Abstract
Overview
Credit card issuers face increased pressure to maintain profitability in this difficult economic environment, with cardholder spending curtailed and rising default risk among a larger percentage of consumers. Losses in lines of business other than credit card issuance have affected institution-wide approach to risk - particularly risk of default among credit cardholders - and therefore the approach that card issuers can take in acquisition and ongoing management of cardholder lines of credit.
This Javelin report uses robust consumer data and executive survey data to provide understanding of consumer and issuer reaction to economic difficulties, and prescriptive plans of action to create opportunities for card issuers, leveraging economic difficulties for competitive advantage.
Primary Questions
- What are consumer behavior changes vis-a-vis their credit card usage as a result of the economic downturn?
- How are credit card issuers reacting to changes in cardholder behavior and in the economy?
- What is the best way for credit card issuers to maintain a balance between profitability and risk against default?
- Which segments of the consumer population pose a higher risk of credit card default?
- How should issuers alter policy with regards to more risky cardholders?
Methodology
The consumer data in this report is based on data collected online from a random-sample panel of 1,500 respondents in April 2008. The survey targeted respondents based on representative proportions of gender, age and income as compared to the overall U.S. online population. Overall margin of sampling error is ±2.53 percentage points at the 95% confidence level.
Executive data is based on an online survey collected from a sample of 13 credit card industry executives at top-tier credit card issuers in May 2008. Among issuers surveyed, 54% have issued more than 5 million cards, 8% have issued between 1 and 5 million cards, and 38% have issued less than 1 million cards.
Audience:
Credit Card issuers, specifically portfolio managers, product development and product marketing managers; Card networks
Companies/Organizations Mentioned in Report
- Fair Isaac
- Experian
- Equifax
- TransUnion
Table of Contents
- Overview
- Primary Questions
- Findings and Analysis
- Methodology
- Executive Summary
- The Economy Affects Financial Institutions' Credit Card Issuance Policies
- Decreased Consumer Spending and Potential Shift to Interest Income for Card Issuers is Not Without Risks - Political and Otherwise
- Consumers Attempt to Reduce Credit Card Usage, But are Less Able to Pay
Off Balances
- Interchange Revenue May Suffer in the Immediate Term as Consumers Curtail Spending
- Potential for Increased Consumer Reliance on Credit Cards as Recession Wears On
- Consumers Show Increased Difficulty in Paying Off Credit Card Debt
- Card Issuers Face Increased Regulation and Scrutiny with Regards to Interest Rate Policies
- Over Half of Credit Card Issuers Surveyed Suffered Exposure and Losses
- Does the Economy Pose a Threat or Present an Opportunity?
- Issuers Cut Back Lines of Credit as a Response to Losses and Exposure
- More than Half of Middle-Aged Consumers Less Able to Save
- Economic Difficulties Lead Middle-Aged Consumers to Cut Back Credit Card Usage
- Economic Situation Results in More Credit Card Debt for Middle-Aged Consumers
- Build or Buy: Vendor Solutions from the Credit Bureaus Intend to Find the Balance and Allay Risk for Issuers
- Level of Trust in Financial Institutions Drops Among Middle-Aged Consumers
- Issuers Constrict Acquisition of New Cardholders: Opportunity for Aggressive Issuers
- Mirror Image: One-Third of Issuers Expand Acquisition
- Monitor Middle Income Consumers Closely to Maintain the Risk-Opportunity Balance
- Credit Card Charge Off Rates Increase Over the Past Several Quarters
- Consumer Credit Outstanding Also Shows Increases 2007 to Early 2008
- Gas Purchases and Other Staple Purchases are of Particular Interest in Shifting Behavior
- Appendices: Additional Consumer and Executive Information
Table of Figures:
- Figure 1: Economic Impact of Various Consumer Behaviors
- Figure 2: Financial Institutions Suffering Losses due to Economic Conditions
- Figure 3: Financial Institution Reaction to Economy with Existing Cardholders
- Figure 4: Consumer Ability to Save as a Result of the Economy by Age
- Figure 5: Credit Card Usage Changes as a Result of the Economy by Age
- Figure 6: Ability to Pay off Credit Card as a Result of Economic Changes by Age
- Figure 7: Consumer Trust in Financial Institutions by Age
- Figure 8: Issuer Constriction of Cardholder Acquisition
- Figure 9: Issuer Expansion of Cardholder Acquisition
- Figure 10: Consumer Ability to Pay off Credit Card by Income
- Figure 11: Credit Card Chargeoffs by Quarter
- Figure 12: Credit Card Outstanding by Time Period
- Figure 13: Specific Behavior Spending Changes among Consumers
- Figure 14: Credit Card Usage by Income
- Figure 15: Purchase of Luxury Good by Age
- Figure 16: Purchases of Luxury Goods by Income
- Figure 17: Credit Card Balance Changes by Age
