(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.

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.


Michael Auriemma

(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.

(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.

(New York, NY):  Auriemma Group’s consumer studies will now be more widely and immediately accessible to its subscriber base, thanks to CAMBER, a newly developed searchable research portal.  This new self-serve option gives subscribers greater accessibility to Auriemma’s research—Cardbeat®, Cardbeat UK, The Payments Report, and Mobile Pay Tracker.

Subscribers can search through research published since 2015 and download abstracts as well as full issues within the company’s subscription. As a new offering, CAMBER brings the subscriber experience into the digital age without replacing the high-touch, personalized service subscribers have come to expect from Auriemma.

Self-serve: Subscribers now have a library at their fingertips, shortening the lag time between request and receiving relevant data.

Digital access: Finding relevant payments data is more convenient than ever, with more visibility into the subscribing company’s publications. In addition, subscribers will be able to view abstracts of all research publications, including topics their company may not currently subscribe to.

New search capabilities: Users can now search with more granularity across hundreds of data sets and reports, with topics spanning rewards cards, mobile payments, top-of-wallet selection and more.

This is the first stage in a multi-year digital roadmap for Auriemma publications. Future iterations will include enhanced search functionality, a topic request wizard, and webinar downloads.

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. For more information, contact Jonathan O’Connor at 212-323-7000.

(London, UK):  One year after the implementation of Interchange Fee Regulation (IFR), the majority of British consumers continue to favor payment cards that reward them with points or miles for their spending, according to recent research by Auriemma Group.  The EU-mandated cap on credit and debit card interchange fees reduced the revenues earned by card issuers, prompting many to scale back their rewards schemes in 2016. Despite these cutbacks, over half of UK credit cardholders in the Auriemma study say they earn rewards for payment card usage, and they respond enthusiastically by concentrating their spending on those cards.

As part of its ongoing UK Cardbeat research, Auriemma surveyed 400 UK adults who own rewards payment cards.  Almost a quarter (23%) reported a change to their rewards programme in the past year—78% of them saying the change decreased the overall value of the card. Still, more than half of that same group say their usage was not affected by these changes, and 82% say a payment card that earns rewards is their most frequently used card.

The most widely held type of rewards payment card is cashback (37%), followed by supermarket (33%), and airline (21%). Despite their smaller market share, airline miles seem to be the most powerful reward, as these cardholders spend more in total and report higher satisfaction overall.

“Airline and hotel rewards are big-ticket and aspirational” noted Marianne Berry, Managing Director of Auriemma’s Payment Insights practice, which conducted the study. “Most consumers who have an airline co-branded card are consciously banking their miles earned toward a free ticket for a vacation or personal travel, so they’re very motivated to use that card to pay for everything.”  On average, cardholders say they need to spend £8,325 to redeem points for a flight, compared to £3,386 for a hotel room.

This perception of rewards’ intrinsic value translates into much more spending. On average airline rewards cardholders spend more per month (£1,182) on their airline rewards cards than retailer/grocery (£606) and cashback (£564) cardholders do on those cards combined. And 62% of their spend is outside the card’s partner brand (vs. 52% retailer/supermarket cards), suggesting a purposeful effort to earn miles with a range of purchase types. They also ascribe a higher value to their airline miles earned. About half (46%) of airline rewards cardholders believe a mile is worth £0.05 or more, while only one-quarter (24%) of their retailer/grocery counterparts believe a point earned is worth the same.

“Ultimately, industries vary in how they structure their rewards payment card programmes,” says Berry. “Those with airline cards spend more and have to wait longer to redeem, while those with retail or grocery cards get more frequent, but lower-value rewards. These rewards schemes appeal to different types of cardholders.”

On February 22, these findings (and more insights on UK rewards payment cards) will be presented by Berry at the 2nd Co-Brand EMEA conference in London, entitled, “Is Your Marketing Bold Enough?” Auriemma’s Director of International Partnerships, David Edwards, will act as Chairman for the event. Those interested can visit www.airlineinformation.org to learn more.

Survey Methodology

This study was conducted online within the UK by an independent field service provider on behalf of Auriemma Consulting Group in September 2016, among 400 adult rewards 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.

About Auriemma 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.

