The Future of Credit Card Marketing

Jim Marous (00:00):

Hello, and welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous, Owner and CEO of the Digital Banking Report and co-publisher of the Financial Brand.

Jim Marous (00:22):

Credit cards are one of the primary foundations for credit relationships at almost every financial institution, accounting for 37% of consumer purchased by dollar value in 202. But the marketplace is changing as patterns evolve due to economic conditions and new credit alternatives.

Jim Marous (00:41):

To continue to grow credit card relationships, and relationships in general, banks and credit unions must reimagine their products to meet consumer needs, using deeper data insights to reach specific segments, drive engagement, and rethink card economics.

Jim Marous (01:02):

Today, we have Josh Turnbull and Craig LaChapelle from TransUnion on the Banking Transformed Podcast. They'll share the current state of the credit card marketplace and how financial institutions can better prepare for the credit consumer of the future.

Jim Marous (01:17):

Credit cards continue to be one of the best-performing businesses in financial services with the return on assets of 3.6% in 2020, according to McKenzie. Credit cards are also the primary method of unsecured borrowing for U.S. consumers accounting for 78% of balances when transaction volumes continually have year over year growth.

Jim Marous (01:39):

However, financial institutions face circumstances that make profitable growth harder to sustain from increased competition to greater losses from fraud and economic hardships.

Jim Marous (01:51):

So, Josh and Craig, what is the current state of credit card marketplace today?

Craig LaChapelle (01:56):

Hey Jim, this is Craig. Thanks for having us on. Let me jump at this one. So, we like to look at the health of the market, looking at really three things: originations, balances and delinquencies. It also helps that a lot of our customers tend to look at things that way as well.

Craig LaChapelle (02:15):

At the top line, this is clearly a different year than '22, at least at the start, where in '22, we came in strong. However, the macro story right now has clearly softened. So, let's go through originations, balance, delinquency at a high level. I'm not going to belabor you with too many statistics here, and I'm going to focus on bank card instead of private label, just from a law stream standpoint.

Craig LaChapelle (02:44):

So, from a card’s origination standpoint, '22 ended at an all-time high coming in around the high 80 million in terms of number of new accounts. Now, we forecast originations to take a step back in '23 to the low 80 millions, but it's well above '21 and it's really back on trend if you take the disruption of the pandemic years out.

Craig LaChapelle (03:10):

Consumers right now, seem to be just a bit more tepid in looking at new accounts than perhaps in the recent years, and issuers are being more judicious with marketing and underwriting. So, that leads to the softening there.

Craig LaChapelle (03:24):

Now, from a balance standpoint, we believe in '23, total balances, again, for bank card are going to come in above 930 billion. That's at least our forecast. Now, this is up a little less or right around a 3%.

Craig LaChapelle (03:40):

That's a clear softening in terms of growth rate, still positive — clear softening versus in '22 when that was up almost 20%. Let's say 19%, which, for context, significant reversal coming off of the de-leveraging we saw in '20 and early '21.

Craig LaChapelle (04:02):

From a delinquency standpoint, again, we look at 90 days past due, we think that's going to come in at 2.6% in '23. Now, that's up year over year, probably about 20%.

Craig LaChapelle (04:15):

But from a context, we saw historic lows in '2. We believe we're probably in a normal zone historically, maybe slightly elevated overall. But so overall, we think it's a slower growth market, it's still healthy, particularly after the down years of 20 and the disruption or the snapback, I should say, in '21 and '22.

Jim Marous (04:44):

So, Josh, from your perspective, what's interesting is that most people, lay people like myself would think that, " Oh geez, the economy situation has really stemmed buying and really changed maybe the delinquency rate greater than we think."

Jim Marous (05:02):

So, really, overall, the credit marketplace, given all the dynamics of the last two years, has really plugged along from a credit card perspective, correct?

Josh Turnbull (05:12):

It has, it's done really well, especially the last year.

Jim Marous (05:16):

And from a usage perspective, what do you sense that consumers are wanting from their credit card today and from their credit card issuer? In other words, what has changed over the last two years from the consumer's perspective as to what they're using their credit card for and what they want from their issuer?

