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Credit Cardholders Seek Smarter Budgeting Tools and Instalment Options

(London, UK): Many cardholders are looking for ways to more thoughtfully manage their purchases and repayment. Digital tools are a potential solution, but most consumers still track their budget manually. According to Auriemma Research’s latest issue of Cardbeat UK, however, 61% of cardholders believe digital tools would be helpful when tracking spend, even though only 20% say they are currently offered such a service from their card issuer.

Promoting existing digital budgeting tools (such as Monzo’s Salary Sorter, which segments income into spending, saving and bills), or creating new ones, will likely increase engagement and build loyalty with an issuer’s cardholders. However, tools offered must keep control in cardholder’s hands to remain appealing. For example, cardholders are more likely to set up spend alerts (45% likely) instead of spend limits (37%).

“Spend alerts may have slightly broader appeal because they put the real-time choice in the customer’s hands at purchase,” says Jaclyn Holmes, Director of Auriemma Research. “While both options provide cardholders the opportunity to set up thresholds in advance, limits prevent purchase at the point of sale, while alerts simply educate and allow consumers the choice.”

Digital tools can be helpful for keeping a budget organised, but instalment plans can help with budget management in the near-term. Online and in-store point-of-sale instalment plans provide a credit alternative for cardholders who have reached their spend or credit limit, those averse to credit cards or those who simply find the product appealing. Over one-third of those offered an instalment plan have taken advantage of the offer online or in-store over the past year. The take rate increases among revolvers (47%) and recent balance transfer customers (53%).

Revolvers and balance transfer customers are more attracted to point-of-sale instalment plans, they are more likely to have enrolled in them and are more likely to consider them for a variety of purchase types compared to their counterparts. And issuers have a clear advantage over third-party providers offering instalment plans. Nearly half of revolvers and balance transfer customers are interested in post-purchase instalment plans via their most frequently used card issuer, compared to nearly one-third of cardholders overall.

“Whether at the point-of-sale or post-purchase, revolvers and balance transfer customers are the richest audience for this product,” says Holmes. “Many seek ways to help manage their payments in an organised and predictable fashion, and instalment plans provide them a complement to other products that also offer them repayment flexibility.”

Whether for holiday, furniture, electronics or everyday items, instalment plans can help cardholders budget for future purchases. Although larger purchases tend to capture the most instalment plan usage, 25% of cardholders say they would consider the product for everyday items. This increases to nearly four-in-ten revolvers and recent balance transfer customers.

“Revolvers and balance transfer customers appear to be more open to utilising a variety of products available when making purchases and paying off debt,” says Holmes. “These cardholders don’t appear to be loyal to any one product and may be choosing between products based on need rather than desire.”

Cardholders have an increasing number of options to manage their finances. Whether setting up spend limits, alerts or accepting an instalment offer at the point-of-sale or post-purchase, cardholders have more flexibility than ever to decide how they will make their payments. Issuers who cater to this desire could increase engagement with their customers, particularly those who are already carrying a balance anyway.

Survey Methodology

This Auriemma Research study was conducted online within the UK by an independent field service provider on behalf of Auriemma from July-August 2019, among 806 adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, visit us at www.auriemma.group or call Jaclyn Holmes at
+44 (0) 207 629 0075.

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Auriemma Group Announces a New Award for UK Cards & Payments Awards

(LONDON) – Auriemma Group is pleased to announce its sponsorship of a new award at the UK Cards & Payments Awards. The award, Excellence in Operational Innovation, will recognise the card issuer, brand, banking acquirer or payment company that has best demonstrated operational innovation resulting in a best-in class customer experience.

Submitted entries could include innovation across a range of disciplines and areas, such as:

  • Transformation staff training to embrace new technology and or evolving staff environments
  • An innovative approach that had a positive impact on staff well being
  • Virtual customer service initiatives
  • Digital services to enhance people and customer interactions
  • Attracting and retaining staff initiatives

Judging criteria includes the following:

  • Innovative and forward thinking
  • Demonstrated employee or team impact and effectiveness during the qualifying period
  • Positive impact on employees and either directly or indirectly the customer
  • Metrics to validate against success criteria

Eligible entrants include brands and affinity partners, charge, credit, debit and/or prepaid card issuers, merchant acquirers and other payment companies. Entries should be submitted by 23 September 2019. Entries should feature initiatives implemented or launched between 1 September 2018 and 31 August 2019. A shortlist will be announced 13 November 2019, followed by the awards ceremony on 6 February 2020.

About the Card & Payments Awards

The Card & Payments Awards recognise customer service, excellence and innovation in the UK and Irish card and payments industry. Very well established and now in its 15th year, each year many eligible organisations compete for one of these prestigious Awards which are judged by an independent panel of industry experts.

About Auriemma Group

Auriemma Group’s mission is to give clients access to data and intelligence that drive decision-making. We provide information and advisory services in four areas: operational intelligence, co-brand partnerships, consumer research, and corporate finance. Founded in 1984, Auriemma serves the consumer finance industry from our offices in London and New York City. For more information, visit us at www.auriemma.group or call David Edwards at +44 (0) 207 629 0075.

