Unpacking Credit Card Challenges and Opportunities for Growth

Jim Marous (00:08):

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

Jim Marous (00:16):

As the credit landscape shifts under the pressure of economic change, new technologies, and evolving consumer behaviors, financial institutions must explore how to adapt strategies to meet the challenges head on.

Jim Marous (00:33):

We are excited to have Josh Turnbull, Vice President of Card & Banking Strategy, and Craig LaChapelle, Vice President of Market Development at TransUnion to joining us today at the Banking Transformed Podcast.

Jim Marous (00:46):

They will discuss the changing patterns in consumer credit management, the emergence of new user segments, and how financial institutions are innovating to meet evolving demands. They also will delve into successful market strategies, the impact of AI and new technologies, and the evolving battle against fraud, offering value insights for financial institutions looking to stay ahead.

Jim Marous (01:11):

Their credit card industry remains highly profitable, but faces evolving challenges, including change in consumer behaviors, emerging alternative lending options, and adopting to new technology and fraud risks while accounting for a significant portion of consumer purchases. Our guests today will try to shed a light on what banks and credit unions must know as they build portfolios for the future.

Jim Marous (01:36):

So, Josh and Craig, before we begin, can you introduce yourselves to our audience and share a little bit about your background. Also, it'd be great if one or both of you can discuss how TransUnion currently is helping financial institutions navigate the battlefield far from what we've seen from the past. So, we'll start with you, Josh.

Josh Turnbull (01:54):

Sure, Jim, thank you and happy to be here. Josh Turnbull and I am in the TransUnion card and banking line of business. So, we work with 5,000-some-odd depositories and card issuers across the country to help them make better consumer decisions every day.

Josh Turnbull (02:09):

I've been in financial services my whole career, most of that time with data providers and technology firms supporting the financial providers themselves.

Jim Marous (02:19):

How about you, Craig?

Craig LaChapelle (02:20):

Sure. Thanks Jim. Glad to be here. So, similar to Josh but slightly different than Josh, I have been in financial services for a while, but I did not start my career in financial services. I started in management consulting, really with a focus on telecom and technology.

Craig LaChapelle (02:36):

But I did make the transition to financial services, worked for a major issuer, and I've been at TransUnion for, gosh, over 15 years and a variety of different roles, whether it's in market development, acquisition integration or now leading our strategy function for the U.S. Financial services. So, pretty diverse background even at TransUnion.

Jim Marous (03:01):

It's interesting, we talked about a little bit before the podcast started that we've all been in the financial service industry for a while, myself, for well over 40 years. And while the marketplace has basically the foundation is about the same, the reality is the speed at which change happens, what happens when you flip a switch, the technology, the way people interact has really changed quite a bit.

Jim Marous (03:27):

So, Josh, how has consumer credit behavior changed, I would say in the last year, but really since COVID and what trends do you see in credit utilization and payment patterns right now?

Josh Turnbull (03:39):

Jim, great question and good place to start. So, just to think back to what happened in COVID, I think everyone's aware of this as a reminder, we saw a tremendous influx of liquidity, people were able to not pay debts, pay down debts, you saw all this excess cash flowing of the system.

Josh Turnbull (03:57):

As a result, we saw credit scores improve significantly during the course of the pandemic, which I think is an important thing to know and to understand where we are today.

Josh Turnbull (04:10):

So, where are we today? Middle of 2024, we're seeing the results of some lenders who were pretty prudent and changed their underwriting strategies knowing what was going on with consumers over the course of COVID and some of that increased liquidity and the effects of some lenders who did not. 2021, '22, even '23 were incredibly active years in putting new cards out in the market. Shattered records with the number of new cards and credit lines and balances.

Josh Turnbull (04:45):

Where are we today? Today, we're at a place where we're seeing charge-offs break all-time records. We're seeing delinquencies that are back up to and above where they were pre pandemic. Now, if you adjust those for the size of the market, they're not breaking records, which is great, but it’s still a concern to our issuing partners.

Josh Turnbull (05:04):

Why is that? Some of that is because consumer behavior has changed. Consumers are feeling the pinch of ongoing inflation and other factors. Some of that is because we had issuers who didn't maybe tighten down things as much as they should have when you had all this liquidity and things pouring into the system.

Josh Turnbull (05:26):

We are seeing from a utilization standpoint across the board, whether you look at subprime all the way up to the lowest risk, super-prime consumers, utilization levels on credit cards are back to where they were pre pandemic.

Josh Turnbull (05:42):

From a growth standpoint, Jim, in terms of demand for credit, it's interesting. The last quarter, the number of new credit cards was down 7% year over year, and we're still very active relative to pre pandemic years but we're seeing that slow down.

