any case, the rather large size of the Apple Card portfolio would limit the number of potential purchasers
  • Goldman does not disclose details of product performance, however publicly available data might provide evidence of what went wrong
  • JPMorgan published in September that “Goldman’s loss rate on credit card loans is the worst among big U.S. card issuers and ‘well above subprime lenders’ at 2.93%” with Goldman reporting that 28% of Apple Card customers had FICO scores of less than 660 – roughly double the concentration of issuers such as Citi and JPMorgan
  • A look at the Apple Card’s features reflects some other challenges to profitability – in contrast to the higher credit risk profile of its customer base, Goldman has priced the Apple Card below market
  • The current APRs for the Apple Card range from 15.99% to 26.99% which are 400 – 500 basis points lower than other major issuers (although somewhat offset by the lack of balance transfer introductory rates)
  • The Apple Card also features zero late, overlimit, and foreign exchange fees, which are typically leveraged by issuers to bolster revenue – these fees can typically add over 1% to a card portfolio’s yield
  • Pro-forma P&Ls for a cobrand credit card contains many behavior metrics that are unknown – such as purchase volume, revolving behavior, and credit loss rate – and without prior experience with similar programs, these factors can often be overly optimistic when trying to win a deal

Online Savings Rates Plateau

  • Overall mail trends remained consistent with recent prior months, with checking and savings the lone gainers compared to 2022
  • 2023 credit card mail volume is down 18% from the same period in 2022, and card ad spending on digital and television is down 7%
  • At the same time, consumer demand, as reflected in 2023 digital search volume for “balance transfer credit cards,” has risen steadily, which might present an opportunity for card marketers
  • After rising 8X since early 2022, online savings interest rates have plateaued
  • Deposit rates paid by large banks have risen as well, however there is a significant difference at the largest depositories, with Citi paying the highest
  • Savings and checking direct mail is 26% higher YTD, however spending on digital and television channels is down 14% and key word cost for “checking and savings” has dropped since last December
  • BNPL usage surged 20% over last year on Amazon Prime Day, accounting for 6.5% of all orders
  • Along with low unemployment, excess savings helped support consumer asset quality since the beginning of the pandemic – it will be interesting to gauge the effect when the surplus is gone
  • Despite skepticism by some of the fintech lending model, several public consumer lending stocks have fared very well in 2023

Thank you for reading.

Jim Stewart
www.epicresearch.net

The Epic Report is published monthly, with the next issue on September 9th.

Please email me with your comments and suggestions on future topics or to have someone added to our distribution list.

Add jim@epicresearch.net to your contacts to avoid junk filter issues.

Epic Research is a marketing company that helps our financial services clients acquire new customers via organic growth. Click here to find out how we can help you.

To read our previous newsletters, click here.

Consumers Still Trust Banks!

Jim Stewart

Three Things We’re Hearing

  • Consumers have trust in the US banking system
  • Chase checking acquisition sizzles!
  • Performance-based marketing fuels growth

A four-minute read

If the Epic Report was forwarded to you, click here if you’d like to be added to our mailing list

Consumers Have Trust in the US Banking System

  • Epic surveyed 1,024 consumers regarding their attitudes and behaviors about banks following the recent turbulence at SVB and other financial institutions
  • The findings reflect a continued high degree of trust in the US banking system

Chase Checking Acquisition Sizzles

  • Checking mail volume continued at a break-neck pace, with March at an all-time high
  • In past months we noted Chase’s dominance in checking mail volume, and March set a new record
  • Comperemedia estimates Chase spent $27.4 million in March on DDA mail
  • The core offering features a $100-$300 incentive with a small amount at $400
  • Private Client mail volume was 22.7 million, offering a $3,000 incentive for a deposit of $500,000
  • Other than checking and savings, mail volumes are at a slower pace than last year
  • As frequently noted, direct mail has traditionally been the primary driver of financial services marketing activity – accounting for the majority of marketing spend across all products
  • Despite the bulk of card spending coming in direct mail, several card products – e.g., Chase Freedom Unlimited, Capital One Venture X, and Bank of America Custom Cash Rewards – continue to rely primarily on television for the majority of their advertising
  • Sports programming dominated financial services TV advertising spending
  • Rising savings rates have helped fuel a spike in online search volume for “savings account”

