FICO is teaming up witb LexisNexis Risk Solutions and Equifax to use alternative data to identify creditworthy individuals who would otherwise be unlikely to obtain traditional credit. Card issuers will be able to use the alternative score without having to “rip and replace” existing systems, significantly lowering the cost and accelerating time to market.
Costa Mesa, CA-based Payoff has added Arkadi Kuhlmann, CEO of Zenbanx to its Board. Kuhlmann is a serial entrepreneur, best known for founding ING Direct.
Tenants who rent their homes can now get financing credit for their on-time rental payments, including millions in a variety of lending opportunities, with Rental Kharma. Rental Kharma furnishes data to large credit bureaus and launched this new service to make it possible for renters to overcome this barrier. There are more than 100 million renters in the U.S., and Rental Kharma has developed its comprehensive, online platform for renters, letting them build their credit score by self-reporting the last two years of their payment history. The data is then provided to the large credit bureaus.
Yodlee Interactive announced the second group of companies selected for the Yodlee Interactive Incubator Program: Matchfund and Sociogramics. Matchfund and Sociogramics were chosen in this round because they represent such high innovation potential and fill significant needs in the financial solutions market. The Yodlee Interactive Incubator Program represents a unique approach to helping young start-up companies, based on the idea that every business, every idea, and every entrepreneur is different and no one-size-fits-all program is sufficient. Selected winners Sociogramics & Matchfund are bringing powerful new ideas to the unbanked/under-banked, and the growing Gen Y/teenage population.
The average consumer will spend $7041 on holiday related purchases. Debt consolidation loans represent 51% of all loans on Prosper, and have shown consistent growth over the past 5 months. Peer-to-peer (P2P) lending can replace high credit card interest rates and constantly changing monthly payments with lower rates and fixed, predictable payment terms. Data shows that even as consumers were preparing to spend money on gifts for this year, more than 14.1 million of them were still paying off holiday-related spending from last year, up from 13.6 million in 20092. Interest rates on Prosper.com start at 6.59%4 APR for best borrowers. Fixed rates range from 6.59% to 35.84% APR.
Zale Corporation has implemented the NewComLink retail credit solutions platform as part of its new program to provide alternative financing options to its U.S. customers. Zale announced the new alternative financing program on August 31, 2011, which is currently available in all Zales, Zales Outlet and Gordon’s retail stores. With this development, Zale can connect customers with additional financing options to help complete their jewelry purchases. The NewComLink platform brings new efficiencies to financing and allows retailers to serve additional customers who want to make a purchase, increasing incremental sales, profits and improve customer satisfaction.
The American Bankers Association released a statement to the Senate on its position regarding consumer lending. In it, it referenced “The Dodd-Frank Act required regulators to establish a QRM category of loans that would be exempt from risk retention requirements once they are determined to be well-underwritten, low-risk, and high-quality. Unfortunately, the proposal set forth goes far beyond what Congress intended, mandating a minimum 20 percent down payment and severely narrow credit history requirements, restrictions that will shut the door to home ownership for many otherwise qualified buyers. ABA supports sound underwriting and responsible lending practices, and our members work diligently to make responsible credit available to qualified borrowers on fair and reasonable terms. The proposed QRM goes too far in restricting credit, which will harm borrowers and the nation’s fledgling economic recovery.”
Pre-tax net ROA for the credit card industry for 2009 and 2010 were at the lowest point since 1983, 2009 saw pre-tax ROA at 1.50% (down from a 4.25% average for the last decade), while last year’s 2010 net pre-tax ROA rose slightly to 2.10%.
This is the lowest since R.K. Hammer began tracking card profit metrics, which discloses given card companies only earned 2.1 cents pre-tax after expenses on every dollar of unsecured outstanding card loans on their books in 2010, and only 1.25 cents after-tax. Also, the average credit card account in the R.K. Hammer model earned only $45.46 pre-tax profit per year per consumer account for the bank card businesses issuing those cards; with the average “active” consumer account earning $83.33 per year pre-tax profit, both cut 40% for even smaller after-tax net results.
The onslaught of new rules will cost the card industry over $26 Billion per year, including “Goodwill Impairment,” primarily on intangible assets of subjective value which often have to be written down, to match a lowered balance sheet value with more accurate reduced current market value; loan losses on unsecured card debt still remain stubbornly and historically high; Net Charge Offs, which averaged around 5.00% for the last ten years, jumped to over 10% during the past two years; restructuring charges cost higher associated expenses and more red ink; and the proposed “Interchange Fee Limits.”
