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Financial Institutions Take a More Proactive, Holistic Approach to Vulnerable Customers

(London):  Fair treatment of vulnerable customers has been high on banks’ agendas since the Financial Conduct Authority (FCA) issued guidance in 2015. In the three years since, financial institutions have invested time, money, and effort to identify and improve outcomes for customers in vulnerable situations.

Vulnerable consumers, or those whose personal circumstances make them especially susceptible to detriment, make up 2.4% of credit card accounts and 3% of balances, on average, according to Auriemma’s UK Card Collections and Recoveries Benchmark. However, the size of vulnerable populations varies widely based on portfolio composition and other factors, with some issuers reporting larger populations.

Until recently, vulnerability was tied to debt collection, as there is a natural correlation between vulnerable customers and those in arrears. Now, attention has shifted to proactively identify vulnerable consumers across the product lifecycle, with more precise treatment applied based on customers’ personal circumstances.

“Vulnerability is an increasingly complex concept and cannot be treated as a binary phenomenon,” said Louis Stevens, Director of Auriemma’s UK Roundtables practice. “While card issuers recognize the benefit of having a standardised definition for vulnerability across the industry, it’s virtually impossible to capture all the grey areas with a single, uniform classification system.”

Here are three ways financial institutions are taking a more targeted and holistic approach to address customer vulnerability:

Proactively identifying vulnerable customers. While customers in arrears tend to be more vulnerable, issuers are embedding their approach across more functions of the organisation. Over the past year, the focus has shifted toward identifying potential vulnerability, regardless of where the customer is located within the lifecycle. For example, Customer Service teams are now tasked with identifying triggers or clues to vulnerability, such as a mention of illness, and proactively monitoring potentially vulnerable customers even if they make payments on time.

“By definition, vulnerable customers are anyone who can suffer difficulty, and it’s the job of financial institutions to identify and rehabilitate that,” Stevens said.

Tailoring treatment to individuals. While the FCA defines vulnerability broadly, financial institutions have developed more precise definitions to meet non-standard needs across a diverse customer base. Most card issuers use two broad categories to determine severity – for example, “soft” vs. “hard,” “temporary” vs. “permanent,” – with further sub-categories to capture the nuances of a customer’s situation. In fact, issuers may have 20 or more classes of vulnerability to ensure a flexible, tailored response. For example, a customer with hearing or visual impairment may need special assistance to complete routine payments. These cases may not typically be indicative of financial difficulty but can be a sign of vulnerability.

Maintaining a flexible exit strategy. Effectively dealing with short-term vulnerability, such as temporary unemployment, is another key consideration for financial institutions. In particular, it’s important to have a defined exit process for customers who move out of a vulnerable situation, to ensure vulnerability treatment is accurately applied and customer care efforts are appropriately prioritised. Card issuers are taking steps to establish regular contact to monitor the customer’s situation and ensure timely removal of vulnerability flags for rehabilitated customers.

“Anyone can find themselves in vulnerable circumstances,” Stevens said. “Financial institutions will continue to reevaluate their vulnerability strategies to ensure a culture of empathy, support, and inclusion.”

 

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 Louis Stevens at +44 (0) 207 629 0075.

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Higher Rates Aren’t Enough for Monzo and Other Mobile-Only Banks to Topple Traditional Players

(London, UK):  Three-in-ten cardholders are interested in switching to mobile-only banking options if they offer superior interest rates and rewards, creating a potentially major disruption for traditional banks, according to new research from Auriemma Group. And digital challenger banks, like Monzo, Atom Bank and Tandem Bank are competitively courting traditional bank customers with their modern technology and slick user experience.

While these new digital challengers pressure traditional banks to add new services and offer rich digital experiences to their customers, the realities of operating costs and large, physical footprints put incumbents at a slight disadvantage in responding quickly to the competitive environment.

With less overhead, digital challengers can nimbly offer richer rates or other attractive offers. For example, Atom Bank and Tandem Bank, currently offer 2.00% AER on one-year fixed saver accounts, compared to well under 1.00% for Barclays, Lloyds, and HSBC.

