EMV Chip Cards Are Slow To Reach Gas Pumps
Credit and debit #cards with EMV chips have been around for five years now, except at gas stations.
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EMV Chip Cards Are Slow To Reach Gas Pumps
Credit and debit cards with EMV chips have been around for five years now, except at gas stations.
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The Allure of Debit Cards for P2P Payment Companies
In the U.S., #debit #cards are the most popular method of #payment, so it’s not surprising that many fintechs are trying to enter the debit card market. For #companies focused on P2P payments such as PayPal, Venmo (owned by PayPal), Square, and savings apps like Acorns or Money Lion, the leap into the debit card business is easier, […]
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The data imperative for credit cards
Over the past dozen years, numerous US regional #banks have relaunched consumer #credit card programs on a self-issued basis. At the outset, the growth component for many of these relaunch strategies relied heavily on branch channels, customer loyalty and the desire to consolidate banking relationships. In recent years, the banks’ credit card programs have been plateauing to low, single-digit growth rates without obvious incremental prospects for growth in accounts, spend and balances. Although credit card portfolio health and returns continue to be favorable, without the ability to demonstrate further stepwise growth potential, these programs are at risk of atrophy in key areas, such as attention from senior executives and ongoing investment in innovation.
Often, the keys to reinvigorating growth include identifying and addressing root-cause growth inhibitors (which often relate to approval rates, credit line assignment and service experiences), and finding ways to digitize and integrate customers’ credit card experiences with those of their overall banking relationships. #Data exhaust created by these card programs and other players in the payment value chain could hold a secret to vast amounts of information value to unlock growth opportunities.
Card issuers and, in particular, the payments industry generally have been early adopters of data-driven insights to grow their business; and rightly so, since the industry generates a massive volume of data. Banks are increasingly recognizing and reaching the point at which they need to drive innovative applications of the insights in functions that traditionally do not leverage them fully or consistently—for example, for enhancing customer experience or devising new product strategies.
In addition, as depicted in Figure 1, prospect and customer segmentation can be a key component of focusing growth strategy investments on areas of greatest opportunity. For instance, segmentation can help a bank determine areas for product refinement to both improve experiences for existing credit cardholders and tap into unserved or underserved markets. We also see segmentation as the prudent way for many banks to carefully venture outside of their existing retail banking customer bases through twinning analysis to identify characteristics their most profitable cardholder segments may share with non-relationship prospect pools.
Figure 1. Actionable segmentation driving key customer/prospect insights
Source: Accenture research and analysis Card issuers see only one dimension of customers. However, there is significant information asymmetry with other players in the value chain, namely, payment networks, merchant acquirers and merchants. Issuers capture data about #cards and cardholder details only, while merchant acquirers see details on merchants and transactions, merchants collect data on their customers and purchase basket, and the payment networks record data on movement of funds between these players and authorization tokens. Building a cross-payment cycle data view allows creation of rich micro-segments for hyper-personalization (Figure 2). It also enables banks to conduct merchant, store and product-level marketing studies, generate early warning indicators for fraud and delinquency, and create visibility into customer and industry trends.
Figure 2. Types of data captured and analyzed across different parties involved during the payments process
Source: Accenture research and analysis Collection, cleaning and deciphering this data exhaust is an onerous task. However, advancements in artificial intelligence capabilities, like machine learning and Big Data, is making it easier and faster than ever before.
Capabilities, such as Accenture’s Intelligent Enterprise Platform that sits on top of the Accenture Insights Platform allows banks to layer third-party data from social media, web browsing and geo-tagging over the payments data. This further deepens card issuers’ understanding by manifolds around customer needs and behavior. It’s opening previously unimagined use cases, like real-time mood-/persona-based recommendations, geo-tagging and location-based offers to customers.
Looking forward, we anticipate that a cross-payment cycle data ecosystem together with machine learning will play a broader role in how banks generate new growth in accounts, spend and balances, as well as how they harvest value in their credit card programs.
We invite you to read about data as the new ecosystem currency in our report, The New, New Normal: Exponential Growth
Special thanks to Sanjay Ojha for his insights, as well as Rajat Mawkin and Uday Gupta, who also contributed to this blog.
The post The data imperative for credit cards appeared first on Accenture Banking Blog.
