Prime cardholders say “enough”

Have you ever envied a member of your family who can push back from the Thanksgiving feast without overdoing it, uttering, “Lovely. I’ve had an elegant sufficiency”?

America’s prime credit card customers may be coming to resemble that moderate feaster, according to research by TransUnion.

In fact, many of them are coming to the credit table on diets.

And that has implications for banks and others who want to sell customers on signing up for new credit cards and who want customers to increase spending on those cards or on cards that they already have.

Debt and delinquencies down

Consumer credit card delinquency fell in the fourth quarter of 2013, versus the same period for 2012, with the portion of general-purpose card holders running 90 days or more past-due falling to 1.48% from 1.61%, according to the latest edition of TransUnion’s Industry Insights Report. This rate averaged 2.25% in the fourth quarter over the 2007-2013 period. The company’s report draws on data representative of virtually every credit-active consumer in the U.S.

The level of credit card debt also fell from the final quarter of 2013—$5,325 on average—compared to the final quarter of 2012, when debt averaged $5,376. Both the debt and delinquency measures went up, compared to the third quarter 2013 number, which reflected holiday spending. Over the 2007-2013 period, credit card debt per borrower averaged $5,721.

All states saw a fall in delinquencies year over year, and only seven states saw an increase in statewide average credit card spending.

The number of credit card accounts rose, when the final quarters of 2012 and 2013 were compared, with the number of card accounts hitting 341.4 million, an increase of 3.6%.

The nonprime share of the industry’s business has fallen markedly. The TransUnion research indicates that nonprime borrowers represented 30.13% of the total of card debt in the third quarter of 2013, versus 30.23% in the same period in 2012. In 2007’s third quarter, 44.03% of card borrowers were classified as nonprime, which TransUnion defines as holding a VantageScore of less than 700.

Ezra Becker, vice-president of research and consulting in TransUnion’s financial services business unit, analyzed these trends:

“Credit card delinquencies continue to remain much lower than historical norms. We also believe that there is a continuing reduced demand for new credit in the prime credit ranges. While industry reports show that direct mail has increased by about 30% in the last year, we have seen originations only rise about 11% in that same timeframe. In short, consumers are managing the cards they have in their wallets effectively and do not seem to be seeking additional card credit at this point. This also speaks to the need for lenders to examine alternative channels for account acquisition beyond traditional direct mail campaigns.”

Rethinking card marketing

In an interview, Becker indicated that these trends and related ones—for example, there are 40 million fewer active credit card accounts than there were five years ago—stress the need for increased creativity and marketing effort by card issuers.

Already, he noted, many issuers market with methods beyond the classic direct mail appeal. However, targeting of customers has required, and will increasingly require, a more nuanced approach. Prospective customers will be targeted on the basis of the seasonal spending tendencies, for instance, with promotions stressing holiday or vacation spending.

“Consumers are not responding anymore to offers of credit just for the sake of credit,” says Becker. “So lenders are being more holistic in trying to understand the consumer’s wallet.” This takes increased attention to economic trends and to consumer segmentation. Note how many offers in your own email may be related to cards that give points of some kind that very specifically address rewards that you value.

Becker says that some prime lenders have been “dipping down” into nonprime consumer strata in an attempt to widen their bases. They have been encouraged to do so by the falling delinquency trend. However, Becker warns that nonprime card lending operates under a much different model, typically, than mainstream card credit.

And TransUnion noted in its report that it expects card delinquencies to rise by the end of the first quarter to 1.57%. Though still a relatively modest increase, it’s a yellow light.