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Card Controls Could Prevent Budget Shortfall and Curb Bad Habits

(London, UK):  Consumers are well-intentioned when building their budget, but even a nominal unplanned expense could leave UK cardholders financially constrained. Many can’t afford the miscalculation—on average they have £20 for daily discretionary purchases and 23% need to put their total income towards outgoings.

Consumers often navigate these financial hurdles on their own. While automation is transforming the banking industry, budgeting remains a very manual process for many cardholders. Auriemma Research’s latest issue of Cardbeat UK confirms that new technology may make budgeting easier for savvy consumers, with challenger banks Monzo and Starling leading the way.

In mid-2018, Monzo and Starling launched tools aimed at giving customers increased control over their spending behaviour. Several months later, Barclays followed, becoming the first high street bank to allow debit cardholders to block payments within specific retailer categories (others may adopt the technology in the future).

The move was aimed at protecting vulnerable consumers by providing them controls to disallow transmission of funds in select areas like gambling services, premium phone lines, pubs and more. The technology even offers a self-activated barrier to purchases in spend categories the consumer deems problematic, stopping them from overindulging at the casino, bar or local eatery. But this technology could evolve to assist in budgeting, helping consumers set spend limits or alerts by merchant category.

Cardholders desire these types of card controls, according to Auriemma’s Cardbeat UK report. Over one-quarter of credit cardholders want the ability to freeze/unfreeze a lost credit card, 22% want to choose which transaction types (e.g., in-store, online) are permitted and 10% want to set spend limits. Currently, 38% say that their issuer offers the freeze feature, 23% say they can choose which merchant categories are permitted and 32% can set spend limits.

“These features are still new, but tools that promote more thoughtful decision-making could help build loyalty with the institution that offers them,” says Jaclyn Holmes, Director of Auriemma Research. “Although card freeze traditionally isn’t used as a budgeting tool, it functions in a similar way to the other card controls and could raise awareness and comfort with this type of technology moving forward.”

Card controls are currently being used to protect against fraud and spend derived from addiction, but future developments could place an emphasis on budgeting.  The study also found that 60% of cardholders are open to credit card alerts, which could be utilised to inform cardholders when they are approaching their spend limit in a category, or send a warning alert once they’ve reached a pre-defined proportion of their allocated spend.

“Challenger banks tend to set the bar in terms of innovation,” says Holmes. “Over the last couple years, we saw high street banks introduce the ability to freeze their cards following Metro Bank’s example in 2014. Barclays is already putting more control in their cardholder’s hands, and we expect others will also build upon the technology and features that deliver more control to cardholders.”

Survey Methodology

The Auriemma Research study was conducted online within the UK by an independent field service provider on behalf of Auriemma from March-April 2019, among 800 adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, visit us at www.auriemma.group or call Jaclyn Holmes at +44 (0) 207 629 0075.

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Rethinking Debt Collections: Give Up Outbound Dialling & Pick Up Digital Channels

(LONDON) – The debt collections space in the U.K. is ripe for disruption: As outbound dialling performance yields decreasing returns, lenders have an opportunity to explore other contact strategies.

Over the last 18 months, core dialler performance metrics have deteriorated, according to Auriemma Roundtables data. A key indicator, right-party contact (RPC) rate, fell from 2.5% to 2%, a decrease of 20% since November 2017. Despite this slipping performance, firms have been apprehensive to retire their diallers, which have been the cornerstone of collections outbound strategies since the 1980s. Outbound calling is still relied upon to drive output, keep agents at the heart of the collections process, and demonstrate to internal stakeholders that firms are performing their part in mitigating risk by contacting customers to resolve their arrears.

Auriemma’s Roundtable members have often viewed the inertia associated with outbound dialling as a major hurdle in the adoption of alternate communication channels. To mitigate the decline in dialler performance, U.K. firms are looking at a variety of experimental solutions to improve overall contact rates.

Omnichannel Approach

Challenger banks by design have minimal telephony operations and demonstrate strong customer engagement via digital channels. Without the handicap of legacy systems, these firms utilise more efficient ways to support delinquent customers, primarily relying on live chat and two-way SMS staff using omnichannel systems. These systems provide agents with a holistic view of customer interactions across all channels and products throughout the account lifecycle. Consequently, agents are equipped with deeper knowledge of customers’ past interactions and can better anticipate contact preferences.

“Dialler-less” Approach

Recently, a few firms have tested completely switching off outbound dialling for the lifecycle of ring-fenced accounts and continued to track the progress of the test group. Inbound contact rate remained flat – disproving the prevailing wisdom that most inbound calls are responses to a voicemail or a missed call from a number. Moreover, turning off the dialler saves considerable costs and resources which can be reallocated across alternate and more efficient contact channels.