Craig LaChapelle (05:36):

So, Jim, this is Craig, again. I'd say it's a return to normal. I mentioned earlier de-leveraging and what we mean by that, that's just a fancy word for folks who are paying their balances down in '20 and '21. They're returning to, I'd say, exhibiting or following the historic value of card, both from a payments perspective as well as a lending perspective.

Craig LaChapelle (06:01):

That's why we saw such significant balance growth in '22, monitoring it a bit in '23. And from a competitive standpoint, we see the competition really continue to be quite strong for the lower risk customers. They're open to buy at all-time highs. And our customers, the issuers are really looking at product fit as a way to drive cross sales.

Jim Marous (06:32):

And Josh, from the perspective of financial institutions, what are the opportunities and challenges in the marketplace today? We touched upon them quite a bit in a broad sense, but what are you seeing from the financial institutions perspective as to what they're liking, what they may not be liking in the marketplace?

Josh Turnbull (06:51):

And to build on Craig's point too, to answer that question, Jim, I think consumers want credit. And so, a credit card, it plays two roles. It's a convenient way to pay for things, and it gives me a line of credit if there's something I can't afford today that I might be able to pay off over time.

Josh Turnbull (07:06):

And so, you've got consumers who are back to historic spending habits, and you've got consumers — all of us, but that impacts some more than others whose everyday lives are costing more. And so, the need for that credit is more important.

Josh Turnbull (07:19):

So, consumers want credit, financial institutions still want to grow. And so, I think we've seen this pivot from what was the last part of '21 and '22 to kind of full-on growth mode to safe growth mode. And one of the things that as a market we observed early in 2020 was there's some issuers and credit card lenders who pulled back.

Josh Turnbull (07:42):

I wasn't sure what was going to happen (the sky may be falling), so I pulled back out of market. It takes a long time to restart that machine once you've done that. And so, we think more than ever, our issuers understand that's not what they want to do. They don't want to pull back, they want to keep going, but they want to keep going smartly. And so, make adjustments to strategies. And that looks different depending on the type of issuer you are.

Josh Turnbull (08:05):

Certainly, we're seeing the delinquency rates rise higher in the non-prime zone, which is what you'd expect. And so, there's been some pulling back there, but certainly not a retreat.

Josh Turnbull (08:17):

For other customers, Craig, mentioned the historic levels of open to buy. If you're a regional bank or a large issuer going after super-prime customers, things are still really good and so they're being aggressive. And Craig mentioned the historic number of cards that are being put out in market, you're competing to get those balances. So, people are still looking to grow, but doing it smartly.

Jim Marous (08:40):

So, sticking with you, Josh, for a second, one of the most powerful benefits of a credit card customer is that through the purchase, you get a feel for their lifestyle, their priorities, their challenges through their credit data.

Jim Marous (08:54):

How well are financial institutions today using the insight that they get from the credit card information to address the opportunities and challenges of the consumer, or to better target who they should be reaching out to?

Josh Turnbull (09:09):

It's hard to maybe give a grade for the industry overall. You see some who are doing better than others, and I'm sure which isn't surprising. But one of the areas that we're really seeing people focus is trying to make smarter decisions about who you're going after and how you're going after them, and how you're growing those accounts.

Josh Turnbull (09:29):

And so, sticking with the acquisition side versus existing cards, there are all these cards being put into market, people are going after these consumers. So, you've got a challenge of how do you stand out from the crowd when you're trying to get someone to come on to your card, how do you make that offer stand out?

Josh Turnbull (09:47):

And so, whether it's data that you have on that consumer from an existing checking relationship or some other type of relationship, or if they're a prospect — how do you use those data to demonstrate to that consumer that you understand them, you understand their needs and make sure you've matched the offer to that consumer. And you've spent a lot of time talking about this issue on your podcast and in your writing, but it's critical.