Despite those offers, most consumers don’t know about the competitive rates mobile-only banks offer. Less than one-in-ten UK cardholders are familiar with digital challenger banks, and the 47% uninterested in switching to one often say it’s because they don’t know enough about them. Consumers are most familiar with Monzo at 9%, followed by Atom Bank and Tandem Bank at 8% and 7% respectively.

“The struggle for mobile-only banks will be educating consumers on their service—most haven’t heard of them,” says Jaclyn Holmes, Director of Payment Insights at Auriemma. “Traditional institutions should be looking to these challengers and adopting the features and functionalities customers are most excited about before the banks become mainstream.”

For traditional banks, marketing the features where they beat the digital-only players—such as savings on current accounts, regular savers, and other perks—will be key to stand out amid the more niche benefits of digital challengers. Other types of features and functionalities that would be attractive to consumers include the ability to quickly connect to customer service agents by phone or chat, a well-designed, user-friendly app interface and the ability to use biometrics for logins and transactions.

Some consumers say they will remain loyal to their traditional bank regardless of the development of new innovations or services because they’re currently satisfied with the service (47%) or simply prefer banks that have a physical location (36%).

Mobile-only banks will need to overcome consumers’ lack of familiarity with mobile-only banks and loyalty to traditional banks, but they could potentially catch up by communicating their value to younger cardholders, who are more likely to make the switch.

But these aren’t the only difficulties ahead for digital challengers. For example, only one-in-five of Monzo’s users deposit their salary, according to a Reuters interview with Tom Blomfield, Monzo’s chief executive. And Auriemma’s research found that 59% of credit cardholders would not trust financial technology startups with their banking data.

“Having origins in the prepaid space has limited consumers’ perception of Monzo’s capabilities,” says Holmes. “As a bank, Monzo is now tasked with changing some of these perceptions and building greater trust in its brand.”

In an effort to be viewed more like a traditional bank, Monzo announced this month that customers won’t be able to top up their account with a debit card. Instead, Monzo will accept funds via bank transfer. Changes like this, and the push for users to utilise direct deposit, are the first steps in getting consumers to use Monzo, and other digital challengers, as their primary bank.

“The challenges mobile-only banks face as they navigate a market dominated by established, trusted banks are many, but the group could have a bright future,” says Holmes. “If nothing else, their very existence will cause traditional banks to rethink their offerings and focus on innovation—a huge win for consumers across the UK.”

 Survey Methodology

This study was conducted online within the UK by an independent field service provider on behalf of Auriemma in July 2018, 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. For more information, call Jaclyn Holmes at +44 (0) 2076-290075.

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Cardholders Want to Communicate Digitally, But Issuers Are Still Getting Up to Speed

(London, UK): Hold the phone: Email is cardholders’ most preferred means to communicate with their credit card providers, but concerns remain before issuers can deliver a consistent customer experience in that channel. Email topped the list of all channels, including phone calls manned by agents, live chat, mobile apps and SMS, according to Auriemma Group’s recent issue of UK Cardbeat.

Nearly four-in-ten cardholders prefer email when communicating with card issuers. Despite this consumer preference to communicate with card issuers by email (and with younger cardholders ages 18-34 also preferring live chat or mobile apps), issuers had not—until this year—invested as heavily into the channels for servicing or Collections-related activities. At a recent meeting of Auriemma’s Collections and Recoveries Roundtable in London, Collections executives discussed how digital channels could offer new opportunities to refresh contact strategies.

When weighing particular channel investments, issuers must analyse the performance of each potential channel and determine the contact methodology and channel mix that creates the best experience and increases an agent or collector’s success. Issuers are exploring how different channels can augment contact rates and payment rehabilitation within collections. For example, some executives are in the process of testing email’s efficacy by sending default notices digitally along with a conventional letter.

“The industry knows that email could be a highly successful contact channel, particularly for those in collections who tend to close off contact at some point in the lifecycle,” says Louis Stevens, Director of UK Industry Roundtables. “There is opportunity to develop email as a priority channel instead of a supplementary one. Many collections operations today are centered around a call-and-collect model, which could be less effective as cardholders skew toward preferring digital communication.”

However, integrating digital channels into the collections process can be a challenge, due to legacy system restrictions and painstaking approval processes. Currently, only 20% of Roundtable members offer live chat within the collections process, and further progress has been limited by the prioritisation of other controls, such as conversation transcript recording.