One such firm found performance improvement when testing tactical and precise usage of SMS, email, and live chat for customer outreach as a substitute for the dialler. This makes intuitive sense, due to the predominance of non-voice communication for the bulk of servicing requests and customer avoidance of answering calls from unidentifiable numbers. Moreover, missed calls or cryptic voicemails can further degrade repayment rates, as many customers perform Internet searches for these phone numbers, which may lead to incorrect information listing the number as part of a scam.

As the customer preferences continue to evolve, the way firms communicate will have to change to ensure future success. Auriemma’s Collections and Recoveries Roundtable provides members with access to industry expertise and best practises to support actionable improvements within the debt collections space.

About Auriemma Group

Auriemma Group’s mission is to give clients access to data and intelligence that drive decision-making. We provide information and advisory services in four areas: operational intelligence, co-brand partnerships, consumer research, and corporate finance. Founded in 1984, Auriemma serves the consumer finance industry from our offices in London and New York City. For more information, visit us at www.auriemma.group or Louis Stevens at +44 (0) 207 629 0075.

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An Announcement from Auriemma’s President

Dear friends

Our firm was founded 35 years ago, in 1984. It’s been a fantastic run, and we thank you for your support and friendship over the years.

Since then, our business has evolved to meet the changing needs of the payments and lending markets. Today, our business consists of four distinct specialty areas. The largest, by far, is our Roundtable practice. We now have 35 groups spanning seven market verticals and have become the standard bearers for operational benchmarking data. We are still quite active in developing and managing co-brand programs, which was our exclusive focus when we were founded. Our research team has established itself as a leader in providing membership-driven insights into consumer behavior relating to payments, mobile payments, and credit cards. And, our finance team is active in helping lenders manage capital requirements, and value assets.

As you can see, our current mix of business has come to rely less and less on traditional consulting services. As such, we began to feel that the word “consulting” in our moniker had outlived its usefulness and indeed put us into a competitive frame where we didn’t want to be. So, we went to the drawing board to see what new name might suit us best.

I’ll be honest and say that being eponymous has its pros and cons. But, if I could turn the clock back 35 years, I’d start fresh with a company name that didn’t include my personal name. But, as you can imagine, the Auriemma name has come to be well known, respected, and trusted in our ecosystem, thanks to the hard work of lots of people whose name is NOT Auriemma! So, getting rid of the name altogether didn’t make much sense. Nor did changing our name to the acronym ‘ACG’, which we considered… it turns out, very few of our clients refer to us that way.

In the end, we settled on simply removing the word “consulting” and will now be known as Auriemma Group.

Keeping the name Auriemma recognizes the significant brand value we’ve developed. Meanwhile, going forward, the word Group will refer not just to a group of talented individuals, but to the group of separate and inter-related sub-brands they represent.

To go along with the new name, we have a new logo and monogram, as well as new corporate colors. We also have a new website: www.auriemma.group

If you take a look (and I hope you do), I think you’ll see right away that the new site has a look, feel, and tone that really reflects the people-oriented and approachable style that you’ve come to expect from our firm. The new site also makes it easier to tap into the wealth of information we produce… whether that be our annual letters, press releases, and regulatory commentary letters or, for clients, our troves of market research and benchmarking data.

Welcome to the new Auriemma Group. We look forward to speaking to you again soon and continuing our longstanding relationship with this amazing community.

Cheers!

Michael

P.S.  Our e-mail address convention will also be changing from @acg.net to @auriemma.group – so please update your records!

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How Balance Transfers Help Consumers Manage Debt

(London, UK): As consumers continue to face increasing debt levels and expenses, new data from Auriemma Consulting Group suggests that balance transfer offers continue to be an effective tool for consumers who are struggling to pay down their debt.

Balance transfers can help consumers better organise and pay down their debts by consolidating payments to one institution, often at a competitive interest rate, sometimes as low as 0% APR. The result: 49% of balance transfer customers report that they have seen a decrease in their total debt level since taking the balance transfer, versus only 25% that report increasing their total outstanding balances.

“Balance transfers can be a win-win for issuers and consumers alike,” says Jaclyn Holmes, Director of Auriemma’s Payment Insights practice. “Issuers get the chance to acquire a new customer while struggling consumers can apply APR-savings directly to their debt.”

Despite the product’s benefits, only 14% of credit cardholders have taken a balance transfer offer in the past year, pointing to a potential gap in the marketplace. While the product isn’t for everyone, there are opportunities for issuers to better communicate the benefits of balance transfers to those who may need it.

Over one-in-ten consumers who were offered but declined a balance transfer did so because they thought applying would be more hassle than it’s worth, and 16% of customers reported not wanting to open a new account. Additionally, 5% of consumers indicated that they simply didn’t know enough about balance transfers. Pricing continues to play a role as well. Almost one-in-five customers say they didn’t take a balance transfer because they didn’t want to pay a fee and 10% of customers said that the rates offered were not attractive.