Josh Turnbull (06:01):

Super-prime was the only credit tier that still had a record for originations, but that was basically flat to last year. What's interesting though, is when you look at last year, that growth rate was 20% year over year for super-prime, and it's down to nothing now.

Josh Turnbull (06:17):

Now, those are consumers that the large issuers, they're going to always be going after. And so, that says to us that at the top end of the risk spectrum, they have less desire for credit than they did a year ago.

Josh Turnbull (06:28):

So, we see that part of the market pulling back, we see a real appetite for credit on the higher risk consumers, which is an issue where it leaves you with kind of the prime segment in the middle where it's a real mixed bag in terms of how they're performing in demand for credit.

Jim Marous (06:45):

It's interesting, Craig, as we look back in the past, and I'm talking way back, it used to be pretty easy to define when a person went bad, that they just weren't good managers of credit and the ones who didn't go bad were good managers of credit, but the dynamics of the economy right now, the dynamics of people and their challenges and the data we have available to find out, it's not as easy, not as cut and dry as it used to be.

Jim Marous (07:15):

Have new customer segments been created and emerged in the credit card market and with unique needs and preferences. In other words, I would think there's a big difference between the person that just doesn't manage credit well and those that need some access to credit in whatever way possible. And those are very different scenarios, especially from the way the financial institution should manage that relationship. Correct?

Craig LaChapelle (07:41):

Yes. It's a good question. There's really two ways to answer. Just remind me if I don't come back to the second method or the second lens. But ultimately, and I think Josh alluded to this, it's a tale of two markets in many ways.

Craig LaChapelle (08:02):

And I don't know, at least initially I would say that it's not necessarily like there's a new risk layer, but if you divide the risk bands up between higher risk, which subprime through the beginning of prime and lower risk which is sort of prime and up all the way to super-prime, there's definitely a tail of two markets. So, the higher risk folks, the beginning of prime and lower, the delinquency’s clearly higher.

Craig LaChapelle (08:34):

Some of that's due to score migration, score shifts that Josh talked about. Some of it's also just due to more stress, more of those folks are feeling the impact of inflation and the higher rates, meaning the outstandings they have to pay more to just stay current from an interest rate standpoint.

Craig LaChapelle (08:56):

And we've consequently seen issuers be, I'd say, more judicious not only in how they outbound market. We've seen a lot of, I guess, suppressed marketing in 2024, and Josh is right. I'm going to go a little bit back to what you said before.

Craig LaChapelle (09:12):

It's definitely a different market 2023, a lot voracious appetite, the supply, demand intersection led to much higher metrics versus 2024, very different. And we've also seen issuers have tighter controls from a line standpoint muted to decreased year over year in new originations, that's how they're looking at the higher risk.

Craig LaChapelle (09:38):

Now, the lower risk, those folks who aren't as experiencing stress, what we've seen is it's not a supply story, being issuers are always going to go after the lower risk folks for growth, it's more of a demand story. There's less demand.

Craig LaChappelle (09:57):

We've seen less originations in this space down year over year, which really in that segment speaks to demand. We've also seen muted line growth. I mean, there's a little bit of line growth from issuers, but they're still using that lever to control risk. And ultimately that supply demand intersection has led to a decrease in balances in newly originated cards. This is the first time we've seen that year over year in a long time.

Craig LaChapelle (10:25):

Now, I'm going to come back to the second way I look at it, and it really has to do with score migration. If you look within bands, a lot of times with score migration, what we're talking about is essentially people that look to be in a certain band performing worse than traditional, a lot of that is due to score migration, people moving up into bands.

Craig LaChapelle (10:51):

And what we see our issuers doing is looking to disaggregate those bands and segment out those that have migrated versus those that are there traditionally and it impacts not only risk models, but also in how they reach out to the market. So, I'll stop there and see if there's any follow up on that one.

Josh Turnbull (11:09):

Yeah, yeah. I mean, Craig, the other thing I would throw on, you and I've been talking about this a couple times too, but from a segment standpoint, the other interesting tread is Gen Z. And today, one out of every five cards being issued is going to a Gen Z consumer, which may not seem like a lot, but that's a dramatic change to what it was just a few years ago. So, thinking about who you're lending to.

Craig LaChapelle (11:30):

Well, it is and interestingly enough when we talk about generations, if you talk about millennials, everyone was, "Oh, well, these millennials, they've always in a bad position." Now, articles and analysis have come out that says millennials actually have higher wealth than previous generations. It's totally flipped in the last 5 to 10 years.

Jim Marous (11:50):

It's interesting, Josh, when we look at the industry, it used to be get anybody a credit card that you could as part of the portfolio that you're trying to manage, a part of the consumer portfolio you're trying to manage.