Despite the momentum for email, it is important that issuers maintain an excellent experience in the phone channel, which is the second-most preferred. One-third of customers prefer speaking with a representative on the phone, which is starkly higher than the 3% who prefer an automated service, such as an IVR.

Even though consumers have a strong preference for migrating more routine activities to digital channels, the phone is still the centerpiece for more in-depth and complicated interactions. This is evidenced in the Card Collections and Recoveries Roundtable Benchmark Study, which reports that the average handle time for calls has increased 11% since January 2018.

“Consumers don’t mind using self-service or automated options for simple tasks, such as due date inquiries,” says Stevens. “But for now, cardholders still call when they need a more impactful and in-depth experience.”

Survey Methodology

This study was conducted online within the UK by an independent field service provider on behalf of Auriemma in March-April 2018, among 800 adult credit cardholders. The number of interviews completed 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 UK Card Collections and Recovery Roundtable 

Auriemma Group runs a series of information sharing and benchmarking Roundtable groups designed for executives and managers in collections and recovery. These Roundtables combine executive meetings, industry-leading operational benchmarking, and peer group surveys to help participants identify tools, technologies, and strategies to offer best-in-class customer experience at all touch points.

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 +44 (0) 2076-290075.

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How Instalment Plans Can Alleviate Persistent Credit Card Debt

(London, UK): Consumers experiencing or on the brink of persistent debt are now covered by new rules and guidance aimed at protecting them, thanks to the Financial Conduct Authority (FCA). The FCA is calling upon issuers to identify and assist at-risk consumers and those within the cycle of persistent debt. In a policy statement released on 27 February 2018, the regulator anticipates savings up to £1.3bn a year in lowered interest charges for those in persistent debt. It would benefit issuers, however, to help at-risk consumers before they get to this point. Instalment plans can be used to discourage persistent debt and ultimately encourage healthier payment behaviours.

Instalment plans are popular among consumers who receive offers for them. New data from Auriemma shows 61% of those solicited have taken one – but a minority (38%) of credit cardholders have ever been offered an instalment plan. Regardless of whether they receive an offer, consumers like the benefits instalment plans can provide, particularly being forced to pay off their balance within a set period (58%) and reducing the stress of large purchases (54%). These motivating factors encourage big ticket purchases while also setting clear expectations for payment, a win-win for lenders who want to best serve at-risk customers and help them develop positive payment habits.

“Instalment plans give consumers a great way to manage their budgets by spreading the cost of a purchase over a series of fixed monthly payments,” says Wendy Bradley, Director at Auriemma. “They take the guesswork out of how much is owed each month. By preempting the negative experience of persistent debt with the more positive, guided experience of an instalment plan, issuers can rescue what may otherwise become a contentious customer relationship.”

 Some creative solutions in the marketplace bundle an instalment plan feature within a more traditional credit card product. And while consumers are mixed on whether they prefer the flexibility of revolving or the predictability or instalment plans, a blended product has the potential to cater to individual preferences while garnering interest from a larger pool of customers. If created, the offering would need to have an optimal user experience and be communicated simply and clearly—41% of consumers believe the terms of instalment plans are too confusing.

“Instalment plans are typically presented at the point of sale for larger purchases, but they could also be a tool for issuers to help their customers manage their existing unsecured debt,” says Bradley. “While they don’t guarantee repayment, instalment plans could help motivate consistent repayment behaviours to get customers back in good standing before they require the greater assistance the FCA’s new guidance calls for.”

 Survey Methodology

This study was conducted online within the UK by an independent field service provider on behalf of Auriemma in November-December 2017, among 500 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, call +44 (0) 2076-290075.

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Auriemma to Speak at Co-Brand EMEA Conference in London

(London):  Auriemma Group will have two speaking roles at Airline Information’s Co-Brand EMEA Conference, scheduled for 21 February in London.

David Edwards, Director in Auriemma’s Partnerships group, will chair the conference with opening remarks focused on optimising co-brand programmes and identifying opportunities as the industry absorbs new EU regulation under Interchange Fee Regulation (IFR), Payment Services Directive (PSD2) and General Data Protection Regulation (GDPR).

