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Banks That Issue the First Credit Card in Wallets Have Opportunity to Grow with Consumers’ Incomes

(New York, NY):  Becoming the first credit card in a person’s wallet has long-term financial benefits for banks; the average account tenure is 17.4 years. Further, more than two in five (41%) consumers report that they also have some other type(s) of account(s) with the same bank in addition to their credit card, most commonly checking and savings accounts. The results were published in Cardbeat,® a syndicated research report published by the Auriemma Group, and is based on a web-based survey of credit card users in the U.S.

Logically, most (64%) consumers indicate that they applied for their first card in order to establish their credit history. Additionally, the largest percentage (71%) of these consumers cite a specific life-event being associated with their first credit card acquisition, with many being related to educational milestones such as college or high school graduations. In theory bank transactional data, as well as lower-tech solutions such as having retail bank salespeople help to manage consumer relationships can enable banks to market to consumers during these life events.

Although direct mail remains an important acquisition channel for credit cards, in recent years, branches have been a rapidly-growing acquisition channel for new cards for a number of large banks. In fact, branches or other facilities that offer face-to-face consumer interactions are now responsible for nearly half (45%) of all new credit cards sold.

However, retail banks face challenges, notably, most new credit cards are issued to the Millennial population (born between the years of 1981-1991, now between the ages of 23-34), and this demographic segment is much more likely than other age groups to avoid visiting bank branches completely, preferring to conduct most of their routine bank business at ATMs or online instead. This makes reaching them more difficult than it was for prior generations. Some financial institutions have started to experiment with concepts like video chats with bank call center reps right from the ATM. While these are still in trial phases, its definitely a step in the right direction.

Marianne Berry, Managing Director of the Payment Insights practice at Auriemma, says that the overall message to banks is clear:  the benefits of being the first credit card in someone’s wallet are genuine, and these tend to be long-lasting, attractive consumer relationships. She says, “While most of the Millennial population cannot yet be defined as affluent based on income or assets, there is little doubt that in time, some will become affluent.”  Ms. Berry adds the banks that establish relationships with Millennials now, during their formative years, will have a unique opportunity to grow and expand existing relationships with these consumers as their personal wealth grows.

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 about Auriemma’s research, please call (212) 323-7000.

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Consumer Understanding of Credit Bureau Data May Be Flawed

NEW YORK, NY:  Over the years, American consumers have gained greater transparency on credit reporting. For example, in 2003, The Fair Credit Reporting Act (FCRA) was amended to require that each of the nationwide credit reporting companies provide consumers with one free copy of their credit report, upon request, once every 12 months. Previously, access was available for a fee unless the consumer had already been denied credit based upon credit bureau information.

According to recent consumer research published in Cardbeat®, a syndicated research report published by Auriemma Group, most U.S. consumers have a general awareness of credit bureau information (including their credit reports). Many consumers also understand the impact information has on their ability to obtain credit at a reasonable price. Cardbeat research shows that half (50%) of consumers are generally familiar with credit bureaus, with a higher percentage familiar when consumers have children in the household (66%), or are affluent, defined as consumers with $100,000 or more in assets (61%). Since the FCRA was amended to provide free consumer access to their credit information, the incidence of consumers who have reviewed their credit reports has grown from slightly less than half (49%) to more than three in five (62%).

Consumers consider their credit bureau information and credit score to be of nearly equal importance in terms of their ability to get the credit they need at a reasonable price (79% and 82%, respectively). However, more than one-third (34%) of consumers feel the cost associated with accessing their credit bureau information is not reasonable, when, in fact, it should be accessible for free.

Marianne Berry, Managing Director of the Payment Insights practice at Auriemma says, “The discrepancy between actual cost and perceived cost may be explained by possible consumer confusion.” For example, services that provide credit monitoring often charge fees. The Federal Trade Commission acknowledges that imposter websites claiming to offer “free credit reports,” “free credit scores,” or “free credit monitoring” have created consumer confusion. (Although the CARD Act did mandate new disclosures in the advertising of such services.)

Another area of confusion is the fact that credit reporting is not the same as credit scores. Credit scores are not routinely provided for free. Further, there are different credit scores available (widely-used credit scores are those developed by FICO, and another called VantageScore created in collaboration with the three major credit bureaus).

Financial institutions may have a role in helping to educate consumers. For example, banks’ own websites can potentially direct consumers to the official ‘annualcreditreport.com’ website for a free copy of their credit reports. Also, some credit cards are now offering consumers with complimentary access to their FICO credit scores. Ms. Berry adds, “While the short-term financial benefit of providing such consumer education may be difficult to quantify, gaining consumer trust may pay longer-term dividends by establishing them as a provider of choice.”

About Auriemma Consulting 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, call 212-323-7000.

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Basel III Makes Credit Card Portfolios a Buyer’s and Seller’s Market

John Costa, Managing Director of Auriemma Finance, has published an article in American Banker’s BankThink section. The piece focuses on how Basel III rules have magnified the importance of regulatory capital in the decision-making process to buy or to sell a credit card portfolio.

You can read the full story here: Basel III Makes Credit Card Portfolios a Buyer’s and Seller’s Market

For more information, contact John Costa at john.costa@auriemma.group or 212-323-7000.

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Desperate Times Call for Financial Creativity

John Costa, Managing Director of Auriemma Finance, has published an article in American Banker. The piece focuses on the notion of “creative finance” as an outcome of the global credit crisis.

You can read the full story here: Desperate Times Call for Financial Creativity

For more information, contact John Costa at john.costa@auriemma.group or 212-323-7000.

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