Jim Marous (12:02):

But now we're seeing a lot of organizations really taking an aggressive or certainly a progressive role in helping people understand their credit usage, understand their financial wellness, actually trying to provide more tools for these people to manage it.

Jim Marous (12:21):

How effective is that in the marketplace? I mean, I know we see a lot of it being done, but our organizations truly believing in doing this. How much effort is doing it and more importantly, is it having any positive impact on the industry as a whole?

Josh Turnbull (12:37):

Is it having an impact? I think that there's a couple ways to look at that. There's the, what's the impact on the individual consumer. And so, if someone's relying on some of these financial empowerment tools, are they seeing results? That's one question.

Josh Turnbull (12:51):

I think the other question is certainly institutions provide this because they want to benefit their consumers, but it's also an engagement platform. It's a way to secure that relationship, retain that relationship. I think the answer is yes to all of those.

Josh Turnbull (13:05):

I don't have statistics off the top of my head to rattle off on the consumer front but a couple things I will point to. You see a phenomenal difference in terms of the ability for someone to improve their credit score when you go from something that's — I would say, picture your old school kind of workbook, online workbook, read this, do this quiz, that kind of thing and where some of the best of breed offerings have moved, which is a personalized experience.

Josh Turnbull (13:45):

So, Jim, what is it that you're trying to accomplish? Are you trying to save for this? Are you trying to take your credit score from X to Y and giving you tips, giving you your journey? Those are the things that are really moving the needle from a consumer standpoint.

Josh Turnbull (13:59):

And also, from an issuer standpoint or from a provider standpoint and being able to really kind of secure that longevity with you and help you work towards goals. I think there's also, from the issuer or the lender standpoint, there's an extreme richness in the data that can be used in that process.

Josh Turnbull (14:20):

So, if you're engaging with one of those platforms, sharing what your goal is, sharing your progress to the goal, that's a trove of information that if you're able to you can harvest those data to understand what it is you're trying to do, how to support your goals, who you are, all kinds of things like that.

Josh Turnbull (14:41):

So, I would just, I guess, conclude this question by saying that 5 years ago, 10 years ago, when some of these platforms started to emerge, the focus was really on providing a tool to help consumers improve their financial health.

Josh Turnbull (14:58):

That focus hasn't changed, but more and more you see so much of the decisions around those being driven by lots of business outcomes as well in terms of the long-term profitability of that consumer relationship and the ability to engage with them.

Jim Marous (15:16):

You talk about data and it used to be just transactional data and what people purchased and how much they spent, but now there's so much more information out there as you referenced. But part of that also is the utilization of that information with AI tools and eventually generative AI tools.

Jim Marous (15:34):

Josh, how do you see AI and generative AI and all these new dynamics of tools that are available changing the way organizations manage decisioning, customer care, and even fraud prevention?

Josh Turnbull (15:50):

Anytime we have a conversation with AI, with a customer, or I do, I'll speak for myself. Really try and start with there's so much that falls under the AI or machine learning umbrella and really trying to parse what we're talking about and from very sophisticated generative applications down to things that have been used for quite some time, frankly, widespread.

Josh Turnbull (16:17):

From a credit risk standpoint, I think that's an area where you're seeing some applications in terms of model development things, but that's a long way off due to just regulatory uncertainty and transparency and all kinds of things that you would expect and that will make that kind of a maybe not the last frontier, but not one of the first to really harness the power of AI.

Josh Turnbull (16:47):

I think what we just talked about is an example, in going from if I have a million customers, if I put a tool out there for them to engage and providing static content or content that's slightly tailored to being able to provide whether it's a customer service resolution path down to, again your question Jim, on financial engagement tools, something that's very custom to me.

Josh Turnbull (17:11):

Just tremendous power in terms of being able to engage the consumer and what feels like a very personal interaction. What is a personal interaction, just not with a human being on the other end of it, frankly.

Josh Turnbull (17:24):

And then the other point I would hit on is just from the marketing standpoint. So, to the extent that you are able to bring data together, and that's a big if and we're seeing institutions invest in the ability to bring data from various places together.

Josh Turnbull (17:39):

But once you've got that and you can harness it, being able to really deliver on those personalized offers or tailor the journeys or things that are key and you've made reference to the three of us being in financial services for a long time, Jim.

Josh Turnbull (17:59):

And I think there are those things like branch of the future, was one of those things that seemed like it was talked about for 50 to 20 years. And similarly, personalization seems like it's something that's been talked about for quite some time, but we really are seeing that start to happen in significant ways and largely due to whether it's AI or just the power of bringing data together.