Dec. 1, 2016

Dear Friends,

This is our 25th annual letter to clients and as usual, there’s no shortage of hot topics to discuss. The major news items are easy to tick off: Brexit, Wells Fargo, the U.S. Presidential election, and now Yahoo, just to name a few. It was a banner year for bombshells, pessimists, and the doomsday crowd. So, it wouldn’t be hard to fill this letter with downbeat stories. But those stories have been covered ad nauseam in the press and around the water cooler. Instead, I’ve decided to take a step back and consider the other side of the coin… the upside… the positive stories that surrounded us every day but seemed to get lost in the news cycle. When I stepped back, I realized there was plenty of positive change, innovation, and growth about which to be optimistic.

The upbeat theme for this letter wasn’t reflexive, though. Rather, the inspiration came to me while in Rio for the Olympics with my children.

Each day, my kids and I were blown away by the pride and enthusiasm among the athletes, their coaches, and the fans. We saw ten events, and purposely avoided many of the more mainstream offerings. Instead, we witnessed indoor cycling, weightlifting, decathlon, Tae Kwon Do, and others. We found that media hype had no correlation to the enthusiasm of the participants or their cheering sections. In fact, it seemed that if you bought a ticket for Olympic wrestling (for example), there was a strong likelihood that you knew someone competing in the event. So, perhaps the cheers were even louder!

There were countless amazing moments – hearing the Japanese fans chanting for their female gold-medalist… watching the Brazilian grounds keeper wave his flag from the tractor between equestrian events… witnessing the martial artist from Ivory Coast fall to the mat in tears upon winning gold… hearing the loudest EVER rendition of a National Anthem when the Brazilian boxer won gold… stomping our feet and chanting along with the Kazakhstan team as their compatriot narrowly missed medaling in weightlifting. These and countless other moments brought goosebumps to even the most jaded spectator.

Being surrounded by such positive energy was contagious and uplifting. It made me wonder:  how do we infuse some of that amazing energy into our industry? The more I thought about it, the more I realized, we already have lots of very positive and exciting things to cheer for. Perhaps they just needed a light shone upon them more directly. So, below are some of the accomplishments that I think we should look back on with pride as we reflect on 2016.

Let’s start with a quick example. In the post-recession era, how many times have we heard that customers don’t want another credit card? Don’t tell that to JPMorgan Chase which successfully debuted the Chase Sapphire Reserve card with a whopping $450 annual fee. The card has been a resounding success, particularly among millennials – a demographic that countless news stories told us was particularly credit-averse and unlikely to be wooed by card providers.

Chase found a winning combination for a customer who is primarily motivated by rewards. This hunger for rewards, which has been covered often in ACG’s proprietary consumer research, has, in turn, meant that the co-brand industry is thriving and flourishing, with a wide range of large programs making strides of late.

Perhaps the most sought-after co-brand deal of the year was Cabela’s, one of the last major retail self-issuers, which resulted in a watershed $5 billion deal for Capital One. American Airlines was also in play this year due to its recent merger with US Airways. Just as in Rio, where only one Gold medal is awarded, conventional wisdom would have expected one of the two incumbent issuers to land the combined deal. Instead, the Airline wound up maintaining programs with both Citi and Barclays, leveraging each for its strongest acquisition channels. Time will tell if that was two Gold medals or a Gold and a Silver.

Although Costco chose its new partners in 2015, the deal rolled out to consumers early this year. After reports of some conversion headaches, the results have been extremely positive for Citibank, Visa, and the Retailer

In the U.K., where interchange has been cut to roughly 30 basis points, many experts worried about the future of co-branding. ACG has been hard at work helping both issuers and partners to determine a deal structure that could survive in the new environment. Perhaps the first manifestation can be seen in BNP Paribas’ Creation Financial Services’ recent deal with InterContinental Hotel Group. The partners have managed to create a successful program and even improve the customer value proposition by taking a fresh look at the business model. Not only was the card nominated as the Best Credit Card Product of the Year by The Card & Payments Awards, but it is proof that co-branding can still work in Europe. You simply need partners that are pragmatic and willing to work together to drive value for the consumer.

Co-brand competition will continue well into 2017. Hilton will perhaps be the first to watch as it determines which of its two current issuers will manage its program into the future. A couple of recent mergers will also likely cause a stir as Marriott/Starwood and Alaska Airlines/Virgin America come together and sort out their various card programs. On top of this, other marquee programs will be up for renewal and several very interesting names have signaled their desire for de novo programs.

