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Issuers and Cardholders Shift Focus to Digital During COVID-19

(London, UK) Issuers are building out digital offerings as COVID-19 continues to curtail opportunity for in-person servicing. Auriemma Group’s latest issue of Cardbeat UK found that 42% of those who interacted with a bank branch since November 2019 haven’t used the channel again since the pandemic began. While cardholders are leaning more heavily on digital solutions, many still expect a diversity of options. Are issuers meeting their cardholders’ needs, and what would improve the customer service experience today?

Auriemma’s research found that sustained channel usage through the pandemic is most prominent for digital options. Just under nine-in-ten cardholders who used mobile apps (87%) or online portals (86%) to interact with their issuers prior to COVID-19 say they continued to use that channel since the outbreak began, while phone (74%) and bank branches (58%) saw lesser continued use.

While many issuers have numerous communication options available to their cardholders, this shift in channel usage has propelled them to reassess operational needs. Auriemma’s roundtables discussed how digital servicing has become a top priority since the pandemic began, noting that the cost of delivery, training, and staffing considerations inform which measures are taken.

“Overall, issuers are doing what they can to reorient their strategies to meet the changing needs of their cardholders, and they’ve been largely successful” says Jaclyn Holmes, Director at Auriemma Group. “Three-quarters of cardholders who interacted with an issuer both before and since COVID-19 say the customer service experience is about the same, and those who feel it has improved most often point to the strength of the human element—problems are solved more easily, solutions are flexible, and agents appear more empathetic.”

Notably, 17% of this group do say that the customer experience has gotten worse, with longer wait times (71%) most often to blame. However, these cardholders also say there are fewer options for contacting their issuer (38%) and that getting answers or solutions to their questions has become more difficult (32%).

“Ensuring customers have a variety of communication channels to choose from is clearly important, however not at the cost of speed to resolution,” says Holmes. “Issuers deciding how to allocate their resources are tasked with providing diverse options, while staffing them with an eye towards contact patterns and traffic expectations.”

One way that firms are trying to meet customer need without overburdening their resources is through self-servicing options. Auriemma’s roundtables found that many issuers have promoted the use of digitised forms for disputes, complaints and payment holidays. These options yield high customer use and provide issuers with efficiency gains.

And cardholders broadly react positively to these types of options. Auriemma’s research found that the vast majority of cardholders are comfortable completing financial actions via digital channels. This is particularly true of more common tasks like checking account balances (90%), making a payment (89%), updating contact information (88%), transferring funds (86%) and requesting new cards (85%).

“Providing self-service options has a two-fold benefit—cardholders have quick access to solutions for common questions and issuer resources become more readily available for more complex customer needs,” says Holmes. “Looking forward, providing the right allocation of resources towards self-service, chat bots, and live representatives, either in chat or on the phone, will be key to cardholders continued satisfaction with issuers channel offerings.”

Survey Methodology

Cardbeat UK

This Auriemma Group study was conducted online within the UK by an independent field service provider on behalf of Auriemma in November 2020, among 845 adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification. The average interview length was 21 minutes.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, call Jaclyn Holmes at +44 (0) 207 629 0075.

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Cardholders Are Missing Payments—Here’s How Payment Holidays and Accommodations Can Help

(New York, NY and London, UK) COVID-19 has put additional financial strain on cardholders globally, but some issuers are trying to lessen the immediate burden. Auriemma Group’s latest issues of Cardbeat US and UK uncover how the pandemic could be affecting on-time payments, which accommodations issuers are offering consumers to help ease the strain, and how card rotation is being impacted as a result.

While missing payments is not exclusive to COVID-19, wage cuts, job loss, and other unexpected financial stressors could make missed or late payments more common. According to Auriemma’s research, about one-sixth of cardholders in both markets say they have missed a payment over the last 6 months. During this time, unemployment figures in both regions increased, with many cardholders needing government aid. However, credit card issuers in both geographies are finding creative ways to assist cardholders through this unprecedented time.

Payment Holidays Provide Short-Term Relief

One of the many ways UK card issuers are helping relieve payment pressure for their cardholders is by offering payment holidays, which allows cardholders to miss monthly payments without penalty. Auriemma’s research found that 20% of UK credit cardholders were aware of the option to take a payment holiday from their issuer, and 33% of them accepted the offer.

The high take-rate is unsurprising given the circumstance. Pandemic-adjacent reasons are most often cited for their acceptance, including wanting to keep money in their bank account and that it would help with cash flow.

“Payment holidays offer a temporary solution for an immediate problem,” says Jaclyn Holmes, Director at Auriemma Group. “And while the accommodation has become a necessary offering for high street banks in this moment, issuers will need to determine and communicate its intended tenure before it becomes table stakes for their cardholders.”

Long-Term Accommodations Chart a Corrective Course

While payment holidays offer a short-term fix, impacted cardholders can be transitioned to other accommodations meant to improve their financial standing in the long-term. In the US, 40% of cardholders have been offered at least one of the accommodations tested in Auriemma’s study (e.g., a reduction in their monthly minimum payments or interest rate, waived interest charges, forbearance options, hardship programs)within the past 6 months.