Jim Marous (18:23):

And it's interesting Josh because it's not just for the credit usage, but credit gives you a better look at the overall consumer and what their needs are, what their financial needs are. You add that to what we know about from their savings and their deposit habits, it really gives you a much better pitch than we've ever had the ability to do before.

Jim Marous (18:45):

Craig, from your perspective, how do you see, do you see anything else that we might have missed on the whole AI transformation within credit?

Craig LaChapelle (18:54):

Well, I mean, I echo some of Josh's points. The thing with AI, it's tough, is particularly in a heavily regulated industry, there's a wide range of things that are possible, but you have to put the lens on what is permissible.

Craig LaChapelle (19:10):

We can get ourselves in quite a hairy situation where the dataset that you're training your models on is not correct and leads to some provocative answers to say the least. But also, you got to make sure that from a fair lending perspective or a service perspective, we don't have differentiated treatment.

Craig LaChapelle (19:36):

So, there's a lot of potential there. There's a lot of risks. So, we see our customers actually looking to us in service partners for perspective, but I think collectively we all recognize the potential, but I don't think we want to move too quickly.

Jim Marous (19:55):

That's interesting because we've talked about it quite a bit in this podcast about the whole use of AI and I think, on one hand you've got to understand what the potential is and you got to dip your toe in the water.

Jim Marous (20:08):

You got to understand the dynamics of what may be possible, but you also be cautious about jumping in too quickly because there's still a lot of unknowns. So, it's that balancing act between being on the cutting edge or the bleeding edge. There's only a slight difference, but it's a major impact.

Jim Marous (20:26):

Craig, also, when we talk about risk, there's so many new elements every day that come into the fraud and risk challenges that are happening in the credit card space and in the credit space in general.

Jim Marous (20:40):

How are institutions trying to keep up with what's going on? And I guess even more importantly, how do they leverage what you know as an organization, as their partner in trying to combat these challenges?

Craig LaChapelle (20:55):

Great question, Jim. I mean, it's a question that we ask ourselves all the time and we assemble different perspectives and solutions. I mean, ultimately, you're right. Look, lenders are on a constant evolving attack across the credit lifecycle.

Craig LaChapelle (21:13):

Fraud losses continue to grow with card bust out, synthetic and first party default fraud, all increasing. You have a multitude of vendors that offer disparate POI and parcel solutions as well as different perspectives that really a lot of times our customers are hard pressed to understand, to get a cohesive perspective, at least from external partners on.

Craig LaChapelle (21:42):

So, they're really looking for trusted partner, insight in assisting in assembling comprehensive solutions that address the evolving schemes and help them monitor what's coming and I think it's incumbent upon us as service providers to promote awareness of comprehensive solutions that we can bring to bear, but also make sure that we have a lot of signals sometimes in silos.

Craig LaChapelle (22:18):

So, what can we do to bring those together in a unified platform to not only help with identity resolution, but also to mitigate fraud exposures. And that's something that we, TransUnion, but also, collectively the ecosystem is working to, if not solve, at least have a better answer for.

Jim Marous (22:42):

What do you see as the biggest threat going forward? And I don't know if that answer is that easy because maybe what we don't know is out there, but what do you see as the biggest threat today to the whole credit ecosystem from the standpoint of fraud and overwhelming risk beyond simply balances and things we discussed already?

Craig LaChapelle (23:05):

Sure, I'll answer this question with the acknowledgement this answer could change in six months, but one of the things we're seeing is … not sure, I forget how we characterize it, but essentially fraudsters initiating or tricking consumers into doing fraud.

Craig LaChapelle (23:28):

Whether it's exposing their information leading to account takeover that puts both the consumer and the institution at risk, whether it's transferring money with the phishing schemes and what have you.

Craig LaChapelle (23:44):

It's gotten to a point where a lot of our customers are more worried about good consumer-initiated fraud, them being manipulated, I think we call it consumer manipulation.

Craig LaChapelle (23:56):

How to manage that, not only how to manage the exposure, but how to manage who's really at risk here? Who's the one, is it the consumer? Is it the institution that is liable? So, there's a lot of things that go into that, not only behavior, but also reputational risk and a variety of different things.

Jim Marous (24:15):

It's interesting, Josh, from your perspective, there're right now are more and more competitors to the credit space, say a buy now pay later process, which jumped off the page even though it wasn't really a new product, but it was positioned differently.

Josh Turnbull (24:34):

Jim, let me add on something to Craig, what you were sharing as well. And not to alarm anyone, but just in terms of some of the numbers that we're seeing from a fraud standpoint right now. So, early charge offs, which we define as charge-offs that happen a year, less than a year after the card was opened and that process of charging off can take about six months.