We’ll also have to keep an eye on Washington as we try to read the tea leaves for 2017. Economists are fond of the Latin phrase “ceteris paribus” which roughly translates into “all other things being unchanged.” If you are a banker (or own bank stock) and apply that phrase, you are probably feeling pretty good since the U.S. Presidential election. Your stock is likely feeling the effect of the “Trump Bump,” and you may be anticipating a near-term environment of higher interest rates, lower tax rates, and less regulation.

While less regulation would be welcomed in certain quarters, it must be said that, even in the face of an increasingly stringent regulatory environment, our industry has found ways to innovate and excel. For example, regulations like the TCPA hindered the efforts of the Collections industry. The restrictions it set forth necessitated changes to the business model and in time the industry adapted. Enhancements in self-service, proactive client interactions, and “opt-in” mechanisms for communications, all led to a net positive for issuers and their customers.

The CFPB started supervising non-bank auto finance companies in 2015. Our clients quickly built capable Compliance teams and developed a rapport with the examiners. When you consider the speed at which these lenders expanded and invested in Compliance operations to handle large-scale audits with a brand-new regulator, the progress is impressive.

Mortgage lenders have also successfully navigated the ever-more-challenging scrutiny by regulators, often having State and Federal auditors onsite simultaneously. Meanwhile, they continued to emphasize staffing, processing, and technology improvements to keep customer experience paramount. Going forward, these lenders can look forward to HAMP coming to an end, property values gaining strength, reductions in modifications and short sales, and an uptick in originations.

Over the summer, the CFPB released an outline of proposals under consideration to overhaul the debt collection market. The agency limited the scope of its actions, saying it would address first-party creditors and third-party debt collectors in separate proceedings. This is exactly what ACG had recommended in comments to the CFPB when the rulemaking process began in 2013. The overhaul, which will include new requirements on debt substantiation, expanded disclosures, and limited “excessive” communications, represents the first major refresh for the industry since the Fair Debt Collection Practices Act was enacted in the 1970s. The CFPB’s willingness to listen to the industry and hone the application of its rules was widely appreciated. Perhaps it was even an example of how regulators and lenders can work together to meet their respective objectives.

Earlier this year, the FCA recognized the nuances of the card business as well. The U.K. agency released its Credit Card Market Study, and while many anticipated the report would be a wide-ranging critique of the industry, it instead focused on the needs of consumers with persistent debt. The FCA is currently conducting research on how to improve consumer repayment behavior, with everything from behavioral cues and statement language on the table. This is an opportunity for the U.K. credit card market to creatively serve the needs of these customers, as well as to proactively help improve consumers’ financial health.

The lessons learned from the Great Recession continue to inform industry decisions. All our lending clients have been watching closely for signs of pending trouble. Indeed, there are some signs of a potential cyclical downturn afoot. Delinquencies and credit declines are both on the uptick, for example. However, the fact that we are so keenly watching the landscape is a major improvement from previous cycles. It wasn’t long ago that in the wake of a credit crisis, a large number of bankers admitted to American Banker that their credit models had failed to accurately predict losses. Our current vigilance suggests an industry that is better prepared than ever.

After years of hesitancy and skepticism, EMV is finally coming of age in the U.S. By now, over 85% of our clients’ portfolios have been converted. In 2017, nearly all issuers will have migrated, dealing a blow to counterfeit fraud. Some clients have even reported that they’ve already recouped the expenditure of reissuing their chip cards.

Meanwhile, the continued increase of chip-on-chip transactions should help reduce the customer experience challenges still evident at POS, where customers often must quiz store employees if they should be swiping or using the chip. The uneven acceptance strategies across some of the nation’s biggest retailers have left customers cold – and tweeting thousands of jokes at the payment industry’s expense.

Retailers who were not EMV-compliant saw an uptick in card-present chargebacks due to the liability shift. But as more retailers expand their EMV acceptance, that chargeback category will decline. We anticipate rates should begin to normalize and then improve over pre-EMV rates, which is good news across the board.

While EMV migration has blunted fraud in face-to-face transactions, the fraud has shifted elsewhere. Card-not-present and old fraudster favorites like check, wire, and ACH fraud are on the rise. It may be hard to see the good news here – unless you’re a criminal. However, the industry is working together in unprecedented ways to curtail some of the newer strands of fraud that are emerging. For example, ACG just launched a roundtable for retailers to address the challenges of payments fraud in a post-EMV world.