According to Auriemma’s study, the top offers include increasing credit card limits (20%), offering hardship programs (17%), and providing forbearance options (16%). These accommodations are popular among those offered them, with over half accepting.

“Offering payment accommodations provides a halo effect for your brand,” says Holmes. “Those offered a payment accommodation say they felt more positively about their card issuer as a result, which, along with attractive rewards and benefits, could influence card selection when making a purchase.”

Accommodations and Attractive Rewards Could Impact Card Selection

Over six-in-ten cardholders in both regions report using multiple payment cards in the past 30 days. These individuals are also more likely than their counterparts who used a single payment card to have taken either a payment accommodation or a payment holiday. And while goodwill derived from payment accommodations has an ancillary influence on which card is chosen in the near-term, attractive rewards and benefits remain the main drivers of card choice, regardless of locale.

“When the dust settles, consumers struggling financially will look back on this time and remember which issuers had their back” says Holmes. “Rewards and benefits continue to be critical factors in card selection, but they’re not the only consideration at the moment. Issuers who give their cardholders both payment flexibility and relevant benefits during these uncertain times will be best suited to secure or maintain their top-of-wallet position.”

Survey Methodology

Cardbeat US

This Auriemma Group study was conducted online within the US by an independent field service provider on behalf of Auriemma Group (Auriemma) in June 2020 among 811 adult credit cardholders. The number of interviews completed for both is sufficient to allow for statistical significance testing among sub-groups at the 95% confidence level ±5%, unless otherwise noted. The purpose of the research was not disclosed, nor did respondents know the criteria for qualifying. The average interview length was 22 minutes.

Cardbeat UK

This Auriemma Group study was conducted online within the UK by an independent field service provider on behalf of Auriemma in July 2020, among 800 adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification. The average interview length was 20 minutes.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognized experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximize their performance. Auriemma serves the consumer financial services ecosystem from our offices in New York City and London. For more information, call Jaclyn Holmes at (+1) 646-454-4200.

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Payment Behaviors Shift as US and UK Consumers Adjust to COVID-19 Fallout

(New York, NY and London, UK) COVID-19 has significantly impacted most aspects of consumer’s lives, including how they shop and make payments. People are concerned for their finances, their health, and are uncertain about the future. Auriemma Group conducted studies in the US and the UK to understand how payment activity and expectations are changing, and what issuers can do to meet this unprecedented moment in our history.

How Payment Activity Is Changing

Across both markets, about seven-in-ten consumers are anxious about the future. Many are specifically concerned about their personal finances, especially in the US (81% vs. 67% UK). This worry, paired with stay-at-home guidance and closures of non-essential businesses have altered the way many consumers make purchases, what they are purchasing, and their purchasing power.

COVID-19 has caused many to shift spend online. Nearly eight-in-ten consumers are visiting fewer businesses and, as a result, many are placing more online orders than usual (45% US vs. 38% UK). However, most have reduced their non-essential spend, particularly in the UK (72% vs. 65% US).

Spend categories and payment methods have seen immediate shifts because of COVID-19. As a category, consumers understandably noted rises in grocery spend, with many saying they stocked up on food or household items (60% US vs. 49% UK). In addition, many are making more purchases with contactless or mobile payment options (34% US vs. 45% UK). This is unsurprisingly greater in the UK, given their tenure with contactless payments.

Changes in spend are similar across geographies. Over four-in-ten say they are spending less than typical (42% US vs. 47% UK), while only slightly fewer say spend stayed the same (41% vs. 35%). The remaining one-fifth say they are spending more than typical, and the average increase in monthly spend among that group was similar across both countries ($524 vs. £463).

“While sudden shifts in behavior are to be expected, the bigger question is whether these changes will be long-lasting,” says Jaclyn Holmes, Director of Research at Auriemma Group. “Many consumers are trying new purchasing channels and methods out of necessity, and some who were previously averse to online shopping are finding the experience to be surprisingly enjoyable. Only time will tell if these options truly become ubiquitous as a result.”

How Expectations Are Changing

Financial institutions play a key role in quelling the anxiety consumers in both markets face. From a communications perspective, banks and issuers are performing strongly. About three-quarters in both geographies say they are satisfied with the COVID-related communications coming from their primary bank or credit card issuer.

In addition to strong communication, consumers expect payment leniency. Over seven-in-ten said they expect their financial institutions to be understanding of late payments at this time. With some consumers unable to meet their payment obligations, about one-in-ten say they have missed a credit card, bill, or loan payment because of COVID-19.

Most issuers are meeting consumer expectation and waiving missed payment and late fees, but a handful report that the fee was not waived. This is especially true of UK consumers—36% who were charged a fee did not have it waived (vs. 27% US).

“Waiving fees is one way to show consumers that you are in their corner,” says Holmes. “And while that may not be fiscally possible for all issuers, offering support in other ways—be it via online tools and information, offers, or exemplary customer service—could go a long way to showing cardholders that you have compassion for their situation.”