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Marcus, Goldman Sachs’s Consumer Lending Arm, Is Not Adding Credit Cards Products … Yet
#Marcus, the #consumer #lending arm for #Goldman Sachs, wants to become the one-stop shop for many of your financial matters, except for one: #credit #cards — at least for now. “Our fundamental thinking on the credit card space is that there is a lot of innovation that is required. It is true that the industry has a […]
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The risk-returns roller coaster for US consumer credit cards
Since the global financial crisis, #consumer #credit #cards have become a relatively stable and profitable asset class within US retail banking. However, with increasing movement across multiple, high-visibility areas of the credit card P&L from rates to rewards and charge-offs, issuers and their stakeholders are asking, “How are we performing?” and in a larger sense, “How should we be evaluating program performance?” An illustrative scan of publicly disclosed key performance indicators—such as interest yields on credit card loans, credit line utilization rates, and return on equity—provides topical insights into the complexities of a credit card portfolio, the risk of “mono-variabilitis” at portfolio levels, and the importance of evaluating performance holistically within the context of the customer portfolio, business strategy, and operational capabilities of different issuers.
Interest Yields
At a cardholder level, most large and mid-sized credit card issuers assess higher annual percentage rates (APRs) for cardholders deemed to be more at risk for payment default, a concept generally known as risk-based pricing. As would be anticipated, empirical data from US FDIC call reports for the top 100 US financial institutions (FIs) with at least $ 10 million in credit card loans (Figure 1) depicts a correlation between (a) interest yield, which is the weighted average APRs on revolving balances divided by revolving and transacting balances, and (b) net charge-off rates on credit card loans.
What is interesting is the substantial statistical variance at the portfolio level that cannot be explained by just looking at rates and charge-offs, even when segmented by portfolio type. From our past experience with credit card portfolios, sources of this variance are wide-ranging and interlinked: from customer heterogeneity and different product types (the upper right of the dot plot of Figure 1, for example, that includes several card portfolios focused on the “building credit” consumer segment, such as secured cards) to variance in customer treatment and other portfolio management practices throughout the account lifecycle.
Reflecting the wider range of factors, just because an issuer is over- (under-) indexing the line, with higher (lower) yield at a particular charge-off level, does not necessarily mean the business is over- (under-) performing. Even for common and widely held relationships at the cardholder level, the portfolio picture is more complex and calls for knowledge of both the pieces and the interlinked relationships to ascertain the business meaning of relative industry performance.
Figure 1: Interest Yield vs. Net Charge-Offs on Credit Cards
Source: Accenture analysis of FDIC call report data for US commercial #banks, savings banks, and savings & loan associations with at least $ 10 million in consumer credit card balances as of year-end 2017. National Banks had $ 10+ billion in credit card receivables for the period; Super Regional Banks had $ 1 to $ 9.9 billion; Regional Banks had $ 100 to $ 999.9 million; and, Community Banks had $ 10 to $ 99.9 million. Specialist portfolios had (i) >$ 25M in credit card receivables per branch and fewer than 100 branches or (ii) yield greater than 30%. n=100.
Credit Line Utilization
The nuanced nature of portfolio management becomes even more apparent when credit line utilization is examined. Based on data from Figure 1, Accenture analyzed credit line utilization rates for a subset of 69 of in-scope FIs (excluding those portfolios with net charge-off rates in 2017 in excess of 5 percent and utilization outliers that imply a distinct product type). Credit line utilization was defined as credit card balances owed on transacting and revolving accounts divided by credit line commitments, inclusive of these balances, to extend credit to individuals for household, family and other personal expenditures through credit cards.
Figure 2 shows significant dispersion of line utilizations by FIs with virtually no direct statistically correlative relationship at the portfolio level between credit line utilization and net charge-off rate, even when segmented by portfolio type. At the cardholder level, one would anticipate credit line utilization to increase with net charge-off rates as FIs look to more closely manage credit lines for higher risk cardholders. And indeed, when customers are segmented within portfolio, we have observed portfolios to generally depict an inverse relationship between credit risk and line utilization.
Although operational practices—and the soundness of those practices—may not always be visible without knowledge of the particular internal factors, the variance at a portfolio level may also reflect a wide array of approaches to credit line setting and ongoing account management observed in-market. These range from FIs that have halted proactive credit line increases ever since the global financial crisis, to those that are becoming more progressive in setting and revising credit lines, including through automated means of obtaining ability-to-pay information and cardholder-level multivariate decisioning. Together with the difference in portfolio dynamics and operational treatment, these variations in overarching strategy can have meaningful implications for contextualizing and evaluating performance.