Josh Turnbull (24:54):

So, really this is the card that's balances are run up within six months. Those losses have grown 44% since 2019, since pre pandemic and that's now a multi-billion-dollar problem. The growth rate for prime and above, where the credit lines are higher, that's close to 70% compared to pre pandemic of losses there. So, pretty alarming.

Josh Turnbull (25:20):

From a synthetic fraud standpoint, so these are fictitious identities that people are creating to open up accounts. We saw that dip during the pandemic, but now it's come back. Well, in the last year alone the rates at which people apply for a card using a synthetic identity are up 24% year on year.

Josh Turnbull (25:41):

And unfortunately, it looks like the defenses that the institutions have aren't working, because we see while the application rates are up 24%, the instances of cards being issued to synthetic identities is up 47% in a year. So, some pretty alarming numbers that we're watching in terms of fraud exposure.

Jim Marous (26:04):

Boy, that's interesting, Josh. Because what you look at then is you want to take action as quickly as possible. On the other hand, you always have to be aware that it may not look as it is, it may be simply a consumer that needs to have credit relatively quickly.

Jim Marous (26:22):

And so, you really get into a dynamic that's the convenience or the inconvenience of thinking something's fraudulent when it's not, versus waiting and getting hit even more. I mean, it's a balancing act. It got to be very difficult there.

Josh Turnbull (26:39):

To Craig's point earlier, we've really seen the demand for credit and some of the lowest risk consumers go down. And so, if I'm out there fishing for business with one of those consumers, I need to offer an attractive credit line, a large credit line for them to want to do business with me and I hope that my marketing is good enough that I'm giving that offer to someone who's going to use the card.

Josh Turnbull (27:02):

So, to your point Jim, I'm giving someone a large credit line and I'm hoping that they start using that credit line right away because that's good, but I need to be smart in order to parse that from these escalating fraud losses.

Jim Marous (27:16):

So, when you look at the fraud issue as well, I mean, I know when I went to China, they do a whole lot around the locational aspects of where a person's doing transactions versus where their phone's located.

Jim Marous (27:30):

I mean, they do a whole lot of bringing together data points from different ecosystems to say, "We've got to nail this down." And actually, they offer some very, very low credit lines a lot of times to buy that phone.

Jim Marous (27:43):

But they are making decisions on whether or not to offer that credit often on the transactions that are done on the phone. So, not just the credit transaction but how a person actually leverages their phone for other purposes to determine if they're fraudulent.

Jim Marous (27:57):

Do we see any that in the U.S. right now where we're actually taking locational data and phone usage data to determine risk on a credit line?

Josh Turnbull (28:09):

Yeah, we absolutely do. And Craig, go back to your answer and that we see that, and Craig, you were what, two weeks ago, halfway around the world. And if I've got a fraud system that works on its own in isolation, just saying, "Where is this phone coming from that's trying to do a transaction?"

Josh Turnbull (28:30):

And all of a sudden, I see it coming from a high-risk country that, 10,000 miles away, that's a much less powerful decision than if I can combine it with transaction data letting me know that in fact, Craig, that's exactly where he is supposed to be right now.

Craig LaChapelle (28:45):

I think it's our belief if we're talking about fraud prevention, the best way is really overlapping data on the person, the device itself, and then the behavior. And you have patterns on all three of those and you look for either risky behaviors or variances that are different than the baseline and you can do that on those three different dimensions. It's really good signal on potential fraud.

Jim Marous (29:18):

So, this is going to go to both of you, because it's interesting how we quickly diverged into the risk and fraud areas and it's a lot of negative things, but there's a lot of good things happening in the marketplace.

Jim Marous (29:30):

What do you see in the marketplace from a case study basis that organizations are doing to improve their credit offerings to provide better products or new products, is there anything new or exciting out there that financial institutions are doing to break through the noise and offering something that may be a little different than we've seen in the past?

Craig LaChapelle (29:50):

So, I'll start with this Josh and then you can correct me. If we look at innovation and I'll touch on, we'll call it engagement or marketing, we're seeing a focus increasingly on our issuers across the scale, this size, scale and what have you.

Craig LaChapelle (30:10):

Focusing on managing customer data sets in their own environment in terms of whether it's most, a lot of times it's increasingly cloud-based, talking ID resolution, linking first party and third-party data, and automating in some cases the whole marketing infrastructure. Now the benefits there are increased personalization, speed as well as cost.

Craig LaChapelle (30:36):

So, increasingly as they invest in this and deploy this, we'll not only see better offer design and offer fit because of the benchmarking aspect, the understanding the behaviors, but also more relevant, I would say offer timing in terms of personalization, when and how the offer is put forward. I'll stop there and Josh, you can jump in.