“With the launch of new co-brands since IFR was implemented, the co-brand market is demonstrating that there is still an ability to successfully grow and be profitable,” Edwards said. “However, to be successful in this changing market, there is huge importance in understanding where opportunities for growth have been created, how to adapt to more flexible commercial arrangements and how to talk directly to new and existing cardholders to derive additional value.”

Opportunities for growth include starting new programmes in the current environment, optimising co-brands with card-linked rewards and better understanding the needs and motivations of the consumers.

Jaclyn Holmes, Director of Auriemma’s Payments Insights group, will lead a discussion on consumers’ expectations from payments players, including features that have implications on spend, engagement and acquisition. Using proprietary data from Auriemma’s UK Cardbeat study, Holmes’ presentation will detail UK consumer attitudes and expectations on retailer offers and benefits, card personalisation and card selection criteria.

“With the right messaging, card issuers and co-brand partners can develop successful offers, encourage stronger engagement and build consumer trust,” Holmes said. “But to do so, it’s critical to recognise cardholders’ lack familiarity and understanding of regulatory language. There’s opportunity to build consumer education, and the brands and issuers who get the communications right will be at an advantage.”

Attending retailers can schedule a one-on-one meeting with Auriemma’s team to discuss how the firm’s research and advisory work can help navigate the current environment most effectively.

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 +44.(0).207.629.0075.

About Ai | Airline Information

Ai is an established leader and innovator in commercial aviation conferences. Since 2005, Ai has hosted thousands of airline and travel professionals at the company’s groundbreaking conferences, forums, workshops, webinars and networking events.

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How to Best Prepare for GDPR Compliance

(London, UK):  Since the European Parliament adopted a new standard to improve data protection for individuals within the European Union (EU) in April 2016, firms have faced massive fines for non-compliance. In the UK alone, the fines doubled year on year. Bring on May 2018 and a new set of standards set by the General Data Protection Regulation (GDPR) which aim to provide predictability and efficiency for organisations and offer all EU residents increased data protection rights.

The potential fines for non-compliance are unprecedented: Fines range between €10 million (£7.9 million) or 2 percent of an organisation’s global turnover (whichever is greater) up to €20 million or 4 percent of turnover (whichever is greater). For many businesses, fines could result in severe cash flow problems, insolvency or even bankruptcy/closure. The Information Commissioner’s Office (ICO) fines are currently capped at £500,000 which GDPR will override.

GDPR applies not only to EU domestic business, but to worldwide companies targeting goods and services to European citizens. Some of the key requirements include: increased rights for data subjects, the development of security-first software, encryption of personal data, secure data processing and a 72-hour notification for data breaches containing personal data. The UK Government have confirmed that Brexit will have no impact on the adoption of GDPR.

But many organisations are not yet ready, according to a recent poll one in three of all businesses in the UK are not familiar with GDPR. Many also believe that the regulation does not apply to their business. At Auriemma’s latest slate of Industry Roundtables, anxiety was expressed about the amount of work remaining to be ready by the deadline. Some of the most widely talked about components of GDPR compliance at the recent Auriemma events include:

  • Increased rights for data subjects (i.e., the right to “be forgotten” and data portability)
  • Software to be developed with security in mind (privacy by design and by default)
  • Pseudonymisation or encryption of personal data (privacy by design and by default)
  • Secure processing of data
  • 72-hour notification for breaches of personal data

To account for these changes, most organisations will have to fundamentally change the way they manage and protect data. A shift of this size will need buy-in from the board level and firms should be endeavouring to make sure all employees are aware of the requirements.

To help financial service firms best navigate the GDPR and PSD2 landscape, Auriemma will be holding a UK regulatory Roundtable in London on the 26th January.

We are fast approaching the end of two-year adoption period and 25th May 2018 is when the ICO expect all to be GDPR ready. Organisations should be adjusting their policies, internal and external procedures for data security breaches and considering the new rights of the EU citizens. It will be necessary for all to analyse its current privacy policies, security measures, and underlying operational processes. Firms will also need to identify areas for which process improvements and redesigns are required to ensure compliance with GDPR.