Jim Marous (10:12):

Craig, from your perspective on the same question, a lot of financial institutions have the data. You provide a lot of tools that financial institutions can have around what their customer base looks like, both from a credit perspective, but also from an interactive lifestyle perspective.

Jim Marous (10:32):

What are some of the most progressive institutions doing to use data to drive usage, reduce losses, provide, possibly build better relationships?

Craig LaChapelle (10:45):

Great question. And I'll go back to something that I touched on before, and that's product propensity. So, these issuers have insight into their existing base, their portfolio of cards and customers that they serve.

Craig LaChapelle (11:08):

And they can look at trends and payment behaviors, trends in usage to not only assess risk, but also to assess whether one of their accounts or customers is at risk of leaving- a risk of attrition. So, they can respond with usage offers or cross-sell offers based on what they've seen in terms of traditional spend and how that spend has changed.

Craig LaChapelle (11:37):

Just anecdotally on this point, I received a new card, another one of my cards, I began to use less in specific categories. Guess what? They reacted pretty impressively and pretty quickly with a counter offer on a new type of card as well as new incentives. So, you start to see more of those things occurring in the market.

Jim Marous (12:04):

It's interesting because I think one thing that happened with the pandemic is consumers became much, much more aware of what's possible with data and how it's being used by other organizations outside the financial industry. Everything from Hulu to Amazon, from Apple to virtually any retailer out there, the way they're leveraging data. So, that gets us over the hurdle, I think, to a degree, of the Big Brother syndrome out there.

[Jim Marous (12:34):

Craig, from your perspective, are financial institutions using credit data for more than just credit relationships, going beyond a credit card or a lending portfolio to use it to maybe open new accounts on a consumer basis or other things that are being done?

Jim Marous (12:55):

Because we're seeing more and more of the big issuers do all kinds of things, trying to expand the relationships with their credit card base. What are you seeing out there?

Craig LaChapelle (13:06):

Great question. Fundamentally, they're still using credit data, whether it's traditional data or trended data. And what we mean by trended data, it's really either on a risk score or the report or an attribute, the ability to see financial credit behavior over the course of two to three years, instead of just a quick snapshot, seeing a movie instead of a still, if you will.

Craig LaChapelle (13:32):

So, they're increasingly using this trended data across the credit life cycle, whether it's in marketing or underwriting. So, this time of year or this type of economy, which is softening, we're seeing a lot more sophistication and how they look at existing accounts, essentially reviewing their portfolios.

Craig LaChapelle (13:56):

If you go back to it, we saw this heightened awareness start to pop up during the pandemic, a heightened emphasis on liquidity. So, banks and issuers looked at consumers in accommodation, what is their payment ability or how is it changing versus minimum dues — things of that nature as well as things like increasing the frequency of the actual reviews.

Craig LaChapelle (14:26):

So, that's from a management perspective, but maybe perhaps where you were going initially beyond the account management perspective, we're seeing increasing adoption of trended risk scores in marketing. And it's not just about financial inclusion (that is a piece of it), but ultimately, our customers, the issuers are really trying to find more by adopting or applying a greater precision in their targeting or even in their underwriting by disaggregating traditional risk score events.

Craig LaChapelle (15:05):

And I think a lot of this, Jim, is driven by the natural evolution of wanting to better serve consumers, be able to say yes to more folks, but doing it in a way that doesn't throw out the baby with the bath water from a risk perspective.

Craig LaChapelle (15:28):

One other area that we're seeing increased interest particularly over the last year or so, is really greater investment in business intelligent data and capabilities.

Craig LaChapelle (15:40):

And it starts with issuers and banks looking at their competitive positioning and strategy by reviewing their performance versus their peers or other perhaps, new entrants on an account level or a portfolio level to inform strategies and opportunities. And these can lead to new product ideas, new underwriting strategies, new marketing campaigns. And then those product propensities, product fits that I mentioned for optimizing offers.

Jim Marous (16:15):

Josh, all these ideas are exceptional and because of the data we have from the credit usage, we can do a lot more. How does TransUnion basically partner with financial institutions to make them better at what they do?