Josh Turnbull (31:05):

No, I completely agree Craig, and you and I have been part of multiple conversations where with customers where two or three years ago, CPA cost per account, how much does it cost me to get an account, that was the key metric. And it's been interesting to watch that shift from cost per account to much more of a value focused equation.

Josh Turnbull (31:31):

And I would just say, personally, I probably have three cards in my wallet right now where I do well, but I'm sure the issuer's underwater in terms of what they're providing me from a points benefit, whatever stand point relative to what they get from me. One card that-

Craig LaChapelle (31:51):

You're a Luddite.

Josh Turnbull (31:53):

I'm a Luddite. That's true. That's true. But one card for the first time this year where one of the privileges that you have with this card is now contingent on how much money I spend on that card on an annual basis.

Josh Turnbull (32:06):

And so, that may not be Jim, exciting from a consumer standpoint, but from an industry standpoint and just that focus on profitability and that focus on profitability and value which is really enabled by what Craig was describing and being able to pull data together to understand it, there's a lot of promise there.

Craig LaChapelle (32:27):

And sorry, just one thing to add there. We're talking about taking control of the marketing, structure for speed and personalization. But one of the things I can also see happening is, look, today a lot of folks are talking about AI, machine learning and risk modeling, which we've done in the past, the industry's done in machine learning in particular.

Craig LaChapelle (32:49):

But they're also talking about from a servicing, managing the relationship, I think a frontier is going to be application of AI in not only product design and offer design, but also when to make offers. So, there could be at some point in AI engines as part of marketing development and execution.

Jim Marous (33:13):

It's interesting because the ability to combine digital transaction which this is still relatively new in the scope of things, all the credit card transactions are done digitally and the amount of information you have there.

Jim Marous (33:28):

We've referenced engagement quite a bit, but at the end of the day we're trying to do the same thing we try to do back in the 70s which was, I want my card to be top of wallet. I want it to be used as frequently as possible, and I want to avoid the customer using other cards.

Jim Marous (33:44):

Well, we now have more and more data that allows us to know how well we doing in that but the importance of that becomes so important when you talk about rewards and what you offer people. And Craig, I think you're the one who referenced the fact that do we shift rewards in the process as we see a consumer's lifestyle change in some ways?

Jim Marous (34:03):

And I know how I pick my cards and why I pick what I pick and when I use them. I mean, I use my American Express card all the time when I'm traveling, when I get to an airport and want to get into a Delta Club and I pay for that privilege, but it avoids cost in other ways and I use it also with Uber.

Jim Marous (34:24):

On the other hand, I use another card for my daily transactions and organizations are getting smarter and smarter as to what do they need to provide me to get some revolving balances going, which is not something I do very often but also to actually pick that card over all others because there's still some other benefits.

Jim Marous (34:45):

In the reward space, our rewards, we see rewards being … I mean, if I try to track this industry, which I don't as actively as I'd like to, these things are being turned on and off and being adjusted over time as far as are rewards being offered.

Jim Marous (34:59):

And I know family members that are really big into rewards program, they're always changing their cards. Are we seeing anything new in that space or is it becoming less of a thing people look at, rewards programs?

Craig LaChapelle (35:12):

Josh, let me start there. I don't think it's a less of a thing. I think it's always something, assuming the card economics stay the way they are, I think it's something that's always a lever for attracting folks. Now that may change over time and it may change to your point in lifestyle.

Craig LaChapelle (35:33):

I'll give you an example. Like Josh mentioned, I was in India a couple of weeks ago visiting some of our folks and I'd say the credit card's relatively new there, but they all have a credit card, but for the most part it's generic.

Craig LaChapelle (35:49):

And we talked about how it's different than the U.S. and my point is, look, rewards and segmentation and differentiated offers, they're coming, they're coming to that market. They’re where the U.S. was maybe in the 80s for example.

Craig LaChapelle (36:05):

Now going forward, I don't see rewards going away. I mean, what we're seeing a lot is, even with existing relationships, the lenders changing the rewards, "Hey, you get more for this category." And maybe they've done some homework and said, people who do this, it's stickier. People who buy groceries, for example, or more I guess rewards related to travel.

Craig LaChapelle (36:33):

For me, I travel a fair amount, some sort of inducements when it comes to these new lounges. They make a big difference to me.

Craig LaChapelle (36:44):

So, to your question, is there anything new? Maybe on the margins, maybe more about how folks manage the different relationships and give out tangible rewards, I'm sure there's going to be new segmentation and new offer designs coming, but I think that is a continuation of the status quo.

Josh Turnbull (37:08):

And where I would start. So, I was with a customer on Monday who shall remain nameless, although I think this analyst could be proud of this. And one of their analysts was talking about, he remodeled his kitchen for $50,000 kitchen remodel and put it all on a credit card.