About Auriemma  Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space.  We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.  Founded in 1984, Auriemma has grown from a one-man shop to a nearly 50-person firm with offices in New York and London.  For more information, contact Louis Stevens at +44.(0) 207.629.0075.

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Auriemma Conducts Parallel Study of Mobile Pay Usage in the US and the UK

(New York, NY): In both the US and the UK, a growing ecosystem of mobile pay providers hope to become consumers’ go-to payment method at checkout. But the future of mobile payments appears more positive across the pond, where contactless payment technology has made familiarity with tapping at the point of sale more prominent.  Auriemma Group recently conducted a parallel study among cardholders in both the US and UK markets, aimed at learning about mobile payment adoption, satisfaction, and how comfort with contactless technology could impact mobile payments moving forward.

A small but notable proportion of credit cardholders (‘cardholders’) in both geographies have adopted mobile payments. While UK cardholders are slightly more likely than their US counterparts to have used Apple Pay (12% vs. 9%) and Visa Checkout (9% vs. 6%) within the past month, other options, such as PayPal In-Store Checkout (5% each) and Android Pay (4% each) show similar usage patterns. Although usage metrics are low, satisfaction with each technology is extremely high.

Over 90% of users in both geographies say they are satisfied with their mobile payment app. However, while it may be true that satisfied users are more likely to continue using than dissatisfied ones, user satisfaction alone does nothing to introduce non-users to the technology. UK consumers have a slight advantage in this area, given their introduction to contactless payment technology has familiarized them with tapping at checkout.

“UK consumers were introduced to contactless payments in 2007,” says Jaclyn Holmes, the Director of Auriemma’s Payment Insights. “Their increased comfort with this technology, in the decade since its inception, makes payment behavior at the point of sale less of a barrier for mobile pay adoption. If anything, paying with a tap has become more natural for this population than their US counterparts, who only recently began the move from swipe to dip.”

While exposure to contactless payments may increase comfort with mobile wallets, the shift from brick-and-mortar to online shopping creates an opportunity for mobile payments to grow. Most US and UK cardholders have made an online purchase on their smartphone, but a notable minority (31% and 40%) have not. And there is a link between comfort with making an online purchase via a smartphone and usage of mobile wallets more generally. Notable proportions of US and UK cardholders who have made online smartphone purchases have ever tried mobile wallets (33% and 43%, respectively). This is in stark comparison to their less smartphone-friendly counterparts, who are much less likely to have used a mobile wallet (7% and 5%).

“Cardholders who are more accustomed to shopping on their smartphone are more likely to pay with their smartphone in-store, especially in the UK,” says Holmes. “The US may have had the advantage of earlier exposure to mobile wallets, but the UK’s history with contactless has made the locale ripe for adopting a variety of mobile payment options. Increased familiarity with contactless payment technology and comfort with the smartphone as a payment device will be necessary to encourage the growth of mobile payments.”

Survey Methodology

These studies were conducted online within the US and UK by an independent field service provider on behalf of Auriemma Consulting Group. The UK study (Cardbeat UK) was fielded in August 2017 among 500 adult credit cardholders and the US study (The Payments Report) was fielded June/July 2017 among 800 debit cardholders, of which 567 were also 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 20 minutes.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space.  We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.  Founded in 1984, Auriemma has grown from a one-man shop to a nearly 50-person firm with offices in New York and London.  For more information, contact Jaclyn Holmes at (212) 323-7000.

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Auriemma’s 2017 Annual Letter

Dec. 1, 2017

Dear Friends,

If you invested in Bitcoin, Jamie Dimon thinks you must be “stupid” and Mark Cuban says you should be prepared to lose your money. Yet, the value of a Bitcoin is now fifteen times greater than it was at the start of the year. The stock market seemed over-heated at 18,000. Even more so at 20,000 and 22,000. Recently, it breached 24,000. So where should investors place their bets?

Retailers are struggling with brick and mortar. But when I took my daughter back-to-school shopping in September, I had to wait in line to get into the outlet mall’s parking lot. I then endured more lines for the dressing rooms and registers.