Josh Turnbull (16:33):

Well, let me give you two examples in places we're seeing a lot of interest, Jim, and in the last answer, Craig mentioned a lot around the risk decision. I think there are two other places where we're seeing institutions spend a lot of time thinking about how they use data and not just credit data, but working with some of the other data that we have or others have.

Josh Turnbull (16:52):

The first is fraud. And in every chart that we see, or folks see, you see fraud returning to the financial services sector in many different facets. But the investments people are making here and what the focus really is, is on the customer experience.

Josh Turnbull (17:18):

And you hit on this in your comments a couple of questions ago. And financial services firms, they clearly have more writing on the line than Netflix or Nordstrom, but the experiences that I have with those types of providers shape my expectations. And so, when I call my bank having to go through multiple verification steps, even when I go in and transfer from one account to the other, internally having to answer security questions, these are all things that make me crazy.

Josh Turnbull (17:41):

So, as a bank, how do I better use the data that I have or that I can get about a consumer, about her phone, about her pay views, and really decrease that friction for the 99% of good transactions, be the servicing transactions, applications, whatever they are.

Josh Turnbull (17:58):

The second piece we're seeing a lot of energy around is marketing. You've again talked multiple times about the degree to which consumers reward FIs that demonstrate that they understand them; the industry falls short.

Josh Turnbull (18:15):

One example of this, I get as many people listening to this podcast probably do — I'm lucky to be in a position where I'm able to pay my credit card bills off in full every month. I put every dollar I can on my credit cards to get the rewards. But what that signals, if you're not looking at the data in the right way, is that I have high balances.

Josh Turnbull (18:36):

And so, I get a good number of offers for either debt consolidation loans or balance transfer offers. It's a total waste of money for the person sending those to me. And to me, it demonstrates that that's a financial institution who doesn't understand who I am and doesn't understand my needs.

Josh Turnbull (18:52):

And so, how do I better understand this person, whether they're a customer of mine or whether they're a prospect, so that I can demonstrate to them that I understand them and I can engage with them in a meaningful way that's going to lead to a better outcome for the both of us.

Jim Marous (19:07):

So, on that same subject then, Josh, how is TransUnion working to build a bigger portfolio of insights that can help the financial institution? Because a lot of financial institutions don't want to make 5, 6, 7 different relationships with data sources out there. They'd like to go to the traditional sources they've used in the past.

Jim Marous (19:30):

How is TransUnion looking at ... I'm not going to call it alternative credit or alternative credit bureau information, because that's really a misnomer in many senses. But how are you expanding the insights you have that you can help institutions do better at knowing what I want when I want it?

Josh Turnbull (19:48):

Great question. We think of ourselves as first and foremost, it's about understanding the consumer and the consumer's identity. And so, for a long time for TransUnion or companies like us, that's been a lot around the credit information, credit data, the credit file. And we certainly continue to make investments there. Craig mentioned some of the ways in which we're using credit data in new and innovative ways.

Josh Turnbull (20:13):

Some of what I'll call, dig in with that term “alternative credit data” where it's data that can be used in a risk decision, and is in or adjacent to the credit file. But also, massive investments in data around the whole consumer's identity.

Josh Turnbull (20:31):

So, online behaviors, device behaviors, everything that helps me understand that consumer, I'm not going to use that decision or use that data in a credit decision, but I can use that data to ... whether it's in a risk application, whether it's in knowing kind of how I should interact with you, what types of offers, what product's best for you, what you're likely doing in market.

Josh Turnbull (20:55):

So, just I think you see a lot of investment trying to bring all those data under one roof so that we're able to better serve our customers as they're really trying to break down their own silos, frankly, too. And have these better views of consumers that help them serve them.

Jim Marous (21:13):

You know, Craig, it's interesting because I was fortunate enough to go to Shenzhen, China at the beginning of 2020 and visit WeBank. And they built their whole business model on trying to have almost full inclusion. And they used phone data, information on how somebody's using their phone and different types of data that is not traditional credit data to determine who would not be a good customer from a risk standpoint.

