August 7, 2021

Changing Climate in the Consumer Lending Marketplace: What We’re Seeing and Hearing​

Jim Stewart

Jim Stewart

CEO, Epic Research

Four Things We’re Hearing

  • Personal loan applicants like branches
  • Credit card competition surges
  • Ad spending for some products still recovering
  • Is there a hotter new product than BNPL?

A five-minute read

Personal Loan Applicants Like Branches

  • Epic recently surveyed 1,156 consumers regarding their personal loan experiences and preferences, which uncovered the following findings:
PERSONAL LOAN PREFERENCES - infographic

Credit Card Competition Surges

  • Mail volume is back to 2019 levels
  • New account acquisitions have followed
  • Sales on existing accounts are up
  • Mail volume in June continued its rise from prior months and was above 2019 levels for the first time since the pandemic
CREDIT CARD – DIRECT MAIL VOLUME YOY 20210807
  • Large issuers primarily drove this growth, with Capital One alone accounting for 60 million mail pieces – primarily its Quicksilver product – and almost 20% of total June card mail volume
  • Card offers from national branch network issuers rose to 2019 levels, while regional bank offers remain at levels half of that
Q2 CREDIT CARD DIRECT Mail Volume 2019 v. 2021
  • While the number of new bankcards issued in 2020 was down 27% from 2019, cards issued in 2021 through April are 16% greater than the same period in 2020, and the 6 million cards issued in April of this year mark the highest April total in over 10 years
Bankcard Originations- Accounts
  • U.S. credit card spending continued to improve with Credit Suisse reporting that 2Q ’21 spending at Citi, Chase, Bank of America, and Wells Fargo grew a combined 46.5% more than 2Q ’20, and 13.2% over 2019, exceeding 1Q ’21's 4.4% growth vs. Q1 ’19
  • While spending is up, balance growth at most issuers still lags with June balances down 3.9% vs. June 2020 – Capital One’s numbers below illustrate the disparity
Domestic Card trends at Capital One Financial
  • Chase added a revamped Slate Edge card targeted at consumers trying to pay off credit card debt and increase their credit scores
  • Highly successful personal loan marketer Best Egg is getting into the credit card segment with a credit builder product it says is the first in a series of new product capabilities that the company is poised to launch in 2021
  • Bank of America became the latest large issuer to launch a new cash back product with the introduction of the Unlimited Cash Rewards card
  • Amex and Chase are revamping their high-end products:
  • Amex paired an annual fee increase on its Platinum Card with enhanced benefits, including up to $200 in annual statement credits for prepaid hotel bookings, credits toward a CLEAR membership and a number of subscription services, and access to additional airport lounges
  • Chase is rumored to announce enhancements to their Sapphire Cards this month
  • Demonstrating the heated competition in the high-end card market, Citi has stopped taking new applications for the $495-a-year Citi Prestige card, encouraging prospective customers to instead consider its lower-fee or no fee cards

Ad Spending for Some Products Still Recovering

  • While credit card mailers in June were back to prepandemic volumes and student loan mail volumes remain above prior years’, other products have not fully recovered
DIRECT MAIL VOLUME - JAN-JUN 2019, 2020, 2021
  • Personal loan mail volume fell ~50% since the onset of the pandemic, but finally accelerated in June to within 25% of June 2019
PERSONAL LOAN – DIRECT MAIL VOLUME YOY 20210807
  • Direct mail typically accounts for 60%+ of total acquisition spend (including online search and paid media), and credit card remains the most resilient product overall
Est. YoY spend % change – 2021 monthly vs 2020

Is There a Hotter New Product than BNPL?

  • By far the trendiest new segment has to be Buy Now, Pay Later (BNPL)
  • BNPL volume at Afterpay, QuadPay, Klarna, and Sezzle grew almost 500% from January 2019 through August 2020 (while accounting for just 3% of total spending among the consumers tracked)
Change in U.S. BNPL Gross Merchandise Vol. Since 2019
  • BNPL users are projected to continue growing
Predicted BNPL Service Users, 2021-2025
  • BNPL is most popular amongst consumers between the ages of 18 - 45
BUY NOW PAY LATER Service Users, by Age
  • Existing players have acquired significant customer bases:
  • Affirm is forecasted to reach 6 million U.S. users this year
  • Afterpay is projected to reach 12.7 million users, and Square Inc., the digital-payments platform led by Twitter Inc. founder Jack Dorsey, just announced it would acquire Afterpay for $29 billion in its largest-ever acquisition
  • Klarna is expected to hit 21.9 million users
  • Sezzle, with over 2.6 million shoppers and 34,000 merchants, just received a $30 million investment from Discover
  • Plus, there has been a blizzard of new or enhanced product announcements this past year:
  • Barclays announced in April a partnership with fintech Amount to roll out a white-label BNPL offering that allows merchants to provide the service to their customers under their own brand
  • PayPal’s new BPNL product, Pay in 4, was launched last fall
  • Chase offered its version of BNPL with the November launch of My Chase Plan, which allows cardmembers to make fixed payments over time for specific purchases
  • Citi’s similar program, Flex Pay, was extended to Amazon last year
  • Amex’s Pay It Plan It shares similar features with some of the others
  • Citizens, which has had a BNPL program with Apple since 2015, reported its expansion of Citizens Pay to consumer electronics, health and fitness, virtual learning, and home improvement verticals
  • According to Bloomberg, Apple and Goldman Sachs plan to announce Apple Pay Later, which will operate through Apple Pay with features similar to those of Affirm and PayPal – this follows Goldman’s MarcusPay alliance with JetBlue from last year
  • Amazon Pay Later, which allows payments over 12 months, has over 2 million customers in India
  • Ally announced a point of sale loan partnership with Mastercard’s Vyse last August
  • Meanwhile, Capital One announced it will no longer allow transactions identified as point of sale loans on its credit cards
  • And we’re sure there are more…
  • Epic's Take
  • BNPL is a growing space with a large number of competitors – both new and entrenched
  • So far, pricing for both consumers and merchants appears to be mostly rational
  • The frenzy is somewhat reminiscent of the co-brand and affinity credit card gold rush of the ’90s, when many issuers jumped in only to ultimately withdraw due to their lack of competitiveness

Quick Takes

  • Speaking of BNPL, as those players continue efforts to monetize their customer base, Afterpay is testing a new money mobile app that offers users a debit card and savings account

Thank you for reading.

The Epic Report is published monthly, and we’ll distribute the next issue on September 11th.

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Epic Research uses innovative, data-driven techniques to model, design, and execute high-performing direct marketing campaigns to help financial services companies acquire new customers. Click here to find out how we can help you.

Jim Stewart
www.epicresearch.net

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