“Balance transfers offer consumers a way to better manage and ultimately pay down their debt,” says Holmes. “With some guidance, issuers have the opportunity to develop loyal, long-term customer relationships, as our research indicates that many consumers continue to spend with their balance transfer card after their debt is paid off.”

 

Survey Methodology

 The study (UK Cardbeat) was conducted online within the UK by an independent field service provider on behalf of Auriemma in October 2018, among 800 adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.

 

About Auriemma

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, visit us at www.auriemma.group or call Dave Edwards at +44 (0) 207 629 0075.

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Auriemma 2018 Annual Letter: Payments and Lending Retrospective

January 7, 2019

As a kid, there were only three important events on my calendar each year. The last day of school, my birthday, and Christmas. Now, it seems there are three or more important events on my calendar every week! The staccato rhythm of the days, weeks, and months and the need to keep moving from event to event gives the impression that the pace of the treadmill has been turned up.

Given the rapid tempo of our lives, it becomes increasingly important to take a moment now and then to pause and reflect on some of the events and trends that took place over the last year and consider how they will influence the future. As many of you know, I’ve tried to do that by way of this annual letter, since 1992.

As our Firm has grown, our audience has become more diverse and it has gotten increasingly difficult to write a letter that captures everyone’s attention. While I suspect a few intrepid souls will bear with me for the next three thousand words, I suspect many others might choose to glance at the headlines and decide to read sections more selectively. For those who still can’t get enough, we’ve introduced hyperlinks throughout the letter to provide quick access to relevant examples of Auriemma research. Either way, I hope you enjoy this year’s annual recap.

Over the last several years, a big focus of our annual letter has been the challenging regulatory environment. For many of our clients, regulatory activities and compliance overshadowed almost everything else. It dampened innovation and, for many, the ability to grow or pursue new strategic paths. This year, that pressure seems to have been quelled a bit. That isn’t to say that there is less regulatory burden or pressure. We are told regularly by our clients that the bar is just as high as it’s been, despite the anticipated pullback given the new regime in DC and Brexit distractions in the UK. However, the pace of change has slowed. And that, in and of itself, feels like an improvement.

Lenders now understand the environment in which they are operating and how to navigate the complexities brought about by the heightened regulatory focus. So, for a change, we won’t be spending any more time on regulation in this letter. Instead, we’ll talk primarily about how lenders are preparing for the future, which seems to be the overwhelming focus for our clients.

According to key economic indicators, 2018 was terrific: strong GDP growth, record low unemployment, and confident consumers. On top of that, tax cuts bolstered corporate profits.

But despite all the good news, everyone keeps asking: “When is the next recession? And, how bad will it be?”  It’s no wonder everyone is worried: US consumer debt was slated to hit $4 trillion by year-end, according to CNBC. Because consumers have multiple financial obligations, the risk of contagion is also of concern. Auriemma’s consumer research finds that significant numbers of credit cardholders also have a mortgage, an auto loan, a student loan, and/or other personal loans. Will one of these products reach a tipping point that sets off the next credit cycle?

Certainly, it isn’t just the passage of time that concerns folks about the next inevitable downturn. Auriemma Roundtable data show that delinquencies for some products have been on the uptick. Early in 2018, for example, we reported that delinquencies for subprime auto loans reached recession-era levels, resulting in captive auto lenders pulling back on the subprime space. In card, absolute losses were anticipated to increase 30-40 basis points—although it’s important to remember that they remain near historic lows.

Despite a lack of consensus about when the cycle will turn, many agree that the next downturn won’t be as severe as 2008 – thanks, in part, to the lessons that organizations have learned, the vigilance executives are applying when developing strategies, and the protective measures being put into place, including higher levels of capital. Card issuers, for example, have developed early warning systems and increased scrutiny on underwriting, leading to lower approval rates and average credit lines. In short, there is a heightened sense of awareness today that didn’t exist a decade ago. However, there is also a high degree of sensitivity to any uptick in losses, with investors often reacting sharply to changes in loss performance.

It’s not just US lenders anticipating potentially rockier times ahead. In the UK, GDP growth has slowed, bankruptcies and insolvency figures have increased, and Brexit has perpetuated uncertainty. UK players are conducting stress tests and analyses to measure the impact of an economic downturn. The UK’s Financial Conduct Authority is focused on persistent debt, debuting a new set of rules meant to help cardholders who aren’t able to make headway on paying down their outstanding balances. In response, issuers are hiring and training agents to manage persistent debt-related calls, as well as crafting journey maps for affected customers.

While lenders are keeping a cautious eye on the economy and their delinquency and loss curves, they are also finding ways to bolster their profitability on the operational side of the house—an area where Auriemma Roundtables play a significant role.

After years of hiring armies of compliance and risk professionals, we’re seeing increased focus on the development of, and investment in, tools and technologies to work smarter, faster, and leaner.