Jim Marous (21:40):

So, instead of saying who's the best customer, it's almost like looking at, okay, who are the few that also omit from the data source, from the customer database to expand? And I'm going to call it financial inclusion because we talk about that all the time, but the reality is, it's broadening the potential marketplace out there.

Jim Marous (22:00):

What is TransUnion's perspective on this data and the ability to use it? And we talk about it not as a credit scoring behavior, but really, as an inclusionary behavior that may go beyond simply how much credit you can offer, or maybe, completely looking at credit in a different way where a hundred or $200 lines may not be a bad business if you get the masses.

Craig LaChapelle (22:29):

Yeah, great question. I'd say fundamentally, at TransUnion, we're looking at ways to enhance our ability to deliver insight, whether you call it the identity graph or risk assessment of consumers to our customers. And that drives a lot of what we do.

Craig LaChapelle (22:51):

We have a dedicated group that goes out and looks at new data sources, whether it's lease data, furnished data, data that we can acquire, to vet that data, to test it, to see and prove out that there's value on what we call lift in the data, and then we develop a strategy for what we're going to ingest and how we're going to deploy it.

Craig LaChapelle (23:18):

So, that's the general answer without getting into specifics. It really drives who we are and how we try to deliver value to our customers.

Josh Turnbull (23:29):

And I would just add on, Jim, if I could, on the inclusion standpoint. There's a lot of interest in and focus on new sources of data and alternative data, and those things are all really important. And we've also seen — Craig mentioned the trended credit scores just through using the data that's always been on the credit file differently.

Josh Turnbull (23:50):

I mean, many of the traditional risk scores on which a lot of institutions still rely on things, they reflect kind of the computing power and data storage costs of 30 years ago. But by moving to those trended scores, same credit data that's always been there, but looking at it in a different way, tens of millions of people that can be brought into the financial services system with the credit score.

Josh Turnbull (24:15):

And communities that are underserved and lots of interesting work that's been done on this. But even just being smarter about how you use the data that's already there, and well within … very familiar has huge impact.

Jim Marous (24:34):

You know, it's interesting also because you provide resources to consumers directly on being able to improve their financial wellness, but we're seeing more and more financial institutions partnering with firms like yours to help consumers themselves.

Jim Marous (24:49):

Are you seeing this as a big opportunity for financial institutions to say it's not just about driving more usage and more credit balances, things of this nature, but really, the opposite side, which is we want you to become better stewards of your money and your credit. Are you seeing a lot more organizations reaching out to you to build that capability better?

Craig LaChapelle (25:14):

Absolutely. One of the things about financial inclusion is you look at ... there isn't the same definition for … not every issuer defines financial inclusion the same way. Some think of it as more access to deposits, access to credit. It can be a variety of different things. But one of the things that we've been promoting and highlighting is partnering with our customers to educate the consumers better, either proactively or reactively offsite, onsite.

Craig LaChapelle (25:51):

It's something, both current customers as well as prospects. Because even selfishly, I think the FinTechs have accelerated the visibility or escalated the visibility of the importance of consumer education. And the more established issuers you get to the larger banks and the larger card issuers, are clearly reacting because they recognize the need, but they also recognize the threat of not providing it.

Jim Marous (26:26):

And you guys are in the best position to do this too. I mean, you can almost make it a turnkey solution for finances because nobody ... if they want to build it internally, that's one thing. But you have all the tools to be able to say "If this, then that" type scenario where you can identify challenges out there for a financial institution to be able to reach out to their customer base with better solutions.

Josh Turnbull (26:51):

And it's really evolved too. And if you think about, Jim, if I'm a banker, a credit card issuer and I give you your credit score every month on your statement or I put that on the website where you can see it, that's a value-add for you, but it's a static display of information, versus if I give you a tool where you can come and plan a financial goal or interact with it: one, I've gotten you to now interact with me in a way that's not just transactional.