What Issuers Can Do

Since its outbreak, COVID-19 has brought about many questions that lack answers. From health to the economy, there is a lot of uncertainty in what lies ahead, and customers are looking to their card issuers for guidance and reassurance. Issuers aiming to present a customer-first approach may want to communicate the following:

  1. Actions taken to help ease payment burdens (e.g., waived fees, lower rates, extended grace periods)
  2. Recommended customer service channels or resources (e.g., new channels aimed to reduce wait times, self-servicing options, updated FAQ pages)
  3. Beneficial information to aid the shopping experience (e.g., how to reduce direct contact using contactless or mobile payment options, merchant partner deals to help them save, how to maximize rewards)
  4. Steps to take when requesting a refund or filing a dispute

“Given how quickly things are changing, finding relevant and up-to-date information can become challenging for consumers,” say Holmes. “By providing thoughtful and consistent communications, issuers can help reduce rather than contribute to the mounting concern consumers are expressing.”

Survey Methodology

Cardbeat US

This Auriemma Group study was conducted online within the US by an independent field service provider on behalf of Auriemma Group (Auriemma) in March/April 2020 among 807 adult credit cardholders. The number of interviews completed for both is sufficient to allow for statistical significance testing among sub-groups at the 95% confidence level ±5%, unless otherwise noted. The purpose of the research was not disclosed, nor did respondents know the criteria for qualifying. The average interview length was 25 minutes.

Cardbeat UK

This Auriemma Group study was conducted online within the UK by an independent field service provider on behalf of Auriemma in April 2020, among 809 adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognized experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximize their performance. Auriemma serves the consumer financial services ecosystem from our offices in New York City and London. For more information, call Jaclyn Holmes at (+1) 646-454-4200.

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Why Challenger Bank Customers Haven’t Left High Street

(London, UK): In a short time, challenger banks have won cardholders over with their unique mobile-only banking model, differentiated from High Street offerings by touting foreign exchange features, budgeting tools, spend analytics and easy cheque splitting. But consumers aren’t breaking up with High Street just yet. According to new research published by Auriemma Group, challenger banks are being used as a complement to, not a replacement for, traditional banking products.

Currently, 13% of credit cardholders have a mobile-only current account with Monzo, Revolut and/or Starling. And 44% of credit cardholders without a mobile-only current account could be persuaded to switch to one. This small, but notable figure shows curiosity in the mobile-only banking model.

“Challenger banks market themselves as innovators in the payments space,” says Jaclyn Holmes, Director of Research at Auriemma Group. “From graphic cues like bright-coloured and vertical cards to their digitally focused approach, these banks are trying to visually and experientially differentiate themselves from their High Street counterparts.”

These benefits and differentiators alone, however, are not enough to instill full confidence in challenger banks. Nearly all (96%) of those who had a current account with a traditional bank prior to opening one with a mobile-only provider say that they have kept their traditional account open.

There are several factors likely at play in this decision. Many who are uninterested in challenger banks express satisfaction in their current offerings (58%), prefer banks with physical locations (42%) or don’t know enough about them (28%).

In effect, challenger banks are charged with informing the consumer about who they are and what makes them better. While some focus on the strength of their digital offerings to make this point, others have taken innovative steps to address the perceived need for in-person service.

Starling Bank, for example, partnered with the postal service to offer cash deposits in a physical location for its account holders. This partnership offers a consistent physical footprint (i.e., the post office) for the bank as traditional bank branches continue to close across the UK.

While offering a physical location for some banking activities is one solution, other mobile-only providers focus squarely on self-service options. These are especially important for younger cardholders, who, according to Auriemma’s research, are less likely to see branches as a critical component of the banking relationship.

“Although the absence of a branch footprint is currently an obstacle for challenger banks, its importance may wane as the industry becomes more digital,” says Holmes. “As the industry shifts, we can expect consumers to become more comfortable with mobile-centric banking solutions.”

Challenger banks cultivated enthusiasm around innovative tools and features, many of which currently exist in the High Street digital experience. It appears even basic tools could be enough to keep these cardholders from looking elsewhere. Many of those who find tools important most often cite bread-and-butter functionalities that are already a part of online banking—spend alerts, reports, and automatic transfers.

“Challenger banks are bringing digital tools to the forefront of the customer experience, but consumers will continue looking to legacy providers for everyday banking needs,” says Holmes. “High Street Banks have given little reason to look elsewhere, and although challengers have their merits, it’s unlikely that cardholders will transition their entire banking relationship to them in the near term.”

Survey Methodology

This Auriemma Group study was conducted online within the UK by an independent field service provider on behalf of Auriemma in November 2019, among 855 adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, visit us at www.auriemma.group or call Jaclyn Holmes at +44 (0) 207 629 0075.

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Auriemma 2019 Annual Letter: Year in Review and What’s Coming in 2020

December 2019

Welcome to the 2019 version of our annual market update. I wrote the first such letter thirty years ago, in 1990! My, how times have changed.

While we typically talk about industry happenings and then pivot to updates in our own company, we are going to turn that around this year. I think you’ll agree it adds a bit of perspective to this year’s commentary.

Despite the negative connotation implied by Juliet when she proclaimed, “A rose, by any other name would smell as sweet,” I think it is a fitting quote to describe the state of all things “Auriemma.” Last year, I told you we were changing our name by dropping the word “Consulting.” Well, we did that. But then we did more. Many of you have heard the news by now. But, I know not everyone received, or read, our email communications in August.