However, businesses will begin to hire again (when given incentives to do so), IT investment for the future will resume, financial institution capital will be replenished, shareholder dividends will be restored, banks will resume sensible lending to creditworthy consumers and businesses by providing the services and value they want (new account solicitations have doubled in the past year), loan losses will stabilize and normalize…and the business cycle will once again move ahead.
Credit card rewards programs continue to be integral to the market’s
success, especially for American Express and Discover. Meanwhile, for
Visa- and MasterCard-branded rewards programs are either being refreshed
or are being brought to market for the first time. With this, the
percentage of rewards-based credit cards will grow incrementally from
76% of all general-purpose credit cards in 2009 to 77% in 2010 before
reaching 82% in 2013. This, according to Packaged Facts’ “Rewards Cards
in the U.S. 3rd Edition,” also shows affluent consumers are the most
obvious targets of the post-recession credit card industry while younger
consumers who have jobs are also attractive prospects. American Express
recently introduced its “ZYNC” Card, a pay-in-full charge card that
allows cardholders to select bundles of rewards and benefits called
“Packs” that are tailored to specific lifestyle interests and spending
habits in categories such as music, fashion, food, travel and more. This
provides a needed link to younger debit-driven consumers and position
their charge cards as debit alternatives.
The National Retail Federation has asked the Federal Reserve to reconsider proposed new rules that threaten retailersâ ability to offer customers instant credit. NRF believes that the proposed regulations go beyond what was required under the legislation, and asked the Fed to accept the use of credit scores as an acceptable means of considering a customerâs ability to pay. Retailers currently use computerized systems that rely on a customerâs credit score and other credit-related information to assess individualsâ payment history on existing and/or previous credit and provide a yes-or-no decision within a manner of seconds. But the Credit CARD Act would bar credit from being granted unless the issuer âconsiders the ability of the customerâ to pay under the terms of the account. The Fed has interpreted that as meaning retailers must review the credit applicantâs income or assets along with their current obligations. Income and asset information is not readily available in a central database, so the Fed proposal would turn “instant” credit into a process that could take days to gather the required information.
A new report confirms a significant migration of consumer balances to well below “prime” credit scoring levels. The study also reveals a growing number of “strategic defaulters,” or those borrowers who default on their mortgages only because the value of their home has declined well below their mortgage balance. According to the new ExperianâOliver Wyman “Market Intelligence Reports,” sub-prime and deep sub-prime outstanding balances have grown by more than 33% in the past three years. Also, during the last 12 months, bankcard credit lines have declined by 17% to $3.1 trillion. In studying the distressed borrower population Experian and Oliver Wyman uncovered a segment of borrowers it calls “cash-flow managers,” that closely mimics “strategic defaulters.”
Unlike “strategic defaulters,” these borrowers continue to make occasional payments on their mortgage, indicating their intention to get out of delinquency. While 60% of “strategic defaulters” are charged-off within six months after serious delinquency, one-third of cash-flow managers cure on their mortgage within six months after serious delinquency and another third remain less than 90 days past due.
Wells Fargo reported that second quarter charge-offs soared to 11.60% from 10.13% in 1Q/09, driven by higher bankruptcy filings. However, delinquency (30+ days) edged down from 6.49% in the prior quarter to 6.02% for 2Q/09. Credit card outstandings also nudged up by 1% to $23.1 billion due to lower payments. Wells says it is offering fewer balance transfers and approving fewer balance increases as a result of the weak credit environment. Card fees grew 33% annualized from first quarter on higher volumes, not increased cardholder fees. Linked quarter purchase volume on credit cards was up 26%. Some of
this growth was seasonal, but also reflects increased customer usage and new customer growth, including new private label dealers at Wells Fargo Financialâs retail sales finance business. While credit losses on credit cards remain elevated, the business remains profitable due to its relationship based approach. Currently 15% of Wachovia retail bank customers have a credit card with Wells, compared with 36% penetration at legacy Wells Fargo. For complete details on Wells Fargo latest performance visit CardData (www.carddata.com).
WELLS FARGO CARD LOANS
2Q/08: $19,429,000,000
3Q/08: $20,358,000,000
4Q/08: $23,555,000,000
1Q/09: $22,815,000,000
2Q/09: $23,069,000,000
Source: CardData (www.carddata.com)