Three Things We’re Hearing
A three-minute read
- BNPL asset quality watch
- Home equity and personal loan marketing soars
- Consumer interest for cards and HELOCs grows
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BNPL Asset Quality Watch
- The feeding frenzy of activity around BNPL has raised questions regarding the asset quality of BNPL loans
- BNPL lending has grown during a historically benign credit environment and the loans are largely underwritten without credit bureau data
- There is no “institutional memory” at many leading BNPL providers regarding experience with down credit cycles in the product
- A recent study by Equifax showed 91% of BNPL consumers have FICO scores lower than 670, reflective of adverse selection
- Dealroom documented over 170 BNPL related start-ups, reflecting the free-for-all in the space – below is a sample, with the full list here
- Credit Suisse recently reported positive delinquency statistics from Affirm’s securitizations
- With rapid growth in the segment and the absence of vintage-level delinquency data, asset quality trends remain difficult to read; however, the competitive and economic environment suggests we keep an eye on this space
Home Equity and Personal Loan Marketing Soars
- New acquisition marketing for consumer financial services continues to be dominated by direct mail, which accounts for 60%+ of spending
- Most segments have recovered to levels near those of Q1 2020, with the exception of education refinance, which continues to be slowed by the federal government’s payment freeze
- March home equity mail volume approached the previous highs from 2019
- Figure has been the number one home equity mailer each month for the past year
- Online search volume for “home equity line of credit” reached a multi-year high in Q1 and appears to be increasing in Q2
- Online search volume for “personal loan” also picked up in recent months
- And has been accompanied by a spike in search cost
- In the past year, much of the increase in personal loan lending has come in the segment below 660 FICO
- Credit card mail volume is exceeding pre-pandemic levels with the “Issuer” segment – e.g., Capital One Venture, Wells Fargo Reflect, Bank of America Unlimited Cash Rewards – growing in proportion compared to co-branded offers
- With mail volume back to “normal” levels, and many issuers signaling an intent to grow further, paper shortages may temper these expectations
Consumer Interest in Cards and HELOC Products Grows
- Since April 2020, Epic has surveyed consumers several times regarding their bill paying behaviors as well as their attitudes about acquiring new financial products
- The most recent survey was conducted in April 2022 among 1,107 consumers
- As mentioned above, online search volume for HELOC has reached a recent high, and search volume for “credit card” has similarly trended upward
Quick Takes
- Bloomberg reports that Apple is developing its own payment processing technology and infrastructure
- The initiative, called “Breakout,” will reduce Apple’s reliance on outside financial services companies
- The move represents a departure from Apple’s previous U.S. approach, which centered on partnerships with firms like Barclays, Citizens, and Goldman Sachs
- First quarter results from major card issuers showed a significant rebound in U.S. consumer spending from Q1 2021
- Credit card spending increased 23% at Citi, 29% at JPMorgan Chase, and 33% at Wells Fargo
- Chase reported 64% higher card spending on travel and dining than in ’21
- The CFPB signaled its intent to lower the cap on credit card late fees
- The limits were initially set in 2009 with the passage of the CARD Act
- The card industry will undoubtedly respond to a lower cap by adjusting other pricing levers to meet their return hurdles
- Amazon renewed its co-brand relationship with Chase
- It had been widely predicted that Amazon would move to another issuer, with American Express and Synchrony reported as other bidders
- Other co-brand news includes
- Capital One signed a $125 million "banking partnership" with MLB
- PayPal revamped its Cashback Mastercard to offer 3% cash back when checking out on PayPal and 2% on other purchases
- Subsequent to Alliance Data Systems rebranding to Bread Financial, it announced a partnership with Victoria’s Secret to issue a rewards credit card
- Zelle is reportedly considering expanding acceptance beyond consumers to retailers, thus competing with Visa and Mastercard
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Thank you for reading.
Jim Stewart
www.epicresearch.net
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