While we were wrapping up the process of our name change in late 2018 and early 2019, we were also beginning a process to bring on some outside investment in order to expand and improve our offerings to the market. That effort was consummated on August 1st. As a result, we split into two companies… Auriemma Roundtables, which will operate our US Roundtables practice, and Auriemma Group, which will operate our Partnerships, Research, and Finance lines of business, as well as our UK Roundtables.

Two new presidents have been named. Tom LaMagna for Auriemma Roundtables and Mark Jackson for Auriemma Group. Both have been part of our team for many years and have been gearing up and being groomed for these appointments. I’m excited to pass on the baton(s)!

With that as the backdrop, here are some of the stories and trends we’ve been tracking and expect to continue into 2020.

This was a strong, but mixed, year from a macroeconomic perspective. In the U.S., the Dow hit record highs this year, and the U.S. added 266,000 jobs in November, outpacing predictions. U.S. unemployment is at a record low, and there may still be room for growth, given that labor force participation remains below pre-recession levels. It’s a similar picture across the Atlantic, with UK employment at record highs and a healthy growth in household spending, thanks to stronger wage growth.

Other factors, however, lead to a more uncertain economic picture. The Federal Reserve cut rates three time this year. Trade tensions are impacting business and consumer confidence. Business investment has slumped due to global economic slowdowns and uncertainty about the outcome of the U.S.-China trade war. Consumer credit increased at a seasonally adjusted annual rate of 7.7 percent in October, while revolving credit increased at an annual rate of 10.7 percent, and non-revolving credit increased at a 6.7 percent annual rate, according to ABA Banking Journal. In the UK, the number of job vacancies have started to fall in 2019, and the number of jobs created have decreased, indicating the labor market is potentially cooling. But with many consumers shrugging off the negative indicators the industry pores over, I tend to agree with Michael Corbat that the biggest threat to the economy might be talking ourselves into the next recession.

For their part, industry leaders are thoroughly prepared, with many anticipating a mild recession in the next 12 to 18 months. Clients are interrogating key internal metrics to discern false signals from true indicators, including changes in payment ratios, minimum payment frequency and early delinquency rates. Many are already tightening on credit exposure in some portfolios, and anticipate some future tightening going into 2020. Recession playbooks for pricing, term adjustments and collections/recovery strategies are in place—although triggers have not yet been tripped. Indeed, predicting the future recession appears to be more art than science, with many questioning if the typical indicators – unemployment, for example – are really the ones to be watching in the upcoming cycle.

Delinquencies, a traditional indicator, are slightly on the increase for credit cards. However, the future direction of travel is anyone’s guess. This is clear in the fact that just over half (56%) of issuers in Auriemma Roundtables’ Card Collections group expect an increased delinquency rate going into 2020. The other half expect delinquencies to be flat or down next year. Certainly, nothing in the data reflects systemic alarm or anything fundamentally surprising. In fact, delinquency levels are aligned with industry expectations, based on vintage and composition of portfolios. Additionally, because of the lessons learned from 2008, there’s a more cautionary approach to underwriting in this pre-recession era, and fundamental exposure is more limited than in the past.

Delinquencies for auto lenders have increased steadily across all credit tiers in 2019, although the bulk of delinquencies are unsurprisingly in subprime. The increase is a byproduct of strategic decisions to expand acceptance criteria, rather than an indicator of broader market conditions. To underscore the point, 75% of Auriemma Roundtables’ Auto Collections group members say 2019 net credit losses are below forecast, showcasing the success of collections operations and loss mitigation programs.

What remains to be fully seen is any impact that could be felt amid a downturn if the CFPB’s proposed debt collection rules go into effect, which would cut the number of call attempts per day for most lenders and collectors. In preparation, many first-party collectors are ramping down their call caps and deploying self-service and digitized collections tools. With a potential recession and this proposed regulatory action, the stars are aligning to make investments in more strategic contact management.

This proposed rule represents one of the more significant pieces of proposed legislation from the Bureau, which has been quieter than in years past. (Of course, that posture could change yet again, depending on the outcome of the next election.) While the industry has seen fewer big-ticket enforcement actions from the CFPB this year, there’s concern of growing coalitions among state AGs and legislators who are working to fill the perceived regulatory void. For example, state litigation is attacking banks’ preemption and rate exportation rights, which will need to be solved by federal legislation supporting the concept of “valid when made.” There has also been tremendous scrambling to comply with the data-centric California Consumer Protection Act, which goes into effect January 1 and could very well be adopted by other states going forward.

The U.K.’s regulatory scene has been quite active: Persistent Debt is causing waves, GDPR has claimed its largest big-ticket enforcement actions to date, and the deadline for compliance with PSD2 has passed with several FIs not fully compliant. Of course, there are the results of the UK’s general election – a sweeping win for the Conservative party, signaling an imminent departure from the European Union. The pound surged in trading against the dollar and the euro in response to the vote. Businesses will be working through operational challenges associated with an 2020 exit, and consumers could respond to uncertainty with changes in spending, saving and a potential shift from credit onto debit. A no-deal Brexit could be bad news for jobs, wages or both. Certainty, in any guise, is likely still months away.