Josh Turnbull (37:27):

And over the course of five years, move that $50,000 from card to card to card to card with 0% APR balance transfer, no balance transfer fees, didn't pay a dime on the $50,000 over the five years, paid it off in full at the end of the five years. But there’s a trail of credit card issuers that are underwater from that experience.

Josh Turnbull (37:51):

And so, if I were sitting in this seat at an issuer with a card, with a rewards program or balanced transfer, my focus would be on, how do I really get smart on who I'm making the offers to before I start or simultaneous to kind of tinkering with the reward structure itself. I've got all these data to figure out who's who. Get rid of that stuff that's costing me real money and let me focus my spend on the people that are my good customers.

Jim Marous (38:18):

It's funny, Josh, because I think about the fact that not only are those programs all under water along the sequence, but you've made heroes of somebody who put that down as, “Look at this acquisition that we got this, this credit card that we opened on behalf of this consumer is $50,000 so it’s free-

Josh Turnbull (38:37):

Like the … who was going through the roof.

Jim Marous (38:39):

Yeah. And it's interesting because I have friends that actually make a — I'm not too sure if this is really great I'm talking to all my friends this way but they make a living out of opening new checking accounts where they're getting a 200, $250 reward every time they open it and they open all these just minor accounts.

Jim Marous (38:56):

They have an organization they work for that allows them to have multiple direct deposits so that doesn't hold them up. And they're making a couple thousand dollars a year on a balance of a checking account that is nominal at best.

Jim Marous (39:12):

So, it's interesting in my credit usage, I no longer carry physical cards. I may have one in reserve in case I have to have it, but overall, everything's in my mobile wallet. Is there any difference in a way a consumer uses their credit, uses their cards with regard to how they link it or how they maybe carry it on their phone versus in a physical fashion?

Craig LaChapelle (39:34):

Yeah, let me start with that one Josh. First, I would say we can offer you perspective and anecdotes because I don't think we see data on digital wallet versus physical use. We have so much data, though, that could be wrong now or in six months.

Craig LaChapelle (39:55):

But the way I've seen it occur, I would like to be like you Jim but still the user interfaces a lot of times aren't always great particularly in the physical space at sort of accessing the wallet. That's my personal spirits. If that got better, more of the sort of merchant acquiring terminals were a little better, that might help accelerate the use.

Craig LaChapelle (40:27):

But when it comes to on, like I'll use one of my cards in particular, it's just on my phone while it's the number one. Whenever anything pops up and I can access it, I do double click and use it. That's my perspective. That's not data inform though, Josh.

Josh Turnbull (40:48):

I would just agree that I've not seen the data on that, but the point I would make there, Jim, is more on the, just going back to the point on 20% of cards being issued or to Gen Z. And Gen Z aren't the only one that want this experience, but on a monthly at least basis, we'll be in a conversation with a customer and the focus is on, “I need to — digital marketing, digital acquisition, digital, this, that and the other.”

Josh Turnbull (41:16):

And then you talk about what's the application experience like? Well, when someone clicks in, they get to this website that looks like it was built in GeoCities and 50% of the time we're able to give an instant decision and blah, blah, blah. Part of that is how easy it is to load that card then to a digital wallet.

Josh Turnbull (41:40):

So, I don't have an answer for your question on the card use to the digital wallet. But I think those other things are so important for anyone that's thinking about this is just that the comprehensive experience from when you're first talking to someone down to when they're deciding what card to use at the grocery store checkout line on their phone.

Jim Marous (41:56):

So, this is going to go to both of you and as we wrap up this conversation, but there's so much to uncover. What significant shifts do you see that you believe is going to happen in the credit card industry over the near to moderate term? I'll start with you Josh.

Josh Turnbull (42:15):

Two things that I would hit on, one, to the point Craig made, how you use data and the evolution of being able to pull my own data or my own data and other people's data together and make smarter decisions, whether it's who I market to, how I underwrite, those types of things.

Josh Turnbull (42:33):

I think the other thing that I've just been thinking about through this conversation, I think about how airline loyalty programs worked five years ago. Jim, you talked about your travel habits that used to be, how many miles I flew determined whether I was silver, gold, platinum, diamond, what have you.

Josh Turnbull (42:51):

I could have purchased a lot of cheap, but tickets that took me around the world and that's changed. Now it's about how much I spend with the airline and my value to them. I will watch that and I think that's interesting to think about vis-a-vis credit cards and financial services in general and rewards.

Jim Marous (43:14):

And it's interesting because it's something the consumer understands. They understand that transactions cost money and that value is really driven by how much you put money into it.

