(New York, NY) Credit card late fees have been a hot topic since February when the Consumer Financial Protection Bureau (CFPB) proposed rules aimed at reducing them. The proposal would reduce the cap for late fees to $8 per month (from $41 today), prohibit annual inflation increases on late fee amounts, and ensure that late fees must not exceed 25% of the required payment. Auriemma Group’s latest issue of Cardbeat US uncovered how consumers feel about late fees, the proposed rule changes, and if they would be willing to accept changes to their card products that may occur as a result of the new $8 maximum.
Late fees are top-of-mind for repayment.
Auriemma’s research found that ongoing interest rates (67%) and late fee amounts (62%) are at least somewhat influential when considering how to prioritize paying off credit card balances. However, many cardholders continue to struggle. The CFPB’s biennial report to Congress on the consumer credit card market found that credit card companies charged consumers $25 billion in fees last year, and an additional $105 billion in interest.
“The big question is how to help a struggling population without hindering consumers unaffected by late fees,” says Jonathan O’Connor, Senior Manager of Research at Auriemma. “For now, late fee waivers play a key role in maintaining that balance. While 18% of credit cardholders have been charged at least 1 late fee in the past 12 months, on average, 69% of late fees charged are waived, according to Auriemma’s data.”
And while there are some cardholders that continue to be challenged by late fees, many credit cardholders express positive sentiments about them. Roughly eight-in-ten agree that they encourage timely repayment (83%) and incentivize responsible credit card usage (76%). Still, three-quarters of those who have been charged a late fee say they make it difficult to get out of debt, underscoring the importance of the CFPB’s proposal.
Most believe new late fee rules would have a positive consumer impact.
Awareness of the proposed late fee rule change is limited, but notable. 32% of credit cardholders say they have at least heard of the CFPB’s proposed amendments to Regulation Z, which “implements the Truth in Lending Act (TILA), to better ensure that the late fees charged on credit card accounts are ‘reasonable and proportional’ to the late payment as required under TILA.”
After being provided a description of the proposed rule changes, 67% of cardholders said the CFPB’s proposed late fee rule change would have a positive impact on the average credit cardholder, if enacted. Few (9%) believe the regulation would have a negative impact.
“Those who feel positive tend to believe the changes will make repayment more manageable and provide some needed financial relief,” says O’Connor. “However, detractors worry the change would force issuers to increase interest rates or devalue rewards.”
45% of credit cardholders are unwilling to change their current credit cards’ offerings for an $8 late fee.
Though many respond to the CFPB’s proposed changes positively, if negative alterations need to be enacted to introduce an $8 late fee cap, most would be unlikely to continue using the card. According to Cardbeat US, the most acceptable exchanges, cited by 20% of cardholders, would be to reduce the card’s rewards value or increase the card’s APR by 10%. The least attractive option would be to reduce statement credits or cashback redemption value.
“An $8 late fee cap can help consumers and issuers alike, if rolled out thoughtfully,” says O’Connor. “No cardholder wants to see their card’s value watered down to make room for reduced late fees they may never encounter, but the change could significantly help those in the direst financial straits better manage their repayments.”
If implemented, an industry-wide $8 late fee cap could cause market share shifts based on implementation. Auriemma’s research found that while many cardholders don’t want to relinquish rewards, benefits, or increase annual fees or APR in exchange for lower late fees, issuers able to offer the lower fee without degrading their card’s value too strongly may see a marked impact on acquisition and retention, while also aiding the cardholders in their portfolio who may be struggling.
Survey Methodology
Cardbeat US
This Auriemma Group study was conducted online within the US by an independent field service provider on behalf of Auriemma Group (Auriemma) in September 2023 among 802 adult credit cardholders. The number of interviews completed for both is sufficient to allow for statistical significance testing among sub-groups at the 95% confidence level ±5%, unless otherwise noted. The purpose of the research was not disclosed, nor did respondents know the criteria for qualifying.
About Auriemma Group
For nearly 40 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognized experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximize their performance. Auriemma serves the consumer financial services ecosystem from our offices in New York City and London. For more information, call Jonathan O’Connor at (+1) 1-646-437-6116.
(New York, NY) Online payment card application abandonment is common, but can be curbed. Auriemma’s latest issue of Mobile Pay Tracker found that 49% of credit cardholders have abandoned an online card application, and that those who abandon only completed one-third of the applications they started, on average, in the past 12 months. However, Auriemma’s research also identified three ways to mitigate application abandonment—pre-approved offers, email and text reminders, and by thoughtfully communicating value proposition elements.
1) Pre-approved offers can encourage applicants fearing rejection to complete their card application.
One-in-ten of those who have abandoned an online payment card application did so for fear of being rejected. This proportion increases to 33% among those with FICO scores less than 670. Pre-approvals could help facilitate application completion for those unsure of their approval odds.
According to the Q2-2023 issue of Cardbeat US, 70% of credit cardholders say they are likely to apply for a new credit card if preapproved. This is especially true for cash back and point card applications.
“While some applicants may be attracted to a card’s value proposition, they may think the card is out of reach,” says Jonathan O’Connor, Senior Manager of Research at Auriemma. “A preapproved offer could be the tipping point that is the difference between application abandonment and completion.”
2) Following up by email or text greatly increases application completion odds.