Overall, it’s been a strong year for credit card lenders. While falling interest rates may have squeezed fixed-rate lending, credit cards have held strong as an asset class, helping fuel the industry’s solid financial results this year.

Additional positive news: Year-to-date gross and net fraud rates have remained stable, with the average gross fraud rate at 0.27% and the average net fraud rate at 0.13%, according to Auriemma Roundtables’ Card Fraud Control benchmarking. Meanwhile, 85% of Roundtable members reported a flat or decreasing gross fraud rate between FY ‘18 and YTD ’19. As EMV cards have become ubiquitous in the marketplace, the security benefit of the technology has been realized and is reflected in the normalization seen within the distribution of fraud types.

While fraud losses have stabilized, fraud remains a painful reality to consumers, with data breaches and the associated financial ramifications becoming routine. The everyday nature of fraud means consumers are often not proactive in taking preventative measures, with more than one-quarter of cardholders feeling comfortable making online purchases from unfamiliar websites, and more than four-in-ten of cardholders reporting that they haven’t changed the password for their debit or credit card account in over a year, according to Auriemma Research. Other precautions, like fraud alerts, identity theft protection, and two-factor authentication are not overwhelmingly used by consumers, according to the research. (Incidentally, this kind of irrationality is exactly what Auriemma Roundtables is looking to understand in its Behavioral Economics Initiative with Duke University’s Center for Advanced Hindsight – a joint venture focused on identifying opportunities to shift consumer behavior for more positive financial outcomes.)

Of course, the Auriemma Group team has remained active in the co-brand arena. As I shared last year, marquee co-brand deals have slowed in 2019, thanks to the increasing prevalence of long-term program contracts. We expect 2020 will be more active, with many programs preparing to go to market. Certainly, 2019 saw pockets of action – including several de novo airline programs (Air Canada, Emirates, and Norwegian Airlines) and an increase in mid-contract negotiations. The opportunities for card issuers during this period of reduced market activity tend to revolve around focusing more closely on existing programs. For some, this includes testing innovations – such as installment payment plan offerings, omnichannel experiences, and data analytics insights. Brands also have opportunities to keep programs fresh by regularly revisiting key program features, such as value propositions and marketing approaches. Meanwhile, with the challenges in the current retail environment, we’re also seeing a diversification within the private label space, with brands moving toward POS installment lending and issuers offering other lending categories, such as medical financing.

Of course, there were new cards, too – perhaps most notably, the Apple Card, which debuted this year to tremendous buzz. (An introductory video for the Apple card uploaded in tandem with its late-March announcement has racked up more than 25 million views… easily more than ten times the number of views for similar videos for other cards.) Although Apple obviously offers a physical card, the product’s core value proposition has been specifically designed to increase usage and adoption of its mobile payment capabilities. As with many mobile offerings, it’s still unclear how successful Apple’s push will be.

Despite the rumors of its inevitable demise, plastic has continued to thrive during the dawn of mobile payments. Some argue that the increase in contactless card availability may actually migrate some mobile-friendly consumers back to physical payments, according to Auriemma Research. This year, contactless  made a meaningful push to mainstream acceptance in the U.S., thanks in part to major transit systems’ acceptance. While it’s not exactly a new technology, the POS experience seems to have improved drastically from previous incarnations.

The simplicity of contactless’ tap is just one example of a customer experience making or breaking a technology. More broadly, a crisp and easy experience has paved the way for an influx of fintechs to sweep both the U.S. and U.K. markets. In the U.S., the unsecured personal loan market continued its dazzling growth, led largely by digital-first fintechs. In e-commerce, snazzy POS financing options like Klarna and Affirm are increasingly popular with consumers who find that borrowing via an installment plan is less intimidating than revolving on a credit card. In the UK, a wave of Challenger Banks, such as Monzo, have developed budgeting tools that are deeply appealing to consumers. Fintechs are eager to garner more market share and have started diversifying into credit cards and other products, such as auto lending. To fuel this growth, fintechs have been bullish on the use of non-traditional data sources, such as utility or cellphone payment information – particularly when scoring consumers in deeper FICO bands or with thin files.

As more data enters the ecosystem however, there are some uncertainties emerging about the integrity of credit reporting. While the vast majority of available information is accurate, reporting complexities and fraudulent consumers are potentially leading to some credit score inflation. In addition, new commercially available scores and alternative data providers will have an unclear impact going forward. To address the reporting complexities, Auriemma Roundtables has spearheaded initiatives with both the CDIA and credit reporting agencies to identify opportunities to improve reporting standards and clarify business processes.

Also distorting the credit reporting environment? An upswing in credit repair agencies enticing consumers to attempt to eliminate or transform negative credit history – often without consumers being fully aware of the process (something the CFPB has taken notice of). It will be crucial for the industry to partner with regulators, such as the FTC and CFPB, to counter predatory players.

While lenders are focused on risk mitigation of all kinds, 2019 has also brought ample opportunities to invest in operational efficiency and automation—areas where both Auriemma Group and Auriemma Roundtables continue to focus energies.