The US Congress seems ready to pass a tax bill which will help the rich. Or the middle class, depending on whom you ask. There are many other contradictions in politics (which I’ll choose to steer away from in this forum) regardless of whether, like most of our readers, you are in the US or the UK. Even in Zimbabwe… meet the new boss, same as the old boss (as The Who said in 1971).

What’s my point? Simply that the world is complex. It’s full of mixed messages, contradictions, and partisanship. Our own payments and lending industry is no different. This year’s letter looks at how that complexity has manifested itself for our clients over the course of 2017.

For example, US consumer confidence and stock markets are up, credit scores are at a record high, and unemployment is low. Yet, after a prolonged period of stability, US credit losses are on the rise. Of course, the UK market provides a stark contrast. Consumer confidence and the underlying economy are deteriorating, and wage growth is slow. While this escalates concerns about consumers’ ability to pay, the UK’s delinquency rates have been largely unaffected thus far, according to company reports and our proprietary benchmarking data.

So, why are US losses rising despite the positive market conditions? It’s easy to point to the recent uptick in new account growth and the subsequent (and expected) increase in early-stage delinquencies. Or, that non-prime borrowers have recently gained more access to credit. However, the current crop of newer vintages (accounts opened in 2014-2015) are performing worse than expected, according to many of our clients.

These losses don’t signal any existential threat to profitability for issuers in the near term, but our clients are taking the potential threat seriously. While none appear overly concerned about the credit outlook, most are diligently preparing for the possibility of continued deterioration.

The specter of rising losses is perhaps more ominous now that household debt has surpassed its pre-recession peak. For better or worse, the composition of that debt looks very different today than in 2008. Housing debt is down significantly, but auto debt is up dramatically, and student loans have tripled, leading to a raft of implications for the economic outlook.

In the auto lending arena, we are closely watching sub-prime lending. As dealers are pressured to sell more cars, in an era of ride sharing and a amidst a deluge of off-lease vehicles entering the marketplace, auto lenders are under similar pressure to approve more applicants. One result is longer loan terms, with some topping 96 months – a level that few believe is sustainable. The ability to balance sales goals and risk will be a major factor in separating the winners from the losers.Synthetic identity fraud (SIF) was another significant topic on our clients’ radar this year. While EMV has successfully slashed counterfeiting, fraud losses (driven by card-not-present fraud) are higher than ever. With the amount of personal data available on the dark web (particularly in the wake of high-profile breaches, such as Equifax), fraudsters can create synthetic identities by combining real consumer data (such as Social Security numbers) with manufactured data (such as phony birthdates and names). This wreaks havoc on lenders in both fraud control and credit loss management.

As part of a recent study, Auriemma determined that up to 5% of charged-off credit card accounts could be linked to SIF. With the average unpaid debt totaling more than $15,000 per account, that equates to $6 billion, or 20%, in credit losses industry-wide. Issuers are banding together and fighting back, however. This year, Auriemma held its second workshop devoted to the subject. Our newly established working group will coordinate industry efforts to define, measure, and counteract this insidious trend.

As bad as the problem is in the US, I was interested to learn on a recent tour of UK card issuers, that SIF isn’t making headlines in that market yet. While US issuers have been hamstrung by the inability to cross-check applications with Social Security numbers in a timely fashion, the UK has more effective screening processes at account acquisition. But we’ll be closely watching the still-unknown implications of PSD2, which could create an opening for enterprising fraudsters.

In both the US and UK, retail sales are soft, with thousands of store locations closing their doors. But private label and co-brand programs are thriving as the savviest retailers are using these products to drive loyalty. Although 2017 was expected to be a slow year for US co-brand and private label activity, we’ve seen a surge of de novo offerings from the likes of Porsche, IKEA, Uber, Jet.com, Verizon, and others. These new deals, combined with the largest pool of issuers competing for deals in recent memory, made the market frothy indeed.

Issuers, merchants, and networks all worried about the future of co-branding in the UK after interchange rates were slashed to 30 basis points. Certainly, some value props have since been watered down. But other programs became stronger than ever after partners reached new agreements that restructured economics and allowed for more creative and compelling rewards. Ironically, the threat to these programs has forced the survivors (read: winners) to focus on the fundamental reasons why co-branding makes sense in the first place.

