Credit Card Trends, Issues and Opportunities · Credit Card Trends, Issues and Opportunities Jennifer Linton February 1, 2019

Credit Card Trends, Issues

and Opportunities

Jennifer Linton

February 1, 2019

© 2019 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED

FORTUNE Magazine World's Most Admired Companies®

2014 | 2015 | 2016 | 2017 | 2018

In This Session

The credit card business has become increasingly competitive and commoditized. Protecting your valuable member relationships and delivering high-value services has never been more crucial.

Understand the changing landscape and identify areas of opportunity to grow your portfolio.

In this session, we will discuss:

• The latest industry trends

• Emerging issues and challenges

• Strategies to address new opportunities



2014 | 2015 | 2016 | 2017 | 2018

Industry Trends



2014 | 2015 | 2016 | 2017 | 2018

Competition for New Accounts Has Never Been Higher

It is becoming increasingly challenging to differentiate card products in a rewards saturated market.

1.5% and 2% cash back programs are flooding the market1

89

135

Average Rewards Cost (bps)Top Cashback Products

2010 2017

Acquisition offers are at an all time high

58%The share of card offers

with an acquisition incentive

The average acquisition incentive has been increasing

steadily

$138

$143 $140

$149

$164

Q32016

Q42016

Q12017

Q22017

Q32017

Source: Mintel Group. US Consumer Credit Card Acquisition Marketing Overview



2014 | 2015 | 2016 | 2017 | 2018

Net Charge-Offs and Consumer Credit Card Debt are forecasted to continue climbing

3.2%2.9% 2.8% 2.9%

3.4% 3.5%

2013 2014 2015 2016 2017 2018

1.0%

3.4%

4.7%

3.1%

5.7%

2.8%

2013 2014 2015 2016 2017 2018

Net charge-off rates as a percentage of

average outstandings – 3Qtr

Revolving consumer credit debt

YoY change (%) October

Sources: Federal Reserve G.19 Report released December 7, 2018. Revolving debt is seasonally adjusted.

5



2014 | 2015 | 2016 | 2017 | 2018

Where did the profits go?

Sources: Federal Reserve Bank, Mercator Advisory Group August 2018, NCUA September 2018

4.94%

4.36%4.04%

3.76%3.49%

2.72%2.40%

0.80% 0.75% 0.76% 0.78%0.96%

2014 2015 2016 2017F 2018F 2019F 2020F

Credit Card Banks All Credit Unions

Return on Assets: All Commercial Banks vs. Credit Card Banks vs. Credit Unions

2014–2020F

ROA = Net Income/ Receivables

6



2014 | 2015 | 2016 | 2017 | 2018

Fixed or Variable Rate pricing?

Price for Risk?

Interest Rates Continue to Rise

Do you re-score your portfolio for changes

in risk?

Now at 5.50% as of December 18, 2018

Prime Rate – Last 10 Years

9 Rate hikes in past 3

years

7



2014 | 2015 | 2016 | 2017 | 2018

Capital One – Re-Launched August 14, 2018

Source: www.capitalone.com 08/20/18

1 2 3



2014 | 2015 | 2016 | 2017 | 2018

Source: CNBC.com website August 21, 2018



2014 | 2015 | 2016 | 2017 | 2018

“Navy Federal Re-Launches Visa Signature®

Flagship Rewards Credit Card” – September 5, 2018

The card now offers 3X points on travel* and 2X on everything else

giving members enhanced travel rewards

*Travel is defined as: Airline and train tickets, hotel stays, car rentals, travel agencies, cruises, campgrounds and RV parks, timeshares, boat rentals, motor home rentals and travel

related arrangement services, ride-sharing services, bridges, tolls and ferries, parking garages and lots, bus lines, limos and taxis, commuter transport, passenger railways, public

golf courses, amusement parks and tourist attractions including museums, vineyards and aquariums.



2014 | 2015 | 2016 | 2017 | 2018

Challenges



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Some of the Challenges We Face As Issuers

Competition

• Who is it?

• Strategies for growth

• Price or rewards

• Value proposition

Profitability

• Rising cost of rewards

• Increasing fraud

• Loan losses

• Pricing

• Interchange compression

Regulations

• Dodd-Frank

• Interchange?

• CECL (Current Expected Credit Losses)

Change

• Impact to current cardholders

• Impact to your portfolio performance

• Analyze data

• Resources



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Opportunities



2014 | 2015 | 2016 | 2017 | 2018

Relationship Matters

Source: Aite Group survey of 1,464 U.S/ Consumers. September 2017

No62%

Yes36%

Not Sure2%

Q. Is the rewards credit card that you use most often, from the financial institution you consider to be your primary FI? (The FI you use for your primary checking account.)



2014 | 2015 | 2016 | 2017 | 2018

Rewards Matter

Rewards are still a critical driver of credit card acquisition and spending.

87%of cardholders own a

rewards card

76%of revolving balance dollars are carried on

rewards accounts

Sources: 2016 credit card monitor report, credit card rewards, redemption & merchant loyalty programs, April 2016JD Power 2014 U.S. Credit Card satisfaction study; US affluent community panel, June 2016.

92%of consumer credit card spend is on a

rewards card



2014 | 2015 | 2016 | 2017 | 2018

Premium Rewards – Affluent Card

• Are your members looking for a

premium rewards product?

• Can you offer a unique value

proposition?

• Can you link your reward to other

products/relationship criteria?

• Can you waive an annual fee

based on other Credit Union

behavior?

• Most competitive part of the

market – Super Prime

• Higher interchange rates

• Spend $24K+ annually

• Affluent households do revolve –

32% of HHs $150K+ revolvers1

1 Aite Group survey of 1,669 U.S. credit card users, September 2017



2014 | 2015 | 2016 | 2017 | 2018

Small Business Credit Cards

• Average small business spends

$43K a year on their cards

• Businesses are looking for:

• Spending flexibility

• Improved cash flow

• Rewards

• Convenience

• Controls

• Higher interchange rates

• Spend growing 15% YoY

• Rewards are not as rich (yet)



2014 | 2015 | 2016 | 2017 | 2018

Data and Analytics

• Is your card processing partner

providing you with the data you

need to analyze your portfolio?

• KPIs & Benchmarks

• Are they advising you on data?

• Are you creating goals &

strategies based on the

performance of your portfolio?

• Are you creating a holistic view

of your member relationship?

• Are you measuring profitability at

the HH or member level?



2014 | 2015 | 2016 | 2017 | 2018

Summary

• Credit card issuing is becoming much more complex

• As issuers, we need to actively manage our card business by

investing and partnering for success

• Come and talk to us in the Solutions Center if you have any

questions about your card business

Documents

Credit Card Trends, Issues and Opportunities · Credit Card Trends, Issues and Opportunities Jennifer Linton February 1, 2019