Automation has been more fully deployed in 2019, with speech analytics, AI, machine learning and RPA all focused on eliminating risk and error, increasing efficiency and re-deploying employees toward value-add activities. Banks have rechanneled investment to support these initiatives, with many with new “Transformation” departments popping up. Agile has quickly usurped the traditional waterfall methodology to encourage faster business and technology changes. Automation has made a major breakthrough in credit decisioning across the lending landscape. Speech analytics is being used to tag complaints, identify compliance risk and monitor call quality. Organizations are increasingly using cloud-based technology, including for call recordings and cloud-based dialers. In fraud, machine learning and AI are becoming more prominent, particularly in authentication. And with fraudsters continuing to demonstrate more sophistication and flexibility to overcome authentication hurdles, you can expect more issuers to actively explore solutions like voice biometrics and device fingerprinting in 2020. In collections, alternate collections strategies are actively being expanded, with more than 60% of Roundtable members using one-way texting in pre-chargeoff collections. Debt collections is ripe for further disruption in the UK, with firms looking toward omnichannel engagement tools and testing completely switching off outbound dialing. In customer service, FIs have further nudged customers along the digital migration path, thanks to touch/face ID authentication for mobile logins. IVR systems are being enhanced to drive stronger containment rates, and AI is being explored for real-time call monitoring.

All this investment and change means job transformation is afoot across many functions in all markets – which Auriemma Group will recognize with a new sponsored award at the UK Cards & Payments Awards. The award, Excellence in Operational Innovation, will recognize the card issuer, brand, banking acquirer or payment company that has best demonstrated operational innovation resulting in a best-in class customer experience.

While I expect Auriemma’s two new presidents to push their respective companies well beyond the boundaries I achieved, I don’t expect any significant deviations in the types of business they pursue or the quality of services they provide. The same teams remain in place to deliver value to our clients.

What I do expect however, is that these gentlemen will want to write their own annual updates twelve months from now, thus ending my tenure at 30 years! So, I hope you enjoyed what is likely the last letter from me and look forward, as I do, to reading the words of Mark and Tom next December.

Meanwhile, I thank you again for your patronage and look forward to speaking with you soon.

Cheers!

Michael

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Credit Cardholders Seek Smarter Budgeting Tools and Instalment Options

(London, UK): Many cardholders are looking for ways to more thoughtfully manage their purchases and repayment. Digital tools are a potential solution, but most consumers still track their budget manually. According to Auriemma Research’s latest issue of Cardbeat UK, however, 61% of cardholders believe digital tools would be helpful when tracking spend, even though only 20% say they are currently offered such a service from their card issuer.

Promoting existing digital budgeting tools (such as Monzo’s Salary Sorter, which segments income into spending, saving and bills), or creating new ones, will likely increase engagement and build loyalty with an issuer’s cardholders. However, tools offered must keep control in cardholder’s hands to remain appealing. For example, cardholders are more likely to set up spend alerts (45% likely) instead of spend limits (37%).

“Spend alerts may have slightly broader appeal because they put the real-time choice in the customer’s hands at purchase,” says Jaclyn Holmes, Director of Auriemma Research. “While both options provide cardholders the opportunity to set up thresholds in advance, limits prevent purchase at the point of sale, while alerts simply educate and allow consumers the choice.”

Digital tools can be helpful for keeping a budget organised, but instalment plans can help with budget management in the near-term. Online and in-store point-of-sale instalment plans provide a credit alternative for cardholders who have reached their spend or credit limit, those averse to credit cards or those who simply find the product appealing. Over one-third of those offered an instalment plan have taken advantage of the offer online or in-store over the past year. The take rate increases among revolvers (47%) and recent balance transfer customers (53%).

Revolvers and balance transfer customers are more attracted to point-of-sale instalment plans, they are more likely to have enrolled in them and are more likely to consider them for a variety of purchase types compared to their counterparts. And issuers have a clear advantage over third-party providers offering instalment plans. Nearly half of revolvers and balance transfer customers are interested in post-purchase instalment plans via their most frequently used card issuer, compared to nearly one-third of cardholders overall.

“Whether at the point-of-sale or post-purchase, revolvers and balance transfer customers are the richest audience for this product,” says Holmes. “Many seek ways to help manage their payments in an organised and predictable fashion, and instalment plans provide them a complement to other products that also offer them repayment flexibility.”

Whether for holiday, furniture, electronics or everyday items, instalment plans can help cardholders budget for future purchases. Although larger purchases tend to capture the most instalment plan usage, 25% of cardholders say they would consider the product for everyday items. This increases to nearly four-in-ten revolvers and recent balance transfer customers.

“Revolvers and balance transfer customers appear to be more open to utilising a variety of products available when making purchases and paying off debt,” says Holmes. “These cardholders don’t appear to be loyal to any one product and may be choosing between products based on need rather than desire.”

Cardholders have an increasing number of options to manage their finances. Whether setting up spend limits, alerts or accepting an instalment offer at the point-of-sale or post-purchase, cardholders have more flexibility than ever to decide how they will make their payments. Issuers who cater to this desire could increase engagement with their customers, particularly those who are already carrying a balance anyway.