It’s still early, but we are seeing more automation being deployed across many use cases. AI and robotics are being used to refine and automate processes in back office functions to improve efficiencies and workflows behind the scenes. AI is also being used to mitigate card fraud and to help increase the accuracy of real-time approvals and the reduction of false declines. Lenders are investing in predictive servicing within the IVR, which can better anticipate customer call reasons by identifying where they are within the customer journey. Chatbots are being deployed everywhere – some with intricate backstories and personalities.

Meanwhile, voice analytics will be leveraged to identify customer sentiment and tag complaints. Lenders are looking to automate everything from fraud holds to decisioning counteroffer tools. And, robotics will be tested for more and more complex tasks to improve on—and eventually remove—human intervention, including in underwriting and decisioning.

Lenders are still working hard to convert customers from analog to digital platforms and are making strong headway. However, I had to laugh during a recent conversation with a senior exec who recently took over his bank’s digital migration strategy. He said, “Until now, our strategy was to treat people badly in traditional channels and hope they’d migrate to digital.” I don’t think his bank is alone! Whatever the driving force, after years of prodding, customers are availing themselves of a plethora of digital and virtual tools. According to Auriemma Roundtables benchmark data, the percentage of cardholders enrolled in digital servicing is increasing, with a 24% growth rate over the last three years.  And in the UK, e-mail topped the list as cardholders’ preferred method of communication with their issuers, according to Auriemma’s UK Cardbeat study.

Our auto lending clients are increasing their efforts in this area as well. Currently, just 43% of auto loan borrowers are enrolled in e-statements and only half of auto lenders offer online chat, according to Auriemma Roundtable data. However, things will change: The current best practices include automatically enrolling new customers in e-statements, digitizing account opening agreements, and making some features, like travel notifications, available exclusively online. A handful of auto lenders are providing self-service functionality for extensions and deferrals as well.

Despite all of this, the old maxim rings true: “Be careful what you wish for.” Digital servicing was supposed to be the holy grail of cost reduction. But while enrollment has grown tremendously, overall call volume is flat. It turns out, digital customers are more aware customers – and they are calling with complex questions or disputes, not simple balance inquiries.

2018 saw new product launches and growth from FinTechs continue at a rapid pace. Yet, many executives I speak with wish they could get odds in Vegas on the number of FinTechs that won’t survive the next credit cycle because they’ll either lose access to funding or stumble due to a lack of expertise in credit risk. Certainly, that will be the fate for some. But, increasingly, the FinTechs we talk to are savvy and chock-full of resources with deep expertise and executional experience.

In 2018, you likely received a deluge of mailers advertising unsecured personal loans. That’s because the product is now the fastest-growing consumer lending product, with unsecured personal loan originations increasing 15% between Q3 2017 and Q3 2018, according to Experian. The product’s popularity has been linked to the erosion of HELOCs as post-recession consumers grow increasingly reluctant to use their home as collateral.

In a September Auriemma Research study, we found that nearly 9-in-10 consumers are satisfied with their personal loans, driven primarily by the speed of funding, clear terms and conditions, easy application process, and lack of unexpected fees… all of which further elevate the product in the mind of the consumer relative to HELOCs.

Experian also reports that FinTechs are responsible for roughly one-third of total unsecured personal loans, while plenty of large and mid-sized banks have also joined the fray. Incumbency is a strength traditional banks can play to their advantage. When we asked consumers their reasons for choosing a lender, 19% said an existing relationship was a top driver. While that may sound low, it topped a list of 22 reasons about which we asked.

In 2019, FinTechs will have some strategic choices to make. With the OCC announcing it would accept applications for a new Special Purpose National Bank (SPNB) charter, FinTechs will have to decide if they will leverage the charter and become more traditionally regulated entities, comply with the various requirements of multiple states, or operate with the popular partnership model. Each strategy, of course, has significant consequences for their future viability, the pros and cons of which we’ve been spending a lot of time discussing recently.

In the UK, Open Banking regulation has cleared the way for third-party issuers, brands, and FinTechs to offer enhanced banking products to consumers. The potential use cases range from account aggregation to reward services, and major players in payments and retail are investing resources into developing services, including Amazon, John Lewis, HSBC, PayPal and Uber. As a result, we can expect a more level playing field for new entrants and greater competition that will extend beyond the UK, thanks to the PSD2 mandate that all EU payment account providers build APIs by July 2019.

Partnerships between incumbents and FinTechs will be crucial to success in the world of Open Banking. Any organization that opts not to partner could risk eventual disintermediation. These developments could have a major upside for co-brands to deliver innovative, money-saving rewards by using new spend data.

Regardless of whether you see FinTechs as competitors, disintermediators or potential partners to traditional institutions, your organization’s philosophy and ability to respond to a rapidly changing landscape will be critical.

In the co-brand arena, 2018 saw fewer splashy RFPs and renewals from large programs. But, in the US, several well-known brands have extended existing contracts (JCPenney, Lowe’s), changed partners (Walmart) or launched new programs or offerings (Ikea, Hyatt and American Airlines). In the UK, Virgin Atlantic Airways demonstrated that there is a strong future for co-brands, even in a post Interchange Fee Regulated environment, by launching a product with a market leading proposition.