Figure 2: Credit Line Utilization vs. Net Charge-Offs on Credit Cards
Source: Accenture analysis of FDIC call report data for US commercial banks, savings banks, and savings & loan associations with at least $ 10 million in consumer credit card balances as of year-end 2017, consumer credit line utilization rates ranging from 5% to 30%, and 2017 net charge-off rates on consumer credit card loans of up to 5%. National Banks had $ 10+ billion in credit card receivables for the period; Super Regional Banks had $ 1 to $ 9.9 billion; Regional Banks had $ 100 to $ 999.9 million; and, Community Banks had $ 10 to $ 99.9 million. Specialist portfolios had (i) >$ 25M in credit card receivables per branch and fewer than 100 branches or (ii) yield greater than 30%. n=69.
Return on Equity
Reflecting the full suite of drivers, including those above, and how issuers manage them, return on equity (ROE) figures for credit cards are typically both higher and more variable than other bank assets. Credit card banks—defined as FIs with at least 50 percent of total assets in consumer credit cards and which account for roughly half of the consumer card market—have a five-year running average ROE over double that of the banking industry average of 8.64 percent for 2017, per the US FDIC Quarterly Banking Profile for Fourth Quarter 2017.
As alluded to above, return is not without risk. Although banks have been generally disciplined in requiring higher returns for riskier assets; the range of outcomes grows as charge-offs grow, magnified by leverage and real differences in strategies and operational capabilities. However, it is the combinations of these factors that not only make credit cards a challenging business, but also make them all the more rewarding over the long term for those banks that appreciate the variances in portfolio behavior and can manage the full suite of portfolio levers towards an overarching vision.
Implications
As a whole, the credit card industry is viewing today’s market as attractive for growth and providers are looking to outperform. With a healthy respect for the complexities of managing a card portfolio and appreciation of holistic interactions, leading FIs are clearly defining their business strategy, taking an integrated approach to portfolio management, and continually optimizing their business assets.
The future always has elements of terra incognita and more so in today’s market. Unified approaches, facilitated by communication among the necessary parties across the cardholder lifecycle, can help individual issuers deliver portfolio performance improvements in the context of their credit card business vision, mission, risk tolerance and market conditions.
For further reading, see how a major Brazilian financial services provider transformed its credit card processing and how a Latin American Bank used customer analytics to increase its credit card revenue.
The post The risk-returns roller coaster for US consumer credit cards appeared first on Accenture Banking Blog.
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Supplier acceptance of purchasing cards grows
Enhancing #supplier #acceptance of card payments continues to be an important lever for growth and expansion of distributed plastic #purchasing #cards (“P-Cards”) and virtual card programs (“ePayables”). New findings from the recent NAPCP and Accenture Supplier Acceptance of P-Card and ePayables Payments Survey highlight industry progress in this area since our 2013 and 2009 survey findings.
In summary, supplier acceptance continues to show signs of improvement:
- Supplier acceptance of P-Cards across most supplier spend categories has increased (Figure 1)
- ePayables acceptance by suppliers has crossed the 50 percent milestone
- Card acceptance has become more integral to supplier selection by corporate buyers
- Suppliers are increasingly recognizing the benefits of faster payment/cash flow
- Maximum allowable P-Card transaction sizes have risen
- Educating suppliers continues to correlate with better program performance
Figure 1: Supplier Acceptance of P-Cards by Spend Category
Source: NAPCP and Accenture
Suppliers have many reasons to take cards and are increasingly handling card acceptance in a more automated manner. Figure 2 documents several key reasons why suppliers accept cards for B2B payments.
Figure 2: Reasons Suppliers Take Card Payments, According to End-Users
Source: NAPCP and Accenture
Looking forward, corporates and their P-Card and ePayables providers should continue working more closely with their suppliers to increase their knowledge of lower acceptance costs available through passing Level 3 line item detail transaction data. Qualifying for larger transaction size rates and assisting suppliers in automating the receipt and reconciliation of payment instructions and remittance data is also necessary.
I invite you to read the full report to find out more about the link between acceptance and payments growth.
