Headwinds to Credit Card Receivables Growth Beginning to Subside

Navigator Edition: August 2014
By: James Watts

Industry credit card receivables grew by 2.8% on a quarter-over-quarter basis and 2.9% on a year-over-year basis in the second quarter of 2014. This level of receivables growth marks the largest year-over-year increase since the fourth quarter of 2008. Year-over-year growth was nearly universal as five issuers, Citi, American Express, Discover, Wells Fargo, and US Bank, posted increases in receivables of more than 4.0%.

“As we look at our underlying consumers, they have increased their spending. We can see in our data that the retail volumes on debit and credit cards were up 4% from last year’s second quarter but more importantly up 8% from the first quarter of this year showing increased momentum in spending among our card customers.” – Brian Moynihan, President and CEO, Bank of America

Figure 1: Changes in Ending A/R Year-Over-Year and Quarter-Over-Quarter – 2Q 2014

Fig-1_-Changes-in-Ending-AR-2Q-2014Source: Issuer Quarterly Filings.

In addition to an increase in consumer spending, the nation’s largest issuers attributed growth to three key areas:

1.  Strong New Account Growth:

  • Chase opened 2.1 million credit card accounts (up 40% year-over-year)
  • Citi attributed some of its growth to the new account performance of the AAdvantage Executive card
  • Wells Fargo’s new account growth was up 4% year-over-year
  • Discover experienced “double digit” new account growth year-over-year
  • The number of new consumer credit card accounts generated at Bank of America grew by nearly 18% year-over-year

“Core growth is now outpacing one-offs [a one-time event such as a portfolio acquisition] and we acquired over 2 million new accounts in the quarter, up 40% year-on-year.” – Jamie Dimon, Chairman and CEO, JPMorganChase

2.  New Product Enhancement and Rewards: Wells Fargo continues to highlight the success of its Propel products, releasing several impressive statistics as part of its 2014 Investor Day (e.g., Propel 365 pilot data indicates a 53% increase in average spend per active and a 13 – 32% increase in spend related to bonus categories versus Wells’ existing credit card portfolio1). Discover recently launched Discover it Chrome, a product that offers 2% back on gas and restaurants.

“Our growth rate has been above the industry average reflecting new account growth, product enhancement and increased usage among our existing customers.” – John Stumpf, Chairman, President and Chief Executive Officer, Wells Fargo

3.  Other Tactics: The nation’s largest credit card lenders continue to test balance transfer offers and credit line increases. For example, Bank of America launched its Better Balance Rewards card, which promotes a 0% balance transfer offer and rewards revolvers who responsibly manage a balance, and Capital One has been experimenting with credit line increases over the past couple of years.

According to the Fed’s most recent quarterly survey of bank’s senior loan officers, a large percentage of banks expect higher growth (or lower contraction) during 2014 and the (slight) majority of respondents expect that growth in credit card receivables will reach precession levels by 2016. Despite high aspirations for increased cardholder loans over the next several years, commentary was cautious and it is clear that banks plan to continue to take a prudent approach to growth.

1 Existing Credit Portfolio excludes College and Secured Cards.

For more information, please contact James Watts, Manager, specializing in Credit Card Issuing, james.watts@firstannapolis.com.

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