Meanwhile, customer value propositions have continued to grow richer. This year, Hilton enhanced its sign-up bonuses for all its co-brands and Barclays announced it will refresh the value propositions for Frontier Airlines, Hawaiian Airlines, and Upromise cards. Starwood, Macy’s and LL Bean all have debuted new tiers and rewards. This heightened focus on rewards begs the question – at what point does the rewards war become too rich to sustain?

Given our comments earlier about a possible credit downturn, we believe co-brand issuers will likely hold fast or tighten existing credit criteria for co-brand programs. As a result, we expect an increased appetite for “second look” programs, which allow co-brand partners to approve more applicants, including underserved customers with lower credit scores or thin credit files. These programs are commonplace in certain types of private label programs – it will be interesting to see if they gain traction in more traditional co-brand programs.

Factors like richer rewards, credit concerns, and restrictive regulations add to the challenge of managing a successful co-brand program. At the same time, longer deal terms make “getting it right” even more important. As such, we are convinced you’ll see much more active management of relationships both by issuers and their partners. Both parties will be evaluating performance earlier and earlier in the deal cycle to ensure that the program is operating at its fullest potential. Everyone will be more conscious than ever about whether cardholders are attracted to the product and behaving in the way that was predicted. The Auriemma co-brand team is actively working with several clients to improve program performance and assist with ongoing management. This is a new area of focus for us, and one we think will become increasingly sought after by partners looking to maximize the success and longevity of their card programs.

Perhaps one of the most disappointing results of 2018 is that mobile payment usage in the US remained flat at 31% among eligible cardholders for the second consecutive year. Interestingly though, the number of mobile payment options has continued to expand, thanks to the continued launch of merchant wallets, bank wallets and other payment options. While two years ago, the dominant players were Apple Pay and Google Pay (formerly Android Pay), there are now a plethora of options, including Capital One Wallet, Kohls Wallet, ChasePay, Walmart Pay and others.

With all the new options, why is usage flat? According to Auriemma’s Mobile Pay Tracker, 55% of mobile pay users say there are too many payment options, and 53% say the options have become too complicated. Perhaps the industry is more enthusiastic about these products than are consumers.

So which wallets will be the eventual winners? Mobile pay users say they prefer open-loop wallets (55% compared to 23% who prefer closed-loop, and 22% who have no preference).

Another ingredient for success? Wallets that can be used for things other than payments – such as Apple Pay’s announcement that students can now use its wallet to carry digitized IDs that can open dorm rooms and function as library cards. Users are increasingly hungry to use wallets for non-payment purposes, with 40% of mobile payment users telling our Mobile Pay Tracker researchers they are interested in using mobile wallets for event tickets, membership cards, and boarding passes.

Meanwhile, Chase recently announced it would roll out contactless cards to its Visa and co-branded card portfolios by the first half of 2019. When combined with NYC’s debut of contactless MTA turnstiles, we are hopeful the US is on the cusp of widespread adoption, similar to what happened in the UK market when contactless debuted in 2007.

Although I admit that my experience using chip at the point of sale has improved dramatically from the initial roll out, I still find it to be a bit haphazard and less seamless than the old mag stripe used to be. And, I’m still stymied by trying to pay with my phone in the US. But after spending six weeks in the UK during 2018, I found the contactless card experience to be intuitive, easy and fast. As we look toward 2019 and beyond, what remains unknown is how quickly contactless will be embraced by consumers, and whether adoption will be stoked by merchant availability or organic cardholder enthusiasm.

As I wrap up this year’s letter, I wanted to share a few of the ways the Auriemma team is preparing for an exciting 2019.

In 2018, we partnered with noted behavioral economist Dan Ariely to develop a Behavioral Economics Initiative, which will produce exclusive, member-only research that can be applied to industry and commercial objectives, including product innovation and process design. This initiative will formally kick off in February.

This year, we will be developing new data initiatives in our Roundtable practice that will make it even easier for clients to leverage our benchmark studies to inform company strategy. These improvements will include new ways to auto-import data, resulting in an easier data submission process.  We’ll also be developing tools that offer more data visualization and are easier for executives to manipulate and interrogate.

As I noted in last year’s letter, our firm undertook a complete re-branding exercise in 2018. In the next few weeks, we will unveil an updated name and website. Our Roundtables practice now represents nearly 70% of our business. When combined with our M&A and research lines of business, traditional consulting comprises a smaller percentage of the work we perform for clients.

So, after 35 years, we are dropping the word “Consulting” from our moniker and will now be called Auriemma Group. In addition to an updated look and feel, our new website will make it easier to find and share the research and data we produce– such as the examples I have linked throughout this year’s letter.

Be on the lookout for an e-mailed announcement when our new site goes live.

In the meantime, I hope you had a happy and healthy holiday season and that 2018 treated you kindly. While none of us really know what 2019 holds in store, I’m confident that as an industry, we’ve put the right preparations and measures in place to safely navigate whatever comes to pass.

