ALC - Epic

test

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

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

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

If the Epic Report was forwarded to you, click here to add your name to the mailing list

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. 

Credit Cards Not Interest Rate Sensitive???

Jim Stewart

Three Things We’re Hearing

  • What’s important in travel rewards cards?
  • Credit cards not interest rate sensitive???
  • 2022 marketing year in review

A four-minute read

If the Epic Report was forwarded to you, click here to add your name to the mailing list

What’s Important in Travel Rewards Cards?

  • Epic surveyed 1,254 consumers regarding their Travel Rewards Card preferences
  • Among the most interesting findings are those asking about the relative value of airline miles vs. gift cards

Credit Cards Not Interest Rate Sensitive?

  • As the Fed steadily increased interest rates since Spring, rates on credit cards have risen as well, with an average increase of 270 basis points over the last six months
  • Despite these increases, credit card mail volume only decreased 8% in the second half of ’22, while personal loan mail volume was down 21%
  • Interest rate sensitivity varies by loan type
  • Credit cards have utility other than just as a lending vehicle – payment convenience, cash flow management, and rewards – and demand is less influenced by changes in interest rates
  • Personal loan and HELOC demand is affected much more
  • The personal loan value proposition focuses heavily on paying off credit card debt with over half of those responding to this survey choosing debt consolidation or credit card refinance
  • Of key importance in personal loan solicitations is the “headline” rate, due to the recent rise in rates, leading mailers are now advertising 6.99%-7.99% in December
  • Despite the recent increases in rates, the math for debt consolidation remains very favorable for personal loans, with the benefit of paying off credit cards with a personal loan actually improving since April
  • Some of the retreat from personal loan mailing is due to credit tightening, however those issuers most experienced in underwriting through various phases of the credit cycle, such as Best Egg and Mercury, will benefit from the others’ retreat

2022 Marketing Year in Review

  • 2022 in Review
  • Mail volume was higher for most products in 2022 versus 2021 and well above that of 2020
  • Education refinance, impacted by the ongoing payment pause, and private student loans were the only products mailing less in ’22 than both ’20 and ’21
  • Credit Card mail volume once again led all consumer finance categories in 2022 growing 9% over 2021 to 4.3 billion mail pieces
  • Capital One was the top card mailer for the year, followed by Citi, Chase, and Discover
  • Cash back, which consistently ranks as the most popular rewards option in our surveys, has accounted for around half of all rewards card offers
  • The 2022 growth champion was checking, which increased 55% year-over-year to just over 1 billion pieces
  • HELOC had a moment in the sun with 40% annual growth, however recent months have seen a drop from the levels of early 2022
  • As it was in 2021, Figure remained the largest mailer, followed by the largest retail bank mailer Citizens
  • Banks’ regular savings account interest rates have not kept up with the rise in money market funds and other savings vehicles
  • Despite treasury bills, CDs, and other savings vehicles paying rates between 4% and 5%, the typical bank savings account still pays just 0.33% according to the FDIC
  • Affluent customers are moving their funds to the higher yielding vehicles at a much higher pace than average bank customers
  • Bank of America reported that their wealth management customers balances decreased 17% in 2022 while regular savings balances were down only 0.6%
  • JPMorgan, Bank of America, Wells Fargo and several other large institutions announced the launch of a digital wallet later in 2023
  • The wallet will initially accept Visa and Mastercard products and be operated by Early Warning Services, which is owned by many of the banks involved in the wallet and which also operates Zelle
  • The move is seen to be a counter to Apple Pay, Google Pay and other forms of digital payment
  • The proposal cuts the first and second late fees from $30/$41 to $8 and would ban late fees that are higher than 25% of the required payment
  • Late fees currently account for $12 billion a year in credit card revenue and the CFPB projects the new rules could reduce this total to $3 billion
  • Some question why the federal government has decided to dictate pricing in such an ultra-competitive industry
  • Wells Fargo announced a retreat from first mortgage originations, opting to concentrate on loans to bank clients and minority buyers
  • Wells is the third largest mortgage lender in the US and will also shrink its existing mortgage servicing portfolio via asset sales
  • The move comes amid an overall decline in mortgage loan originations, with Wells reporting a 32% drop in originations and JPMorgan’s falling 45%
  • While we found the results of our Travel Rewards Card survey of interest, it is important to remember that survey results are not necessarily indicative of consumer behavior
  • If you have ever attended a focus group, you undoubtedly know first-hand that what consumers say may be very different than what they do
  • We’re reminded of the group of cardmembers we selected because we knew they had consistently revolved a balance
  • When asked by the moderator who had ever paid less than the total amount due, only one of the 12 participants, who all qualified as “yes,” (reluctantly) raised their hand
  • Another group evaluating the relative desirability of various card features voted a card with “no fees” as their choice – the resulting “no fees” product was rolled out and failed miserably due to the accompanying 3.9% intro rate that was dictated by product economics
  • Financial services direct marketing is fortunate that in-market testing can quickly reveal winners and losers based upon consumers’ actual behavior (i.e., responding to the offer)
  • So, when consumers say they prefer a $250 gift card over 50,000 airline miles (miles that likely cost the issuer ~$500), issuers would be wise to test it in the market first!

The Epic Report is published monthly, with the next issue releasing on March 4th.

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.