Jim Marous (43:28):

I mean, I don't like to change it sometimes, Delta Air Lines is a good example where they've changed their program, but it's not that it doesn't make sense, it's just that I was able to take advantage of it going overseas quite a bit, more by miles as opposed to value. So, Craig, from your perspective, what do you see happening?

Craig LaChapelle (43:51):

So, I think Josh is a little more strategic, I'll keep it more of a macro interim perspective. I do think we are going to see a return to outbound marketing growth across the spectrum. Now, a lot of this depends, reason I said it's macro, it really depends on what a hard landing or soft landing.

Craig LaChapelle (44:15):

A hard landing, that's high unemployment with rates decreasing, soft, it's moderate change in unemployment with rates decreasing, perhaps a little less. In a soft landing, we've seen a lot of the regional players still, I would be very cautious.

Craig LaChapelle (44:33):

I think, the soft landing comes in, we're going to see more outbound marketing there. We're going to see more product designs across the issuer. We're going to see more product designs across the issuer groups.

Craig LaChapelle (44:46):

From a hard landing, I think there's going to be an increased effort with new product designs in the less risky space and even in the more risky space, there's going to be a lot of work done on model recalibration and trying to tease out the differences within the wristbands. So, again, dependent on the type of landing, I do think we're going to see an increase in upbound marketing.

Jim Marous (45:10):

That's great. There are so many things to uncover. We just kind of scratched the surface here and it was great having you both on, because you both bring a dynamic history of information and an idea of where the marketplace is going that you can share.

Jim Marous (45:27):

Obviously, a great conversation, but again, we just scratched the surface. I do know, though, that you're both hosts of a podcast called the TransUnion Extra Credit Podcast, can you tell me a little bit about what that podcast is and how people can listen?

Craig LaChapelle (45:43):

Sure. I mean, first, how to listen and it's available in every major podcast platform and it's not necessarily a fixed schedule, we tend to come out every month, I'll go to our sort of informal tagline where we seek to offer insights, not products.

Craig LaChapelle (46:02):

So, it's less about TransUnion, it's more about what we see in the market, very similar to types of things that we talked about today. We usually have guests on who are either our customers or subject matter experts in the space who opine.

Craig LaChapelle (46:16):

We try to keep it a theme for each one and they'll opine on that and we'll ask some very specific questions. I think our last one recorded, it's not dropped yet, was more about a quarterly overview of how the market looks on a numbers perspective and what's in it for our customers. Let me stop there, Josh, and see if there's anything you want to add. That's a no.

Jim Marous (46:45):

For those on the listening audience, that was the shake of the head, no.

Josh Turnbull (46:50):

No, I'm good, Craig. I think you covered everything, but it's certainly fun. I think the ability to engage both internal folks that we work with every day and what they see as well as variety of voices from across the industry, it's something that I think you and I both enjoy.

Jim Marous (47:06):

Gentlemen, certainly great to have you on the show and it's good to dig deep into something that we all use, we all have different experiences with it and we all have questions. I mean, the reality is I've been in the banking industry forever, and I wish I could peel back the layers of my credit bureau to say, "What do I really need to do to change my credit score?"

Jim Marous (47:28):

Because every time I think I've been doing something good, the credit score goes in a different direction. I'm sure there's a way to figure that out. But I think it's interesting because the use of credit today is providing a lifeline to many consumers.

Jim Marous (47:44):

And I think at the end of the day, we have to realize that, yeah, while there's bad news out there, there's bad news out there on a lot of different fronts, but that the use of credit, the use of paying overtime really provides a significant value proposition, especially at times of uncertainty, because there are many people that don't know if their next paycheck's going to pay for the things they had to buy, be it a repair on a car or a water heater.

Jim Marous (48:11):

And I think that we sometimes take it lightly, but it still provides so much value. And I go back to the beginning of credit cards, so that's a long history of using your credit cards and debit cards and the balance between them. So, thank you gentlemen, again for your time and your insights.

[Music Playing]

Craig LaChapelle (48:28):

Thanks for having us, Jim. Appreciate it.

Josh Turnbull (48:30):

Thank you.

Jim Marous (48:31):

Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. If you enjoyed today's show, please take some time to give our show a five-star rating. Also, be sure to catch my recent articles on The Financial Brand and check out the research we're doing for the Digital Banking Report.

Jim Marous (48:50):

This has been a production of Evergreen Podcasts. A special thank you to our senior producer, Leah Haslage, audio engineer, Chris Fafalios and video producer, Will Pritts. I'm your host, Jim Marous. Until next time, remember now more than ever, financial institutions must understand the risks and opportunities in the marketplace and take immediate action to meet market needs.