Josh Turnbull (27:19):

And two, if I'm smart about it and if I have the capability, I know a lot about you now and about what you're trying to do, about your goals, about your savings, whatever it is that I can use to better serve you and make that a deeper relationship and a longer relationship. So, we're seeing a ton of interest in that.

Jim Marous (27:39):

You know, that's a great point Josh because you mentioned that the way you use credit cards, well, somebody can be very similar to you in the way they use credit cards. They use it for everything, they pay off immediately, but it may not be because of rewards. It may just be the way they get paid.

Jim Marous (27:57):

We tend to try to combine everybody, make them look similar to somebody that we know and it may not come out that way. And to have that insight, to have that data and to have that interaction and you brought it up — we're moving I think as an industry from an experience perspective to an engagement perspective: how can I help you proactively?

Jim Marous (28:18):

Credit bureaus have reached out to me at times based on things that have happened in my life and said, "Have you realized you can change your credit score by doing this?" Which is a neat little tool, but beyond that, they also on an ongoing basis, notify me when something doesn't look right in my credit bureau, when a transaction's out of the ordinary.

Jim Marous (28:40):

And that's sometimes driven by my financial institution, but it's sometimes been driven by my credit bureau, which is an important extra benefit there and certainly, solves a lot of the issues that consumers have around, geez, I need help managing my money because it's gotten more and more confusing through the years.

Josh Turnbull (29:00):

Well, I think to that point, you had a guest on recently who was talking about this financial service, we’re on this 30-day cycle. I pay my mortgage once a month, I get paid ... yeah, and that's the cycle for all kinds of good reasons that we're on.

Josh Turnbull (29:18):

But to your point, if I can interact in a real-time basis with you based on either signals that I see about what you might be in the market for or things that are happening right now — now we've got an ongoing dialogue versus me communicating with you once a month on a statement or once a month in an email.

Jim Marous (29:36):

Yeah, Craig from a standpoint of, we keep on talking about the data and a lot of times, financial institutions still use data to build really good reports to know me internally to the financial institution, and don't do it very well to let me know as a consumer that the institution knows me.

Jim Marous (29:56):

So, when we talk about using credit data to build better relationships, it's easier said than done. What challenges do financial institutions have today in utilizing and deploying the data and the insights that you actually provide them?

Craig LaChapelle (30:14):

Yeah, it's a great question. And there's a variety of ways of answering this. I'll try to touch on just a couple of dimensions.

Craig LaChapelle (30:23):

One, if we're talking about, for example, some of the trended data that's available in the market, which shows again, gives a view of how somebody's performing over time instead of a snapshot — there are some legacy systems issues in terms of how to ingest that data from a score perspective.

Craig LaChapelle (30:44):

You got other parties in the ecosystem that need to adjust to support that. But then you get into, you're using some of those trended attributes either for marketing or for risk assessment. A lot of it gets down to how easy is it to change my models from a model governance and compliance perspective.

Craig LaChapelle (31:10):

The other area, and it builds on some of the questions you mentioned earlier, Jim, is there is a lot of information out there. There is a lot of different sources of information and how do they put in place a program to assess all that information and analyze it and essentially, fine lift?

Craig LaChapelle (31:36):

And one of the things that we're seeing increasingly is with the decrease in computing cost, perhaps more on the larger issuer side, is the issuers building their own in-house — now, let's consider it cloud in-house, but their own data sets where they're able with our assistance, to link to a variety of different data sets to really accelerate the pace of exploration and analytics. I hope that answers your question.

Jim Marous (32:12):

Yeah, it really does. And when you look at that, when you look at the potential — and I'm going to take this a little bit deeper and say, okay, so Craig, you leave your current employment and you go to a financial institution, what is the first thing that you would do to take the greatest advantage of what TransUnion offers you as a finance institution, and deploy it against consumers?

Jim Marous (32:36):

I mean, put a different way, if you have a recommendation for a financial institution as far as how to better utilize the relationship between their organization and TransUnion, what would you recommend?