Fraudsters are also increasingly deploying synthetic fraud, an esoteric fraud type that uses stolen data (often from children and the elderly) to open new accounts. This fraud is nearly impossible to proactively identify, since current consumer privacy concerns hamper efforts by credit bureaus to validate social security numbers. The key to defusing this fast-growing fraud is industry cooperation. Earlier this year, ACG gathered more than 30 representatives from issuers, industry associations and networks, and credit bureaus to discuss how to tackle the problem. The path forward will require navigating a legislative thicket, but at least the conversation is underway.

Mobile payments have also gained ground this year. When Apple Pay hit the market two years ago, the headlines decried the imminent death of credit cards. Two years later, the headlines have reversed, calling mobile a major flop. Both sides of the spectrum are wildly exaggerated. While 2016 certainly wasn’t the “Year of Mobile Payments,” we never really expected it to be. Nor do we expect that 2017 or even 2018 will earn that title. Instead, consumer adoption will be gradual as consumer preference evolves and technology matures.

Issuers lament the lack of enough mobile volume to impact their overall results. But, according to ACG’s Cardbeat® research, just over half of cardholders have the option of using Apple, Android or Samsung mobile payments, due to their phone’s capabilities. Of those, 31% are doing so at least some of the time. That’s a pretty good take rate for a brand-new product. Additionally, there’s a small universe of mobile payments invisibly thriving via apps such as Uber, Starbucks, and Venmo.

Players like PayPal have also continued to make major strides in the digital and P2P spaces. In our most recent Cardbeat research, PayPal beat out the major banks to be the favorite P2P service for consumers. While consumers claim to trust their banks more implicitly with their financial information, 69% say PayPal’s technology is superior to the banks’ ability to protect their information. Banks are coming to grips with this in a variety of ways. Citi recently hired over 40 employees from start-ups and tech companies to start its own FinTech division. Others, like BBVA and USAA, are forging partnerships with FinTech companies to develop new solutions and stay nimble. Even auto lenders are contemplating FinTech acquisitions to bolster their capabilities in credit verification and decisioning.

The global political landscape of 2016 can be characterized by shock and upheaval. Voters from the U.S. to the U.K. to Italy to Colombia, have surprised the world with their decisions. The status quo has been upended, and what this means for our industry and markets is still being decided.

ACG’s mission is to provide guidance for challenging decisions in challenging times. While we may not be able to change the behavior of regulators, consumers, or fraudsters, we can help clients to influence outcomes and deal with ramifications. We can help to decipher trends, prepare a good offense and/or a strong defense.

In 2017, you can expect ACG to unveil several initiatives in our ongoing effort to enhance our offerings. In addition to improving the analytical tools and customer experience in our proprietary VIZOR platform, we’ll be debuting a research portal for our Payments Insights data called CAMBER. Both of these platforms demonstrate our commitment to providing the rich data necessary to make meaningful decisions.

We’ll also be altering our physical and digital footprints. A new website with refreshed branding is in store for release later in the year. Our Twitter account will be more active. And, after years of managing our growth in creative ways within our current spaces in the Financial District of New York City and Farringdon in London, we’ll be making changes to both offices. Our London team will be relocating to new and upgraded offices, while our New York headquarters will be renovated to make room for a larger team. Both offices will see new and exciting designs meant to enhance our ability to work effectively. We look forward to hosting you at our new facilities before long.

As we wrap up 2016, it’s obvious that the world’s events can’t be boiled down into a letter any more than they can be squeezed into 140 characters on Twitter, a snapshot on Instagram, or a shaky video that disappears on Snapchat.  These are complex times, and I’ve fielded hundreds of phone calls and hosted scores of clients in our offices, all to dissect these topics. We are always happy to engage in discussions with you at any point, as well as to share the direction our data and intelligence say the winds are blowing.

Let’s kick-start 2017 by talking a little more about the sheer ingenuity, innovation, and optimism that permeates our industry. Let’s stomp our feet, wave our flags, and cheer on our competitors. Here’s to a productive, positive and, most importantly, happy and healthy year.








(London): The FCA is conducting research on consumer repayment behaviour to alleviate persistent debt in anticipation of a new package of remedies. The additional research follows the Credit Card Market Study Final Findings released in July.

