Are banks or consumers behind the slow growth in credit cards? – Chip Baker

While profitability of the major credit card issuers has improved dramatically since the 2008-2009 recession, loans and total cards in force continue to remain largely flat. The rationale by many in the industry is that this is driven by changes in consumer behavior; principally, the desire of many consumers to decrease debt and the increasing interest in debit card products. However, a recent article in Payments Source illustrates another key driver of the decline in credit card acquisition growth, the fact that banks are becoming far more selective in the new accounts they target and approve. Over the past 4 years, the percentage of new accounts with credit scores below 660 dropped at each of the 6 largest credit card issuers while the percentage of new accounts with credit scores above 720 increased. The most significant change happened at Bank of America. In 2007 only 36% of new credit card accounts at Bank of America had credit scores above 720, but by 2012 52% of new credit card accounts has a credit score above 720.

This increased focus on highly credit worthy individuals not only limits the overall acquisition growth as all the issuers fight over the same high FICO score consumers, but it also leaves segments of the consumer base such as millennials out in the cold who may interested in acquiring a credit card. Going forward if this trend continues, it could have a lasting impact on the way the millennial generation uses credit and debit cards, especially as regulations such as the CARD Act make student credit card acquisition more challenging. It also provides opportunities for issuers interested in a broader FICO portfolio mix to find low hanging acquisition fruit lower in the FICO spectrum where the competition from an acquisition perspective has declined measurably.

Read more about the issuers are looking to change the FICO mix of their new accounts here: http://www.paymentssource.com/news/credit-card-lenders-keep-getting-pickier-interactive-graphic-3013257-1.html

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