During a recent assignment in Japan, we’ve also observed several interesting dichotomies throughout the APAC region. Japan is fascinatingly modern and technologically advanced, though mobile payments have not penetrated the geography. This is true despite their having spread like wildfire in China, thanks to major players like Alipay and WeChat Pay. The average Japanese consumer carries six cards in her wallet (including many co-brand cards), but virtually no consumers revolve, and cash is still widely used. The spend-centric Japanese market is poised for the right combination of players to tap into consumer needs.

Mobile payments continue to struggle in the US, too. Despite consumers being increasingly addicted to mobile devices, mobile payment adoption is declining from an already low base. Between Q2 and Q3 this year, mobile payment usage fell 5% among eligible consumers, according to our proprietary Mobile Pay Tracker research. Earlier, I mentioned mixed messages. Here’s another one: of those who use mobile payments, roughly one-third cite security as a main attraction. A near-equal proportion of non-users say their main barrier to trying mobile payments is – you guessed it – uncertainty around security.

Clearly, it’s imperative that wallet providers and card issuers beef up education and communication around the security of mobile payments. Consumers want assurance that they won’t be responsible for fraudulent transactions, and they want proof that mobile payments are secure.

The regulatory environment remains an uncertain landscape. In the US, look no further than the speculation about the CFPB future leadership and regulatory scope now that Director Cordray is out. Certainly, the interim director will have a very different mindset than his predecessor, likely leading to a new direction for the Bureau. If pressure from the CFPB does subside though, we have no doubt that many state regulators will pick up the slack.

As always, our focus is on advocating for common-sense approaches and drawing attention to unintended consequences arising from regulation. For example, earlier this year, we wrote a comment letter on the continued effects of the CARD Act. While the Act has improved transparency in pricing and marketing, the regulation has also restricted access to credit and eroded the customer experience.

Europe is also gearing up for major regulatory initiatives as GDPR and PSD2 are scheduled to take effect early next year. While both regulatory initiatives share a common theme – putting the customer in control of personal data – the timing and scope of those changes create wrinkles for implementation. For example, PSD2 focuses on making customer data available to third parties, while GDPR is focused on a customer’s rights to keep it private. Moreover, PSD2 is based on current data protection regulations which will be replaced with GDPR. Both regulations present major operational and IT infrastructure changes and will take up significant resources. It might all prove to be worthwhile, however, for innovative lenders that use these initiatives to improve customer value rather than focus exclusively on complying with regulations.

When so many indicators seem to contradict each other, we must prepare for the unexpected. Through our industry roundtables, consumer and market research, partnership support, and corporate finance strategies, the team at Auriemma is prepared to assist clients in achieving growth targets while fortifying defenses against wide ranging threats.

Meanwhile, Auriemma is undergoing its own transformation. You may have noticed that I referred to the company as Auriemma throughout this letter, as opposed to ACG, which was our preferred acronym for many years. This is step one in a complete re-branding exercise we’ve embarked upon to more accurately depict who we are as a firm today and moving forward. Look for a new website, logo, and more in 2018.

We hope you enjoyed our perspective on the mixed signals rampant in 2017. While this annual industry round-up is a long-standing tradition, we continuously issue press releases, research, and articles focused on the topics that matter most to the industry. To follow along, please join us on LinkedIn or Twitter. Or, do it the old-fashioned way – give us a call.

We’d be happy to schedule time with you and your team to explore any of these (or other) topics in greater depth. Contact us at feedback@acg.net to set up a meeting or provide your thoughts on this year’s letter.

Regards,

Michael Auriemma

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Auriemma Welcomes Managing Director and General Counsel to Senior Leadership Team

(New York, NY): Auriemma is proud to announce the addition of Mindy Harris as Managing Director and General Counsel, starting November 1, 2017. She joins Auriemma from Nordstrom Bank, where she was SVP, General Counsel and Compliance Officer.

Harris will contribute to client engagements across Auriemma’s existing four lines of business with her vast knowledge and experience overseeing the regulatory compliance function at card issuers and negotiating a diverse array of contracts including card partnership agreements.