Everything from behavioural cues to statement presentation could potentially influence payment behaviour, an FCA representative said during a Q&A session at Auriemma’s Card Finance Roundtable in October. While at the meeting of card issuers, the regulator detailed some of the hypotheses it is testing, including how different consumer segments react to behavioural nudges around suggested repayment amounts, the impact of minimum payment “anchoring,” and how the presentation of amortisation can stimulate repayment habits.

Six months of data will be used in the analysis to assess the study’s impact on consumer behaviour and monitor for unintended consequences.

The FCA also detailed an additional study in collaboration with The UK Cards Association, focussed on further conceptualising early intervention and establishing a set of escalation tools firms will follow to encourage consumers out of persistent debt.

“The FCA has acknowledged that behavioural nudges may not work for all customers, as some may be in financial difficulty,” said Matt Bethell, Senior Associate of Auriemma’s UK Industry Roundtables. “The output of these additional studies will be remedies that incentivise firms to escalate intervention around persistent debt, without damaging customer service.”

The follow-up studies directly respond to some of the FCA’s more significant conclusions from the July study, including the identification of two consumer groups requiring attention:  those carrying debt for longer than three years (most likely due to habitual minimum payments) and those moving rapidly from acquisition to problem debt within one year. To identify these groups, the FCA requested significant data sets from issuers and ran analysis across the product lifecycle. The FCA compared the returns of credit card products for both low- and high-risk consumer segments and found that, between 2010 and 2014, returns were typically six percentage points greater on high-risk segment products. One quarter of accounts taken out in 2013 by consumers within the high-risk segment were in severe or serious arrears by 2014.

“While the FCA concluded that the market is working well for the majority of consumers, and that product cross-subsidisation was not materially impacting competition, it also believes firms have fewer incentives to address consumers with persistent levels of debt and should be intervening earlier,” Bethell said.

While the full implications of the results of these studies are not yet known, issuers are anticipating changes to their portfolio economics and, potentially, value propositions. These developments will be key agenda items at the Card Finance Roundtable in the year ahead.

About Auriemma 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. For more information, please contact Matt Bethell at +44 (0) 207 629 0075.

(New York, NY) As the UK prepares to vote on whether to remain in the European Union, Britons debate the strength of their ties to Europe. When it comes to their financial behavior, however, they are clearly more similar to their American, rather than their Continental, cousins. While usage of credit cards in European markets such as France and Germany remain stubbornly low, both the US and the UK are reporting rapidly mounting levels of credit card debt, approaching levels not seen since the heady days preceding the financial crisis.[1] And while the US is usually seen as the poster child for “buy now, pay later,” UK cardholders aren’t so different, nearly equally likely to revolve balances on at least one card, according to newly released research from Auriemma Group, which conducted parallel studies in both markets.

Although on opposite sides of the northern Atlantic, payment behavior in the US and the UK is eerily similar, save a few key differences. It’s true, on average, US consumers hold more credit cards than their UK counterparts (2.3 vs. 1.9), but an equal proportion (26%) of each market frequently carries a balance on them. American and British consumers are also nearly identical when looking at balance transfers (10% vs. 13%), missed payments (11% vs. 13%), and credit card inactivity (24% vs. 27%) within the past year. “We generally find the same things important, but perhaps to varying degrees,” says Jaclyn Holmes, the Auriemma senior manager who directed the study. “This also translates when examining payment behavior. US cardholders, for example, are more likely to be incentivized by rewards or cashback offers, but both populations select this as the top offer that would make them use less frequently used cards more.”

A majority of consumers in both markets (65% in the US, 59% in the UK) cite the most obvious reason, “high spending,” for revolving balances. These revolvers try to pay off the credit card with the highest APR first, but UK cardholders more frequently cite allocating extra funds to paying off the card they use most frequently (22% vs. 16%). “Britons don’t want to lose access to that credit line,” says Holmes. “Twice as many UK cardholders say they rely on borrowing to afford day-to-day purchases so paying down that card first makes sense.”

Borrowing, of course, isn’t just limited to credit cards. Consumers in the US and the UK both cite taking out a mortgage (69% vs. 62%), emergencies (59% vs. 56%), and making large purchases (33% vs. 32%) as justifiable reasons to borrow. Auto loans, however, are much more widely held in the US (61% vs. 40%), while UK cardholders more often cite funding a creative project (23% vs. 15%) or managing cash flow (17% vs. 13%). “About one-third of each market has taken out a personal loan, but UK cardholders are nearly twice as likely to borrow for debt consolidation,” says Holmes. “Britons believe the repayment schedule would be easier with a personal loan, while those in the US more often cite wanting to build their credit history.”