Craig LaChapelle (32:50):

Great question. And I'm going to stay high-level and I'm going to stay strategic. I would jump to one of our customers, one of the first things I would suggest we do in our engagements, assuming we're not doing it already, and we are doing it for many, is set up, I'll call it market perspectives reviews, either on a monthly or quarterly basis, where we can share observations, conclusions, recommendations.

Craig LaChapelle (33:18):

Really to say, "Hey, this is what's going on. This is how you compare ... there might be an opportunity here," or, "You know what, you're great. How do you continue to build on that?" So, it's establishing that advisory relationship. That's the very first thing I would do.

Jim Marous (33:36):

You know, that is tremendous. It's funny because I used to be in the digital and direct marketing business and it was amazing to me how few times organizations would knock on my door and say, "Geez, can you come in and do a review of how we compare to others?"

Jim Marous (33:52):

Because you brought it up. You have a lot of case studies, you have a lot of victories, and you also have some defeats that say, I'd love you to avoid this. It's like the Google maps of financial service where you go, "It would be in everybody's best interest to do what the winners are doing and avoid what the losers are doing."

Jim Marous (34:13):

And Josh, from your perspective, what would you recommend? Maybe it's a deeper dive in what Craig mentioned,

Josh Turnbull (34:20):

Just same theme, but going maybe a level deeper than Craig, I would ask how are we doing and how do you know? And so, whether things are great from an economic standpoint or things are challenging, I know that my balances are up relative to last year. I know that I've gotten these cards or those cards or this is my average transaction amount.

Josh Turnbull (34:40):

And all of that. Maybe it's better than it was a year ago. But if I can't benchmark that against either my peer set or the people that are in the branch next door to me, how do I know in relative terms how I'm doing to the market?

Josh Turnbull (34:56):

So, I think that's the first thing I would ask if I took the helm of a credit card operation or any financial services operation, is what are these KPIs and then it's great that it's up, it's great that it's down, but who's our peer set? Who are we comparing ourselves to and how are we doing relative to them? Because until you understand that, I don't know what I want to focus on.

Jim Marous (35:18):

That's a great insight because you can think you're doing great. I mean, it's interesting because we talk about in the deposit world that when the government sent out checks, everybody was getting on their high horse, said "Oh my gosh, my deposits went way up. And geez, we’re flushed in deposits” and felt really good about it.

Jim Marous (35:35):

But very few organizations did an analysis of the amount of transfers out of their financial institution to other financial institution providers. And until you saw in perspective how you were doing, you can get a very narrow view as to things are great, things aren't great, but you don't have the perspective, you said the benchmarking.

Josh Turnbull (35:56):

One very specific example of this recently working with a decent sized bank and they were benchmarking their delinquencies against a peer group and feeling pretty good about that. But then when we said “But sure, those are your peers, but your approach to risk and your portfolio composition is a little different.”

Josh Turnbull (36:14):

So, let's actually benchmark that against a like for like portfolio comparison, and it paints a very different picture, which tells you that you've got some work to do. And so, I think that just really making sure that you've benchmarked yourself against some granular data is so critical.

Craig LaChapelle (36:34):

One thing to add, I don't want listeners to think that we can benchmark company A versus company B. When we benchmark, it’s broad data sets, so we're not showing competitive information. It's nothing like that.

Jim Marous (36:49):

Yeah. Oh, exactly. But the reality is you just look at the whole perspective of is the business being optimized? Your delinquencies could be way low, but you could be far from optimizing the revenue potential of the business because you've made so many decisions in the past that have made it so that you give virtually nobody credit.

Jim Marous (37:16):

You can make your delinquencies go down, you can make your attrition go up, whatever you wanted to do, but it's based on what is your portfolio look like. And finally, there's trends out there. We see the marketplace changing, innovation’s happening. We saw "buy now pay later" go up, go down, still out there quite a bit.

Jim Marous (37:39):

For both of you, what do you see as being some business-altering trends that you may see in the future? And it may not be a prediction, it may not actually come true, but what do you see happening going forward? Josh, let's start with you.