Survey Methodology

This Auriemma Research study was conducted online within the UK by an independent field service provider on behalf of Auriemma from July-August 2019, among 806 adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, visit us at www.auriemma.group or call Jaclyn Holmes at
+44 (0) 207 629 0075.

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Auriemma Group Announces a New Award for UK Cards & Payments Awards

(LONDON) – Auriemma Group is pleased to announce its sponsorship of a new award at the UK Cards & Payments Awards. The award, Excellence in Operational Innovation, will recognise the card issuer, brand, banking acquirer or payment company that has best demonstrated operational innovation resulting in a best-in class customer experience.

Submitted entries could include innovation across a range of disciplines and areas, such as:

  • Transformation staff training to embrace new technology and or evolving staff environments
  • An innovative approach that had a positive impact on staff well being
  • Virtual customer service initiatives
  • Digital services to enhance people and customer interactions
  • Attracting and retaining staff initiatives

Judging criteria includes the following:

  • Innovative and forward thinking
  • Demonstrated employee or team impact and effectiveness during the qualifying period
  • Positive impact on employees and either directly or indirectly the customer
  • Metrics to validate against success criteria

Eligible entrants include brands and affinity partners, charge, credit, debit and/or prepaid card issuers, merchant acquirers and other payment companies. Entries should be submitted by 23 September 2019. Entries should feature initiatives implemented or launched between 1 September 2018 and 31 August 2019. A shortlist will be announced 13 November 2019, followed by the awards ceremony on 6 February 2020.

About the Card & Payments Awards

The Card & Payments Awards recognise customer service, excellence and innovation in the UK and Irish card and payments industry. Very well established and now in its 15th year, each year many eligible organisations compete for one of these prestigious Awards which are judged by an independent panel of industry experts.

About Auriemma Group

Auriemma Group’s mission is to give clients access to data and intelligence that drive decision-making. We provide information and advisory services in four areas: operational intelligence, co-brand partnerships, consumer research, and corporate finance. Founded in 1984, Auriemma serves the consumer finance industry from our offices in London and New York City. For more information, visit us at www.auriemma.group or call David Edwards at +44 (0) 207 629 0075.

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Card Controls Could Prevent Budget Shortfall and Curb Bad Habits

(London, UK):  Consumers are well-intentioned when building their budget, but even a nominal unplanned expense could leave UK cardholders financially constrained. Many can’t afford the miscalculation—on average they have £20 for daily discretionary purchases and 23% need to put their total income towards outgoings.

Consumers often navigate these financial hurdles on their own. While automation is transforming the banking industry, budgeting remains a very manual process for many cardholders. Auriemma Research’s latest issue of Cardbeat UK confirms that new technology may make budgeting easier for savvy consumers, with challenger banks Monzo and Starling leading the way.

In mid-2018, Monzo and Starling launched tools aimed at giving customers increased control over their spending behaviour. Several months later, Barclays followed, becoming the first high street bank to allow debit cardholders to block payments within specific retailer categories (others may adopt the technology in the future).

The move was aimed at protecting vulnerable consumers by providing them controls to disallow transmission of funds in select areas like gambling services, premium phone lines, pubs and more. The technology even offers a self-activated barrier to purchases in spend categories the consumer deems problematic, stopping them from overindulging at the casino, bar or local eatery. But this technology could evolve to assist in budgeting, helping consumers set spend limits or alerts by merchant category.

Cardholders desire these types of card controls, according to Auriemma’s Cardbeat UK report. Over one-quarter of credit cardholders want the ability to freeze/unfreeze a lost credit card, 22% want to choose which transaction types (e.g., in-store, online) are permitted and 10% want to set spend limits. Currently, 38% say that their issuer offers the freeze feature, 23% say they can choose which merchant categories are permitted and 32% can set spend limits.

“These features are still new, but tools that promote more thoughtful decision-making could help build loyalty with the institution that offers them,” says Jaclyn Holmes, Director of Auriemma Research. “Although card freeze traditionally isn’t used as a budgeting tool, it functions in a similar way to the other card controls and could raise awareness and comfort with this type of technology moving forward.”

Card controls are currently being used to protect against fraud and spend derived from addiction, but future developments could place an emphasis on budgeting.  The study also found that 60% of cardholders are open to credit card alerts, which could be utilised to inform cardholders when they are approaching their spend limit in a category, or send a warning alert once they’ve reached a pre-defined proportion of their allocated spend.

“Challenger banks tend to set the bar in terms of innovation,” says Holmes. “Over the last couple years, we saw high street banks introduce the ability to freeze their cards following Metro Bank’s example in 2014. Barclays is already putting more control in their cardholder’s hands, and we expect others will also build upon the technology and features that deliver more control to cardholders.”

Survey Methodology

The Auriemma Research study was conducted online within the UK by an independent field service provider on behalf of Auriemma from March-April 2019, among 800 adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, visit us at www.auriemma.group or call Jaclyn Holmes at +44 (0) 207 629 0075.

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Rethinking Debt Collections: Give Up Outbound Dialling & Pick Up Digital Channels

(LONDON) – The debt collections space in the U.K. is ripe for disruption: As outbound dialling performance yields decreasing returns, lenders have an opportunity to explore other contact strategies.