For financial institutions wishing to better understand consumers across the pond, the good news is that payment behavior is generally similar regardless of locale. “Sure, US and UK consumers are not carbon copies of one another,” says Holmes, “but, based on our research, it looks like we are more alike than some may initially think.”

Survey Methodology

Cardbeat US was conducted online within the United States by an independent field service provider on behalf of Auriemma Consulting Group in April 2016, among 800 U.S. credit card users. Cardbeat UK was conducted online among 500 credit cardholders in the U.K. during March 2016. 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 qualifying.

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, ACG 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.

[1] http://www.wsj.com/articles/balance-due-credit-card-debt-nears-1-trillion-as-banks-push-plastic-1463736600

(London):  Supranational regulations such as the European Payment Services Directive 2 (PSD2) will burden credit card portfolio profitability and create new risks and opportunities, Auriemma Group said today.

The impact of PSD2 on credit cards and issuers more broadly was at the forefront of the agenda at Auriemma’s first UK Card Finance Roundtable meeting of 2016. The executive group, which convenes Finance Directors, CFOs, & SVPs of Finance and Accounting for leading issuers, meets regularly to discuss key financial management and compliance-related topics. The wide reaching implications of the directive ensures it features across all of Auriemma’s UK roundtables, from our UK Collections and Recoveries Roundtable to UK Customer Service, and is also a focus of discussion at our Fraud Operations Roundtable next month.

PSD2 is set to be one of the most disruptive payment directives ever implemented in the UK, when it is adopted by member states in 2018. While the first iteration of PSD in 2007 aimed to make payments simpler and more efficient across Europe through the creation of the Single Euro Payments Area (SEPA), the implications of PSD2 are far more potent for issuers and payment providers more broadly.

PSD2 will open the payments infrastructure and allow access to consumer account information to market players through the use of Application Programming Interface (API). By facilitating this direct access, API will establish two new roles in the EU payment landscape: Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs).

“Opening the payment landscape presents a unique set of challenges for issuers and card schemes, while presenting retailers and information aggregators such as comparison websites with previously inaccessible data,” said Carina Da Cruz, Director of UK Industry Roundtables at Auriemma.

Practically speaking, a PISP will have the right to initiate payments on behalf of the consumer by establishing a direct connection with the consumer’s bank upon authentication. Consumers will grant a PISP, such as an online retailer, permission to perform a payment transaction directly, thus bypassing multiple traditional payment participants including, most obviously, the merchant acquirer and card scheme. Significantly, this relationship will stay active to facilitate future payments until the consumer removes permission.

Second, AISPs will for the first time provide consumers with an aggregate view of their financial situation by combining multi-institution account information into a single portal. AISPs will have a direct connection with each financial institution and aggregate this information through a single authentication portal. More significantly, with this information AISPs will have the ability to cross-sell consumers more relevant, tailored propositions based on usage data.

The introduction of new players with direct access to consumer data will undoubtedly present significant challenges to issuers by way of lost revenue and increased competition. However, there are significant opportunities for issuers; members of Auriemma’s UK Card Collections and Recoveries Roundtable meeting in February discussed the challenges of obtaining reliable consumer financial information to complete accurate affordability assessments. API could allow issuers to assess debt affordability to a previously unattainable level of accuracy.

“API opens up a host of new opportunities to produce better customer outcomes, and issuers should rightfully be asking the European Commission for greater clarity regarding their ability to access cross institution account information to facilitate this,” said Da Cruz.

At the Auriemma UK Card Fraud Operations Roundtable in April, members will discuss the technical details of implementing new authentication processes mandated by PSD2. Opening the payment landscape to new players will require next generation multi-factor authentication technology to ensure consumers are protected and liability is shared fairly.

“PSD2 will remain front of mind for members across all of our UK roundtables as adoption looms,” said Da Cruz.  “Our model provides the ideal opportunity for market players to discuss the technical detail of the directive and assess the impact on individual portfolios.”

About Auriemma 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.  For more information, please contact Tom LaMagna at +44 (0) 207 629 0075.

© Copyright - Auriemma Group