Josh Turnbull (37:54):

Yeah, so just a couple of thoughts on that, Jim. So, go back to a comment I made earlier and that the credit card, it has two functions. One, it's a convenient payment vehicle for all of us. And two, for many folks, it's a lending product on which people rely.

Josh Turnbull (38:07):

So, if you think about it in those terms, on the payment vehicle standpoint, one of the things that we're paying a lot of attention to is we're seeing some of the things that used to be options for online payments only, non-card options.

Josh Turnbull (38:21):

So, seeing those now appear at retail point of sale, brick and mortar, retail point of sale. And there are a number of reasons for those: economic, convenience, but what's happening there? And there's certainly some entrances that are trying to chip away at the primacy of the credit card in that space. Absolutely something that I do pay attention to, but would pay paying attention to in a different lens if I was sitting at an issuer.

Josh Turnbull (38:50):

And then you mentioned BNPL, but on the second piece, the fact that a credit card is a lending product, the last few years have seen an emergence of literally hundreds of FinTech lenders who they're working with the bank on the backend, but they have credit card programs.

Josh Turnbull (39:07):

And many of these are very niche programs, and they have the ability to tailor these programs or offer features or what have you that some of the larger players just don't have. And so, I think those are a couple of the dynamics of that I'm paying attention to.

Jim Marous (39:23):

How about you, Craig?

Craig LaChapelle (39:25):

Sure. And I'm going to hit on something that's very near and dear in your heart since you wrote an article about it this week, or at least published this week on AI.

Craig LaChapelle (39:34):

I think there's a lot of opportunity in deploying that in what I would call, is connected customer interactions, whether it's online or over the phone or at some point, it's where there's true interaction either from a customer service perspective, simple Q&A.

Craig LaChapelle (39:53):

Or at what point do we get into recommendations that's supplied by something analogous to ChatGPT in terms of managing your spend, new products, different solutions that your investments, that somebody should consider.

Craig LaChapelle (40:13):

And then I also think from an AI perspective, we'll perhaps see more in sort of self-learning and building propensities using those broader data sets that they're assembling. I don't know when it's going to occur. I don't know what the limits are, but I think I was actually reading your article and thinking about where that would fit earlier this week.

Jim Marous (40:37):

Yeah, it's interesting, there's so many dynamics as we know. By the time the podcast gets published, we could have changes that we weren't expecting.

Jim Marous (40:46):

One thing that's important, and I'm going to make a plug for you guys here, is that for anybody listening to this podcast, you probably have some interest in your credit card customer base. We didn't come close to covering all the issues that are out there today or all the opportunities that are out there.

Jim Marous (41:05):

So, I strongly suggest that you also listen to Josh and Craig who host a podcast of their own called Extra Credit. The TransUnion's Extra Credit Podcast. And you can find it on their website and it's easy to access. Also, on our episode description for this episode, you'll see a link to their podcast.

Jim Marous (41:26):

And I strongly suggest, in order to keep on top of what's going on in the marketplace, that you listening to Josh and Craig's podcast because it's a great way for you to self-learn what's going on because it's virtually impossible to keep on top of everything.

[Music Playing]

Jim Marous (41:42):

But if you're interested in what's going on in the credit card world, what is going on in the credit bureau world, what's going on in the data and insight world as it relates to credit, I strongly suggest you listen to their podcast. I thank you both for being on the show today also.

Josh Turnbull (41:58):

Thank you, Jim. It's been great.

Craig LaChapelle (41:58):

Thank you, Jim. Thanks for the plug too.

Jim Marous (42:00):

Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. If you enjoyed today's interview, please give our show a five-star rating in your favorite podcast app. Also, be sure to catch our recent articles on The Financial Brand, and check out our research on the Digital Banking Report.

Jim Marous (42:18):

This has been a production of Evergreen Podcasts. A special thank you to our senior producer, Leah Haslage, audio engineer, Sean Rule-Hoffman, and video producer, Will Pritts. I'm your host, Jim Marous.

Jim Marous (42:31):

Until next time, remember, you need to leverage the partners that are out there willing to help you in order to move ahead.