First quarter is a dream for the credit manager. He or she has survived year end. Half the year’s potential write-off is in the pipeline based on the U.S. write-off policy standard of 185 days past due. The task becomes maintaining focus on the basics of collections, with mail dunning, call servicing, and policy management.
In Credit Advisory Service research at Mercator Advisory Group last year, we noted erosion in credit quality. This year, if operational performance resembles what we have seen at most major banks, things are starting to get rocky. Write-offs are up, delinquency is rising, and many issuers are beginning to feel the angst of looser lending. You can see it in the industry numbers—we pegged the year-end number pretty well last June in the Mercator Advisory Group report titled U.S. Credit Card Debt: Circle the Wagons and Fortify
. You may also have read our more prescriptive view, Credit Management: Seven Strategies to Take Advantage of the Growth Wave
However, here we are. Credit card delinquency is rising, and although acquisitions is strong, new account growth is extremely limited because of high voluntary attrition rates, as you can see in our just-released Viewpoint Credit Card Acquisitions: Maximizing Results amid Change
. The short story is that we estimate the U.S. credit card market at 435 million active accounts at the 2017 year end. Although 66.6 million new accounts were booked last year, the industry grew by only 2.3 million accounts. The difference between new accounts and growth, 64.3 million accounts, closed due voluntary and involuntary attrition. The voluntary component includes some customers who shifted to other issuers in search of rewards
. Involuntary delinquency is driven by increased delinquency.
If you have not had the chance, read Mercator’s recent documents 2018 Outlook: Credit
and 2018 Outlook: U.S. Payments
. The Credit Outlook focuses on specific trends within the credit function; we also rate ourselves our projections for last year and provide a view of 2018. The 2018 Payments Outlook, written by Mercator’s new head of research, Aaron McPherson, provides a comprehensive look at all payment disciplines.
We started the year strong with the research mentioned above on account acquisitions, which is a “must read” for every credit, policy, and acquisitions manager because it fuels the credit card business. There is plenty more ahead in 2018. Described below are some of forthcoming reports and viewpoints to watch for.Small Business Lending
In Mercator research during 2018, we will be looking at the basics of small business credit cards and why so many small business owners prefer to use their personal cards despite the fact that top issuers such as American Express, Capital One, Chase, and Citi have many options for them.Rewards: Sustainability, Evolution, and Impact
How long can issuers keep offering rewards? They drive spending, but they also bring attrition. What other models can work? Where is this all going?Private-Label Cards
The private-label model of consumer credit, sometimes perceived as archaic, is alive and well, dominated by several strong players, and it will see growth in 2018. Mercator research will give our views on pricing, scope, and risk.Emerging Trends in Global Credit Card Regulation
You’ve got to keep a global perspective on cards because regulations have a way of migrating. Interchange in the U.S. looks fine for now, but it is pretty restricted in many markets. European Union regulations (PSD2) are weakening the banks’ hold on data and payments. What does it mean for the U.S.? And should we be thinking about PSD3 or PSD4?
Onward and Upward
The books are closed on 2017, a year of high transaction growth and high risk. A small bubble appears to be passing through the credit ranks, so it is time to manage what the industry has and slow growth of revolving debt, which is now at a record. Watch retention strategies and save a customer!
Stay tuned and keep in touch. We look forward to interacting with you. Please feel free to reach out and share your thoughts with us.
Director, Credit Advisory Service
Mercator Advisory Group