As always, if you have any questions or comments about our thoughts in this letter, or otherwise, please reach out. We’d love to hear from you!

Cheers!

Michael

 

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Financial Institutions Take a More Proactive, Holistic Approach to Vulnerable Customers

(London):  Fair treatment of vulnerable customers has been high on banks’ agendas since the Financial Conduct Authority (FCA) issued guidance in 2015. In the three years since, financial institutions have invested time, money, and effort to identify and improve outcomes for customers in vulnerable situations.

Vulnerable consumers, or those whose personal circumstances make them especially susceptible to detriment, make up 2.4% of credit card accounts and 3% of balances, on average, according to Auriemma’s UK Card Collections and Recoveries Benchmark. However, the size of vulnerable populations varies widely based on portfolio composition and other factors, with some issuers reporting larger populations.

Until recently, vulnerability was tied to debt collection, as there is a natural correlation between vulnerable customers and those in arrears. Now, attention has shifted to proactively identify vulnerable consumers across the product lifecycle, with more precise treatment applied based on customers’ personal circumstances.

“Vulnerability is an increasingly complex concept and cannot be treated as a binary phenomenon,” said Louis Stevens, Director of Auriemma’s UK Roundtables practice. “While card issuers recognize the benefit of having a standardised definition for vulnerability across the industry, it’s virtually impossible to capture all the grey areas with a single, uniform classification system.”

Here are three ways financial institutions are taking a more targeted and holistic approach to address customer vulnerability:

Proactively identifying vulnerable customers. While customers in arrears tend to be more vulnerable, issuers are embedding their approach across more functions of the organisation. Over the past year, the focus has shifted toward identifying potential vulnerability, regardless of where the customer is located within the lifecycle. For example, Customer Service teams are now tasked with identifying triggers or clues to vulnerability, such as a mention of illness, and proactively monitoring potentially vulnerable customers even if they make payments on time.

“By definition, vulnerable customers are anyone who can suffer difficulty, and it’s the job of financial institutions to identify and rehabilitate that,” Stevens said.

Tailoring treatment to individuals. While the FCA defines vulnerability broadly, financial institutions have developed more precise definitions to meet non-standard needs across a diverse customer base. Most card issuers use two broad categories to determine severity – for example, “soft” vs. “hard,” “temporary” vs. “permanent,” – with further sub-categories to capture the nuances of a customer’s situation. In fact, issuers may have 20 or more classes of vulnerability to ensure a flexible, tailored response. For example, a customer with hearing or visual impairment may need special assistance to complete routine payments. These cases may not typically be indicative of financial difficulty but can be a sign of vulnerability.

Maintaining a flexible exit strategy. Effectively dealing with short-term vulnerability, such as temporary unemployment, is another key consideration for financial institutions. In particular, it’s important to have a defined exit process for customers who move out of a vulnerable situation, to ensure vulnerability treatment is accurately applied and customer care efforts are appropriately prioritised. Card issuers are taking steps to establish regular contact to monitor the customer’s situation and ensure timely removal of vulnerability flags for rehabilitated customers.

“Anyone can find themselves in vulnerable circumstances,” Stevens said. “Financial institutions will continue to reevaluate their vulnerability strategies to ensure a culture of empathy, support, and inclusion.”

 

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, call Louis Stevens at +44 (0) 207 629 0075.

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Higher Rates Aren’t Enough for Monzo and Other Mobile-Only Banks to Topple Traditional Players

(London, UK):  Three-in-ten cardholders are interested in switching to mobile-only banking options if they offer superior interest rates and rewards, creating a potentially major disruption for traditional banks, according to new research from Auriemma Group. And digital challenger banks, like Monzo, Atom Bank and Tandem Bank are competitively courting traditional bank customers with their modern technology and slick user experience.

While these new digital challengers pressure traditional banks to add new services and offer rich digital experiences to their customers, the realities of operating costs and large, physical footprints put incumbents at a slight disadvantage in responding quickly to the competitive environment.

With less overhead, digital challengers can nimbly offer richer rates or other attractive offers. For example, Atom Bank and Tandem Bank, currently offer 2.00% AER on one-year fixed saver accounts, compared to well under 1.00% for Barclays, Lloyds, and HSBC.

Despite those offers, most consumers don’t know about the competitive rates mobile-only banks offer. Less than one-in-ten UK cardholders are familiar with digital challenger banks, and the 47% uninterested in switching to one often say it’s because they don’t know enough about them. Consumers are most familiar with Monzo at 9%, followed by Atom Bank and Tandem Bank at 8% and 7% respectively.

“The struggle for mobile-only banks will be educating consumers on their service—most haven’t heard of them,” says Jaclyn Holmes, Director of Payment Insights at Auriemma. “Traditional institutions should be looking to these challengers and adopting the features and functionalities customers are most excited about before the banks become mainstream.”