Over the last 18 months, core dialler performance metrics have deteriorated, according to Auriemma Roundtables data. A key indicator, right-party contact (RPC) rate, fell from 2.5% to 2%, a decrease of 20% since November 2017. Despite this slipping performance, firms have been apprehensive to retire their diallers, which have been the cornerstone of collections outbound strategies since the 1980s. Outbound calling is still relied upon to drive output, keep agents at the heart of the collections process, and demonstrate to internal stakeholders that firms are performing their part in mitigating risk by contacting customers to resolve their arrears.

Auriemma’s Roundtable members have often viewed the inertia associated with outbound dialling as a major hurdle in the adoption of alternate communication channels. To mitigate the decline in dialler performance, U.K. firms are looking at a variety of experimental solutions to improve overall contact rates.

Omnichannel Approach

Challenger banks by design have minimal telephony operations and demonstrate strong customer engagement via digital channels. Without the handicap of legacy systems, these firms utilise more efficient ways to support delinquent customers, primarily relying on live chat and two-way SMS staff using omnichannel systems. These systems provide agents with a holistic view of customer interactions across all channels and products throughout the account lifecycle. Consequently, agents are equipped with deeper knowledge of customers’ past interactions and can better anticipate contact preferences.

“Dialler-less” Approach

Recently, a few firms have tested completely switching off outbound dialling for the lifecycle of ring-fenced accounts and continued to track the progress of the test group. Inbound contact rate remained flat – disproving the prevailing wisdom that most inbound calls are responses to a voicemail or a missed call from a number. Moreover, turning off the dialler saves considerable costs and resources which can be reallocated across alternate and more efficient contact channels.

One such firm found performance improvement when testing tactical and precise usage of SMS, email, and live chat for customer outreach as a substitute for the dialler. This makes intuitive sense, due to the predominance of non-voice communication for the bulk of servicing requests and customer avoidance of answering calls from unidentifiable numbers. Moreover, missed calls or cryptic voicemails can further degrade repayment rates, as many customers perform Internet searches for these phone numbers, which may lead to incorrect information listing the number as part of a scam.

As the customer preferences continue to evolve, the way firms communicate will have to change to ensure future success. Auriemma’s Collections and Recoveries Roundtable provides members with access to industry expertise and best practises to support actionable improvements within the debt collections space.

About Auriemma Group

Auriemma Group’s mission is to give clients access to data and intelligence that drive decision-making. We provide information and advisory services in four areas: operational intelligence, co-brand partnerships, consumer research, and corporate finance. Founded in 1984, Auriemma serves the consumer finance industry from our offices in London and New York City. For more information, visit us at www.auriemma.group or Louis Stevens at +44 (0) 207 629 0075.

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An Announcement from Auriemma’s President

Dear friends

Our firm was founded 35 years ago, in 1984. It’s been a fantastic run, and we thank you for your support and friendship over the years.

Since then, our business has evolved to meet the changing needs of the payments and lending markets. Today, our business consists of four distinct specialty areas. The largest, by far, is our Roundtable practice. We now have 35 groups spanning seven market verticals and have become the standard bearers for operational benchmarking data. We are still quite active in developing and managing co-brand programs, which was our exclusive focus when we were founded. Our research team has established itself as a leader in providing membership-driven insights into consumer behavior relating to payments, mobile payments, and credit cards. And, our finance team is active in helping lenders manage capital requirements, and value assets.

As you can see, our current mix of business has come to rely less and less on traditional consulting services. As such, we began to feel that the word “consulting” in our moniker had outlived its usefulness and indeed put us into a competitive frame where we didn’t want to be. So, we went to the drawing board to see what new name might suit us best.

I’ll be honest and say that being eponymous has its pros and cons. But, if I could turn the clock back 35 years, I’d start fresh with a company name that didn’t include my personal name. But, as you can imagine, the Auriemma name has come to be well known, respected, and trusted in our ecosystem, thanks to the hard work of lots of people whose name is NOT Auriemma! So, getting rid of the name altogether didn’t make much sense. Nor did changing our name to the acronym ‘ACG’, which we considered… it turns out, very few of our clients refer to us that way.

In the end, we settled on simply removing the word “consulting” and will now be known as Auriemma Group.

Keeping the name Auriemma recognizes the significant brand value we’ve developed. Meanwhile, going forward, the word Group will refer not just to a group of talented individuals, but to the group of separate and inter-related sub-brands they represent.

To go along with the new name, we have a new logo and monogram, as well as new corporate colors. We also have a new website: www.auriemma.group

If you take a look (and I hope you do), I think you’ll see right away that the new site has a look, feel, and tone that really reflects the people-oriented and approachable style that you’ve come to expect from our firm. The new site also makes it easier to tap into the wealth of information we produce… whether that be our annual letters, press releases, and regulatory commentary letters or, for clients, our troves of market research and benchmarking data.

Welcome to the new Auriemma Group. We look forward to speaking to you again soon and continuing our longstanding relationship with this amazing community.

Cheers!

Michael

P.S.  Our e-mail address convention will also be changing from @acg.net to @auriemma.group – so please update your records!

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