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Q1 2014: US Credit Card Issuer performance snapshot

Q1 2014: US Credit Card Issuer performance snapshot

For the first time since Q4 2008, near the height of the credit crisis, year-over-year receivables increased by more than 1% in Q1 2014. Purchase volume increased by 7.0% on a year-over-year basis, a trend that has been consistent since the end of the great recession (note: quarter-over-quarter receivables and purchase volume decreased by 5.3% and 9.4%, respectively, consistent with seasonal trends), writes James Watts, Manager, specializing in Credit Card Issuing, First Annapolis.

“I think we all in this business have just been struck by for really a number of years now, credit kind of comes in a little better than expected and growth is kind of hard to come by…The consumer is just being very conservative. In some [ways], the very thing that sort of frustrates the economy from growing, which is consumers are not spending enough, what are they doing with their money? Well, a lot of times they are paying down debt and just being extra careful.” -Richard Fairbank, Chairman and CEO, Capital One Financial


Key developments include:

1.  Strong New Account Growth: Several issuers mentioned new account growth in either their quarterly presentations or financial supplements. Chase and Bank of America, two of the largest U.S. issuers, both experienced a steady increase in new accounts over the past year. The number of new credit card accounts opened in the first quarter of 2014 increased by 7% at Bank of America and 23% at Chase on a year-over-year basis. The majority of receivables growth in the first quarter of 2014 was driven by the four smallest issuers tracked in our study – American Express, Discover, Wells Fargo, and U.S. Bank.

“We grew card receivables by nearly 5% which is at the upper end of our targeted range. We achieved this level of growth through wallet share gains with existing customers, and the continued success of Discover it, where we drove a double-digit increase in new accounts.” -David Nelms, Chairman and CEO, Discover Financial Services

“Credit card balances were up $1.9 billion or 8%, with record new account growth.” -John Stumpf, Chairman and CEO, Wells Fargo

“[on loan growth] First of all, as you see our linked quarter was 1.3% and we have been saying we’re in that range of 1% to 1.5%. Based on our ending period not just our average and based on what we’re seeing, I’ll expect that range to continue at quarter two at the high end.” -Richard Davis, Chairman, President, and CEO, U.S. Bancorp

2.  Steady Flow of New Products: A handful of new issuers launched notable new products, or enhanced current products, in the first quarter of 2014 and it has become apparent that several more new products are on the way in 2014. American Express launched two EveryDay cards designed to be the first lending (revolving) product of its kind to offer full Membership Rewards. Alliance Data, who is primarily a private label card issuer, launched co-brand products with Virgin America and Orbitz this year and Barclaycard launched both consumer and business versions of the Hawaiian Airlines credit card. Wells Fargo gave some more detail on its partnership with American Express, stating that it would launch two new cards this summer. Not all issuers are in product expansion mode. Citi, for example, stated that it has made significant progress related to an initiative that started in 2012 that aims to reduce the number of card products.

“To be specific, during the quarter we launched Amex EveryDay, a new credit card that rewards card members for how often they use the card not just how much they spend. The reward structure intends card members to use the card for everyday purchases at the places they frequent most. We are excited about the potential of the product to attract new customer segments to our franchise.” -Jeff Campbell, EVP and CFO, American Express

“As you can see, we have made significant progress since the end of 2012 in reducing headcount, the number of card products, retail branches, and support sites, and we expect to make further progress by year-end.” -Mike Corbat, CEO, Citigroup

3.  Digital Channels Continue to Proliferate: Data publicly released from Chase, the largest U.S. credit card lender in terms of outstandings, suggests that the online channel now accounts for more than half of total acquisitions for some issuers – up from 29% in 2010. Furthermore, the number of active Chase online and mobile customers grew by 9% and 24%, respectively on a year-over-year basis. Bank of America also released new figures disclosing that it had 30.5 million active online banking accounts and 15.0 million active mobile banking accounts, a figure that has grown by nearly 20% year-over-year.

Other Statistics disclosed at Chase’s 2014 Investor Day:

  • Digital servicing interactions per household are up 28% from 2010
  • 78% of Ultimate Rewards redemptions now occur through digital channels

“Banking centers and basic teller transactions continue to decline as customers move their business to mobile and online transactions. Yet we still have many millions of visits each week to our branches. But in the aggregate, our self-service channels of ATM, online and mobile transactions continue to grow.” -Brian Moynihan, President and CEO, Bank of America

1 Includes income from acquiring business and private label receivables and volume.
2 Earnings restated in 1Q 2014, historical figures adjusted to conform to new reporting methodology. Purchase volume includes cash advances.
3 Receivables, purchase volume, and net loss rates are for U.S. consumer cards. After-tax ROA restated to include “Consumer Lending” only; which now includes Dealer Financial Services. Period amounts have been reclassified to conform to current period presentation.
4 U.S. card business, small business, installment loans only. Purchase volume excludes cash advances. 2Q12 Results include the impact of May 1, 2012 closing of HSBC transaction resulting in approx $28.2 billion in receivables at closing.
5 Receivables and charge-offs are for U.S. Cardmember Lending business only. Purchase volume is for U.S. Card Services segment, consumer and small business.
6 Includes U.S. domestic receivables and purchase volumes only. Restated: ROA reflective of Direct Banking segment (80+% credit card) and implied U.S. Cards tax rate of ~40%. ROA denominator estimated from total loans ended totals.
7 Wells Fargo began reporting purchase volume in 4Q 2013. 1Q 12 figure an estimate based on an average turn of 2.0x.
8 After Tax ROA reflects Payment Services line of business income and average loans. Earnings restated in 1Q 2014, historical figures adjusted to conform to new reporting methodology.
9 After Tax ROA excludes Wells Fargo. Credit specific income not reported. Reflects any previous quarter restatements and includes addition of U.S. Bank.

Source: All commentary from 1Q14 Earnings Call Transcripts.

The post Q1 2014: US Credit Card Issuer performance snapshot appeared first on Payments Cards & Mobile.

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