For traditional banks, marketing the features where they beat the digital-only players—such as savings on current accounts, regular savers, and other perks—will be key to stand out amid the more niche benefits of digital challengers. Other types of features and functionalities that would be attractive to consumers include the ability to quickly connect to customer service agents by phone or chat, a well-designed, user-friendly app interface and the ability to use biometrics for logins and transactions.

Some consumers say they will remain loyal to their traditional bank regardless of the development of new innovations or services because they’re currently satisfied with the service (47%) or simply prefer banks that have a physical location (36%).

Mobile-only banks will need to overcome consumers’ lack of familiarity with mobile-only banks and loyalty to traditional banks, but they could potentially catch up by communicating their value to younger cardholders, who are more likely to make the switch.

But these aren’t the only difficulties ahead for digital challengers. For example, only one-in-five of Monzo’s users deposit their salary, according to a Reuters interview with Tom Blomfield, Monzo’s chief executive. And Auriemma’s research found that 59% of credit cardholders would not trust financial technology startups with their banking data.

“Having origins in the prepaid space has limited consumers’ perception of Monzo’s capabilities,” says Holmes. “As a bank, Monzo is now tasked with changing some of these perceptions and building greater trust in its brand.”

In an effort to be viewed more like a traditional bank, Monzo announced this month that customers won’t be able to top up their account with a debit card. Instead, Monzo will accept funds via bank transfer. Changes like this, and the push for users to utilise direct deposit, are the first steps in getting consumers to use Monzo, and other digital challengers, as their primary bank.

“The challenges mobile-only banks face as they navigate a market dominated by established, trusted banks are many, but the group could have a bright future,” says Holmes. “If nothing else, their very existence will cause traditional banks to rethink their offerings and focus on innovation—a huge win for consumers across the UK.”

 Survey Methodology

This study was conducted online within the UK by an independent field service provider on behalf of Auriemma in July 2018, among 800 adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification. For more information, call Jaclyn Holmes at +44 (0) 2076-290075.

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Cardholders Want to Communicate Digitally, But Issuers Are Still Getting Up to Speed

(London, UK): Hold the phone: Email is cardholders’ most preferred means to communicate with their credit card providers, but concerns remain before issuers can deliver a consistent customer experience in that channel. Email topped the list of all channels, including phone calls manned by agents, live chat, mobile apps and SMS, according to Auriemma Group’s recent issue of UK Cardbeat.

Nearly four-in-ten cardholders prefer email when communicating with card issuers. Despite this consumer preference to communicate with card issuers by email (and with younger cardholders ages 18-34 also preferring live chat or mobile apps), issuers had not—until this year—invested as heavily into the channels for servicing or Collections-related activities. At a recent meeting of Auriemma’s Collections and Recoveries Roundtable in London, Collections executives discussed how digital channels could offer new opportunities to refresh contact strategies.

When weighing particular channel investments, issuers must analyse the performance of each potential channel and determine the contact methodology and channel mix that creates the best experience and increases an agent or collector’s success. Issuers are exploring how different channels can augment contact rates and payment rehabilitation within collections. For example, some executives are in the process of testing email’s efficacy by sending default notices digitally along with a conventional letter.

“The industry knows that email could be a highly successful contact channel, particularly for those in collections who tend to close off contact at some point in the lifecycle,” says Louis Stevens, Director of UK Industry Roundtables. “There is opportunity to develop email as a priority channel instead of a supplementary one. Many collections operations today are centered around a call-and-collect model, which could be less effective as cardholders skew toward preferring digital communication.”

However, integrating digital channels into the collections process can be a challenge, due to legacy system restrictions and painstaking approval processes. Currently, only 20% of Roundtable members offer live chat within the collections process, and further progress has been limited by the prioritisation of other controls, such as conversation transcript recording.

Despite the momentum for email, it is important that issuers maintain an excellent experience in the phone channel, which is the second-most preferred. One-third of customers prefer speaking with a representative on the phone, which is starkly higher than the 3% who prefer an automated service, such as an IVR.

Even though consumers have a strong preference for migrating more routine activities to digital channels, the phone is still the centerpiece for more in-depth and complicated interactions. This is evidenced in the Card Collections and Recoveries Roundtable Benchmark Study, which reports that the average handle time for calls has increased 11% since January 2018.

“Consumers don’t mind using self-service or automated options for simple tasks, such as due date inquiries,” says Stevens. “But for now, cardholders still call when they need a more impactful and in-depth experience.”

Survey Methodology

This study was conducted online within the UK by an independent field service provider on behalf of Auriemma in March-April 2018, among 800 adult credit cardholders. The number of interviews completed is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.

About UK Card Collections and Recovery Roundtable 

Auriemma Group runs a series of information sharing and benchmarking Roundtable groups designed for executives and managers in collections and recovery. These Roundtables combine executive meetings, industry-leading operational benchmarking, and peer group surveys to help participants identify tools, technologies, and strategies to offer best-in-class customer experience at all touch points.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, call +44 (0) 2076-290075.

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