For more information on the NAPCP, visit http://www.napcp.org.
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Number of EMV-Enabled Cards Reaches All-Time High
Most #cards across the globe are EMV-chip enabled, according to a report by EMVco. According to the report, released yesterday, the #number of EMV-chip enabled cards in global circulation increased by 1 billion in 2017. In that year, there were about 7.1 billion EMV-enabled cards in circulation, the report showed. This year there will likely […]
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Americans Prefer EMV Chip Payment Over Swiping Cards
#Americans #prefer paying with EMV #chip #cards to #swiping their cards or even paying with cash, according to a recent survey from financial #technology solutions provider Fiserv. According to the report, released last week, 36% of the people surveyed said they preferred EMV chip cards to other #payment methods. The reason, according to the report, […]
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E-money strategies make it easier for novel payment providers to self-issue cards
Over the last several years, the payments ecosystem has experienced a surge of new entrants that seek to capitalize on the continued shift to electronic payments. Most are non-traditional financial services #providers (such as fintechs, #payment specialists, consumer product companies and media firms), introducing innovative products and services to enhance existing payment processes, address underserved areas or improve customer experiences. However, many of these entrants have faced challenges implementing solutions in the US due to the need to rely on third-party partnerships to bring their offerings to market.
In the US, card network rules require an entity to be a financial institution and have FDIC insurance to become a principal member and issue general purpose payment #cards. These rules have presented challenges for some payment providers in quickly launching card-based products. The investment and scale needed to be a self-issuer in the US are significant and partnering with traditional financial institutions can add additional infrastructure, regulations, compliance oversight and costs.
In Europe, however, the Financial Conduct Authority has made it #easier for non-traditional financial services providers to self-issue products and services by offering e-money licenses. E-money licenses provide a “bank lite” charter that allows companies to store monetary value electronically; customers can then use their stored electronic funds to make payments without necessarily involving a bank account. In parallel, the payment networks have granted full principal membership to companies holding e-money licenses, enabling them to issue physical cards tied to e-money funds. As a result, several companies have obtained both e-money licenses and principal network membership to eliminate the reliance on third-party partnerships, reduce costs and increase speed to market. Recent examples include FairFX, WEX and Facebook (Figure 1).
Three E-money Use Examples
While this strategy is relatively recent, the implications are far-reaching. With less regulatory burden and compliance oversight, the barrier to enter the payment ecosystem is significantly lower. Many of the companies exploring e-money #strategies are more agile than traditional financial institutions, and their reliance on partnerships will no longer impede their speed to market.
The creation of e-money licenses coupled with principal network membership may be advantageous for card networks. The model expands the number of network participants and potential payments volume, while providing consumers and businesses with enhanced products and services not offered by legacy players. There are risks associated with expanding the base of market participants, however, and data security is a primary concern. Protecting cardholder data is paramount given the systemic and business risks involved. Traditional financial institutions invest significant resources to maintain necessary information/data security policies and procedures; the security standards for companies with e-money licenses may not always be as robust, as illustrated by some notable public examples.
It’s unclear whether the US will follow Europe and make it easier for non-traditional payment providers to self-issue cards. Fintechs have been eager to obtain bank charters as a means of offering a broader scope of products and services directly to consumers and businesses without reliance on third parties. The U.S. Office of the Controller of the Currency and FDIC continue to evaluate requests but have yet to approve applications.4 However, banking regulators of seven US states have agreed to simplify the way #fintech companies can apply for licenses in a bid to make it easier for businesses to offer their services nationwide.5 Key to all of these trends will be balancing promotion of payments innovation for consumers and businesses with ensuring continued safety and soundness for the payments systems.
1Finextra.com, FairFX gains e-money licence through acquisition of Q Money, 1/20/2017
2Wex Press Release, WEX Virtual Payments Secures E-Money License and Becomes Principal Member of Mastercard in Europe, 8/30/2017
3TechCrunch, Facebook just secured an e-money license in Ireland, paving the way for Messenger payments in Europe, 12/7/2016
4Reuters, U.S. banking regulator not ready for fintech charter applications, 9/13/2017
5The Wall Street Journal, Seven States Team Up on Fintech Licenses, 2/6/2018The post E-money strategies make it easier for novel payment providers to self-issue cards appeared first on Accenture Banking Blog.
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