Performance-Based Marketing Fuels Growth

  • Earnings pressure is causing many banks and fintechs to cut marketing budgets, and some use performance-based marketing to defer marketing expense and fuel growth across direct mail and digital channels despite budget challenges
  • Performance-based marketing involves a third-party marketing on behalf of the bank, with payments from the bank to the marketer only for “successful efforts,” which allows marketing expense to be deferred
  • The program structure can vary, but frequently looks like this:
  • Marketing expense recognition varies by product, and results in continued marketing and value creation
  • The benefit of performance-based marketing often results in no impact to cumulative profit while smoothing marketing expense and (most importantly) avoiding the pain of the J curve
  • Epic can help design and implement performance marketing services, learn more.
  • Walmart, who also sued their previous partner Synchrony, cited customer service failures that breach the partnership agreement as grounds for termination
  • Some large cobrand partners have insisted on profit-sharing agreements in recent contracts, and some in the industry speculate that Walmart was unprepared for the increase in credit losses and may want its fintech start-up “One” to be involved in card issuance
  • The account pays 4.15% interest and is only available to Apple Card holders
  • Goldman Sachs also recently announced it is exploring the sale of its Greensky fintech business and has sold some of its personal loan portfolio
  • PayPal recently announced several improvements to its small business offerings, including the integration of Apple Pay as a payment option
  • PayPal and Venmo have also been added as payment options for Visa+, Visa’s new service that lets users transfer money to people who do not use the same peer-to-peer payment service
  • Rocket introduced the Rocket Card, which offers rewards towards paying your mortgage and buying a home
  • The card offers up to 5% cash back towards closing costs when buying a new home, or up to 2% cash back towards existing Rocket mortgage payments
  • There is a $95 annual fee, which is waived for Rocket mortgage customers
  • A survey conducted by the Consumer Bankers Association showed that 57% of Americans think that credit card late fees are legitimate

The Epic Report is published monthly, with the next issue publishing on June 3rd.

Thank you for reading.

Jim Stewart
www.epicresearch.net

Email me with your comments and suggestions on future topics or to have someone added to our distribution list.

Epic Research is a marketing company that helps our financial services clients acquire new customers via organic growth. Click here to find out how we can help you.

To read our previous newsletters, click here. 

Savings Interest Rates Climb

Jim Stewart

Three Things We’re Hearing

  • Online savings rates climb
  • Little change among top credit card issuers
  • February mail volume dips for cards, loans, and ed refi

A four-minute read

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Online Savings Rates Climb

  • Consumer demand for CDs, Savings, and Money Market accounts has spiked following the 2022 rise in rates
  • Financial institutions, experiencing outflows of low-interest-bearing deposits, have correspondingly increased mail volume for CDs, savings, and money market accounts
  • Email marketing offers for these products have become increasingly competitive
  • And there has been a corresponding increase in cost per click for relevant keywords
  • Consumers are benefitting from rising savings interest rates
  • Savings-related keywords continue to be dominated by Bankrate and NerdWallet, with recent growth from CNBC, Forbes, and Capital One
  • Paid and organic search have driven increased traffic since rates began rising in early ’22
  • Consumers’ lower savings rate combined with recent bank headlines should cause the continuation of increased marketing activity for interest-bearing deposits

Little Change Among Top Card Issuers

  • Following a pandemic-era drop, credit card loans outstanding rebounded in 2022, growing 17.3% to a record of over $900 billion as consumers spent more and saved less, with savings now falling below pre-pandemic levels.
  • New card originations reached record levels in 2022
  • JPMorgan Chase ended 2022 at the top of the card issuer charts – a spot it has held for decades – with Citi, Capital One, and Bank of America once again rounding out the $100+ billion tier
  • Several issuers below the top tier have shown the highest growth rate in the past five years
  • Over the past five years, the largest issuers have also been the leading mailers
  • Portfolio acquisitions have also played a major role in growth since 2016
  • Citizens and M&T led ’22 growth in the regional bank sector

February Mail Volume Dips for Cards, Loans, and Ed Refi

  • February saw a significant drop in mail volumes, with several products reaching the lowest quantities in years
  • Mail volume from middle market card issuers – such as Best Egg, Mission Lane, and Mercury – which peaked at 17% of all card volume last summer, has dropped sharply since then and accounted for only 6% of card mailings in February ’23
  • Education refinance lending hit the lowest level in over seven years as both the repayment moratorium and potential debt forgiveness have impacted marketing activity
  • Apple this week introduced Apple Pay Later, its version of BNPL
  • Apple Pay Later allows users to split purchases into four payments, spread over six weeks with no interest and no fees
  • Users can apply for Apple Pay Later loans of $50 to $1,000, which can be used for online and in-app purchases made on iPhone and iPad with merchants that accept Apple Pay
  • As detailed in the February Epic Report, consumer behavior with credit cards indicates less interest rate sensitivity than some other lending products, as shown by the steep rise in card balances concurrent with increasing interest rates
  • Debthunch is mailing a 0% loan which appears to be a debt consolidation offer
  • JPMorgan will pilot biometric payments in a program that includes palm and face identification for payments authentication in-store

The Epic Report is published monthly, with the next issue publishing on May 6th.

Thank you for reading.

Jim Stewart
www.epicresearch.net

Email me with your comments and suggestions on future topics or to have someone added to our distribution list.

Add jim@epicresearch.net to your contacts to avoid junk filter issues.

Epic Research is a marketing company that helps our financial services clients acquire new customers via organic growth. Click here to find out how we can help you.

To read our previous newsletters, click here.