“Mindy will elevate our game as we support clients trying to navigate the complex burdens of regulatory compliance issues in today’s environment,” said Marc Sacher, EVP at Auriemma. “She understands how that influences ongoing operations, as well as how those obligations impact partnership structures among issuers, brand partners, and even third-party investors.”

Harris also will serve as General Counsel for Auriemma. In this role, Harris will advise the firm on legal, regulatory and compliance matters and will be responsible for the firm’s legal affairs.

“Auriemma is admired as a trusted advisor to the consumer credit card and payments industries,” said Harris.  “I am delighted to join Auriemma at this exciting time of sweeping change across the financial services landscape. I look forward to working alongside Auriemma’s outstanding team of industry experts as they drive ongoing innovation and success for our clients.”

In her previous role at Nordstrom Bank, Harris built and led high-performing legal, compliance, and enterprise risk management teams that supported Nordstrom’s co-brand card programs and bank.

Before joining Nordstrom Bank, Harris served as in-house counsel focusing on credit cards and consumer payment systems at banks and servicers including U.S. Bank, Plus System, Inc. and Rocky Mountain BankCard System.  She is a board member and past president of the Credit Card Bank Compliance Association.

 

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space.  We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.  Founded in 1984, Auriemma has grown from a one-man shop to a nearly 50-person firm with offices in New York and London.  For more information, contact Marc Sacher at (212) 323-7000.

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Four Things That Will Make UK Consumers Want Your Credit Card

(London):  UK cardholders have 1.77 credit cards in their wallet on average, and while some may assume consumers aren’t in the market for a new card, the majority are actually open to new card offers. But consumers aren’t settling for just any card, and to earn their business, issuers need to be smart about their products’ value propositions and how they’re marketed. In the densely populated field of credit card options, how can issuers stand apart from the pack? Offering the best rewards is a good start, according to new data from Auriemma Group. But consumers want more. Here are some of the more compelling ways issuers can increase their chances of getting into consumers’ wallets.

  1. Offer attractive rewards.

No matter the category, rewards continue to push consumers over the tipping point when making acquisition decisions. When faced with the long list of elite options, the 66% of respondents interested in acquiring another rewards card most frequently cited the richness of rewards as the chief factor for their selection. But just offering rewards isn’t enough.

  1. Highlight your card’s exclusivity and prestige.

When some consumers select a card, they do so because the card embodies a particular lifestyle. Aspirational or otherwise, cards perceived as prestigious (28%) and those with the best benefits (21%) (e.g., exclusive events, lounge access) are highly coveted by those looking for a new card. This group seeks cards that tout platinum or titanium status, viewing them as having the most enticing benefits.

  1. Maintain a well-known and respected public image.

Card selection is also heavily impacted by the familiarity with and reputation of your brand. Among those surveyed, approximately three-quarters (73%) indicated they would be unlikely to take a card from a brand they are unfamiliar with. Consumers over 55 years old were even more likely to say this (83% vs. 67% under 55). Likewise, 74% reported a brand’s reputation (positive or negative) would impact their decision, a factor even more important for cardholders under 55 (79% vs. 65% of 55+). And 21% of current cardholders in the market for a new card say they would base their decision on their personal affinity for the brand associated with it.

  1. If you’re UK-based, tell people!

Consumers see real value in products from issuers who have a distinct presence in the UK: 73% of cardholders said it was important for their card issuer to be headquartered in the UK. In fact, if rewards and rates were equal, 77% of cardholders with a preference would prefer their issuer have a national presence (vs. 23% global). UK-based issuers that are not calling attention to their geographical connection to cardholders are missing an opportunity to increase their wallet share and acquire new customers.

“Issuers who can effectively communicate these four attributes stand the best chance of acquiring new customers,” says Jaclyn Holmes, Director of Payment Insights at Auriemma. “The challenge will be in striking the proper balance and ensuring your message is targeting the correct consumers.”

Survey Methodology

This study was conducted online within the UK by an independent field service provider on behalf of Auriemma in June 2017, among 500 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 Consulting Group

Auriemma is a boutique management consulting firm with specialised focus on the Payments and Lending space.  We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.  Founded in 1984, Auriemma has grown from a one-man shop to a nearly 50-person firm with offices in London and New York.  For more information, contact Jaclyn Holmes at 020 7629 0075.

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