Over four-in-ten cardholders who have abandoned an online payment card application say they received an email or text reminder that they started but did not finish the application. And this reminder led 45% of them to complete at least one of their outstanding applications.
“While reasons for application abandonment vary, some have more to do with technical or application-centric issues,” says O’Connor. “Reminders allow those who abandoned in frustration the opportunity to complete a process they may have always intended to finish.”
However, reminders do not always work on the first try. On average, those who completed an application following a reminder email or text say that they received over three communications before completing an abandoned application.
3) Make sure communications provide new, valuable information.
Email or text payment card application reminders can be helpful to some, but most want these communications to include new, valuable information. 73% of credit cardholders agree that to be valuable reminders should include fresh details about the card such as new introductory offers, rewards, or benefits.
“Providing increased value or reminding applicants of strong rewards and benefits can offset what otherwise may be seen as an irritating message,” says O’Connor. “While these types of communications are seen as an annoyance to some, offering an opt-out option while emphasizing new details or lesser-known features can motivate application completion without alienating your potential cardholder.”
Online payment card application abandonment is a challenge that can be effectively addressed through strategic measures. By enacting these three strategies, issuers can mitigate application abandonment and foster stronger connections with prospective cardholders, ultimately benefiting issuers and cardholders alike.
Survey Methodology
Mobile Pay Tracker
This Auriemma Group study was conducted online within the US by an independent field service provider on behalf of Auriemma Group (Auriemma) in August 2023 among 2,151 adult Apple Pay, Google Pay, and/or Samsung Pay eligible 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.
About Auriemma Group
For nearly 40 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognized experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximize their performance. Auriemma serves the consumer financial services ecosystem from our offices in New York City and London. For more information, call Jonathan O’Connor at (+1) 1-646-437-6116.
(New York, NY) Co-brand credit cards connect cardholder spending to exclusive benefits and rewards at their favorite brands. The fierce competition to capture everyday spend and increase cardholder acquisitions continues to push brands, issuers, and networks to evaluate which value propositions resonate best. Auriemma Group’s latest issue of Cardbeat US found that rewards—points, miles, or cash back for applying and for ongoing spend—are the top driver of card acquisition and usage.
The challenge for brands, issuers, and networks is crafting a compelling value proposition that optimizes their objectives and delivers a product that resonates with customer enough to stand out in a crowded marketplace. The card program’s benefits and rewards must be differentiated enough to speak to a brand’s unique customer base, while valuable enough to rival the competition, which includes proprietary bank cards in addition to other co-brand cards.
Auriemma Group’s latest issue of Cardbeat US determines the drivers of value proposition success by asking existing co-brand cardholders to compare potential co-brand rewards and benefits. Surveying opinions on the relative value of rewards, card design, tolerance for annual fees, and more, the issue confirms that card rewards are the primary driver of co-brand card success.
46% of co-brand credit cardholders indicated that their desire to earn ongoing points, miles, or cashback rewards for spend would motivate them to apply for a co-brand credit card, more than any other single factor across all types of co-brand cards (e.g., airline, hotel, retail). Attractive sign-up offers also play a role–29% of cardholders say they would motivate them to apply for a co-brand, the second-most cited factor.
And when considering potential motivators for increasing co-brand spend outside the partner brand, roughly eight-in-ten co-brand cardholders say their co-brand delivering double points for online (82%), grocery (81%), and/or restaurant purchases (77%) increases their likelihood to use it.
“Card acquisitions are powered by attractive sign-up offers and strong ongoing rewards,” says Gary Rezak, Managing Director at Auriemma Group. “Then the value of the rewards and benefits, as well as the cardholder’s ongoing relationship to the brand, continue to engage cardholders and unlock the programs’ full potential.”
In addition to rewards value, brand affinity is a significant driver of cardholder engagement, especially for retail co-brand cards. 34% of retail co-brand cardholders cite frequent purchases at the brand as their reason for applying. And hotel co-brand cardholders have their own unique motivations, with improving loyalty status as an especially powerful motivator of ongoing engagement for that category. While other co-brand card characteristics, such as the card’s design or APR, should be thoughtfully considered, far fewer cardholders say these factors have a major impact on their card usage.
“Many value proposition elements make an incremental difference in the success of a co-brand and cannot be ignored, but strong rewards value is a must,” says Rezak, “a co-brand without valuable sign-up and ongoing rewards risks never getting a prospective applicant’s consideration in the first place.”
To get full access to this special co-brand issue of Cardbeat, Auriemma’s syndicated research publication studying the debit and credit card industry, or to discuss a custom research study on cards and payments topics, contact Jaclyn Holmes, Director, Auriemma Research.
For assistance assessing, evaluating, finding partners, and negotiating your co-brand and private label partnership, contact Gary Rezak, Managing Director, Auriemma Group.
Survey Methodology
Cardbeat US
This Auriemma Group study was conducted online within the US by an independent field service provider on behalf of Auriemma Group (Auriemma) in June 2023 among 1600 adult credit cardholders. The number of interviews completed for both is sufficient to allow for statistical significance testing among sub-groups at the 95% confidence level ±5%, unless otherwise noted. The purpose of the research was not disclosed, nor did respondents know the criteria for qualifying.
About Auriemma Group
For more than 35 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognized experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise, and tools they need to navigate an increasingly complex environment and maximize their performance. Auriemma serves the consumer financial services ecosystem from our offices in New York City and London.