Banks peppered with questions on credit, interchange as card wars intensify
Big banks have recently followed a similar playbook for attracting new retail customers: offer a fat credit card bonus and the chance to use points to book low-cost airfare or last-minute beach vacations.
During an industry conference Tuesday, senior executives discussed their banks’ efforts to bolster credit card rewards offerings as the race for high-benefit cards heats up.
JPMorgan Chase, for instance, recently unveiled an effort to nudge well-heeled customers of its Sapphire Reserve card to open checking accounts. Wells Fargo, meanwhile, plans to increase marketing of its Propel card, which offers points for travel and dining, in an effort to draw customers from outside of its core base of depositors.
While executives struck an optimistic tone about their expansion plans, their efforts coincide with worries about the state of the credit card business and potential headaches on the horizon.
Chief among those worries is the possibility that losses could accelerate if a recession develops, as consumers who have overextended on debt fall behind on their loans. There is also the possibility that major retailers, such as Amazon and Target, could push back on the higher interchange fees banks charge when customers swipe rewards credit cards at their stores.
Here is a rundown of the credit card chatter from big-bank presentations at the conference, which was held in New York and sponsored by Bank of America.
JPMorgan has established itself as a dominant force in the industry when it comes to attracting potentially lucrative customers through its credit card division.
Boosted by the marketing buzz surrounding its popular Sapphire Reserve card, credit card loans at the company rose 5% in the third quarter compared with a year earlier to $147.9 billion.
Speaking at the conference on Tuesday, Gordon Smith, co-president and co-chief operating officer of the company, discussed JPMorgan’s recent effort to encourage Sapphire Reserve customers to open retail checking accounts, in part by offering a large credit card bonus.
Smith — who is also CEO of the community and consumer banking division — described the launch of a premium checking account as extending “the power of rewards” to retail banking. Early results are promising, he said.
“I would consider it a test,” Smith said. “It’s weeks old, but the signs are really encouraging.”
Asked about the state of consumer credit, Smith said that loss rates on cards remain historically low, boosted in part by the strong labor market. Net charge-offs in credit cards at JPMorgan were 2.91%, or three basis points higher than a year earlier.
Still, he said JPMorgan made some “small adjustments” to its credit profile about a year and a half ago, including by making “small changes” to its approvals for “near-prime” borrowers, or those whose credit histories are somewhat but not seriously blemished.
Additionally, Smith was asked about potential move by retailers to reject high-rewards credit cards, such as the Sapphire Reserve, at the point of sale.
According to a recent report in The Wall Street Journal, big retailers could opt out of a $6.2 billion settlement with Visa and Mastercard, and continue to fighting in court to end requirements from the card networks requiring them accept all cards — even those that charge high interchange fees.
“The higher rewards products tend to bring an affluent customer into the retailers’ store, and they tend to spend more — they just do,” Smith said.
Any effort by retailers to steer customers away from using their preferred card would ultimately be a burden on consumers, according to Smith.
“I think it would be a retrograde step for a customer to walk in and to say, ‘I don’t want this one, but I want that one,’ ” he said. “I think it would be bad overall for everybody involved in the payments system.”
Wells Fargo is in a less enviable position in the credit card market than JPMorgan. Though Wells is neck and neck with JPMorgan and Bank of America in U.S. deposits, its card business is far smaller.
Wells has been trying to build its card portfolio by sweetening reward offers. Its Propel card, which was unveiled in June and is cobranded with American Express, has no annual fee and offers triple rewards points in certain spending categories.
Chief Financial Officer John Shrewsberry said Tuesday that the Propel card is exceeding the company’s expectations. But he added that Wells will not provide specific numbers on the new card for a few more quarters.
One reason that Wells has lagged other big banks in the credit card business is that it traditionally focused on selling its cards to existing customers, rather than leaning on mass-market advertising. The company’s emphasis on cross-selling has diminished in the aftermath of its fraudulent-accounts scandal.
Shrewsberry said Tuesday that Wells plans to increase its marketing of the Propel card over time.
“We want to make sure the rails work, that we can meet the demand as it happens, we underwrite appropriately, we understand fraud as it comes through,” he said. “I think you’ll see it increasingly dialed up over time.”
But do not expect Wells Fargo to make a major acquisition that would vault the San Francisco bank into the top ranks of the U.S. credit card industry — at least not anytime soon.
Shrewsberry indicated that the credit cycle is in its later stages, and he suggested that Wells will not consider a large acquisition in the card business for at least a couple of years.