Card Offers: Getting Creative with the UnderservedTheodore Iacobuzio |
The Wall Street Journal ran an interesting story [subscription required] recently about a spike in U.S. “subprime” credit card issuance. And one of the interesting things about it is the nomenclature.
According to the story, Capital One CEO Richard Fairbank calls many of those inhabiting the FICO band of, say, 600 to 650 “fallen angels”, or “the accidental subprime”—that is to say people who got into trouble five years ago and might have lost jobs, homes and—an “A” credit score.
If Fairbank can play with words, so can we. Another word for some of the “fallen angels” is “the underserved”.
Sounds a little different then, doesn’t it?
Let’s be clear. The two circles of the Venn diagram are not exactly congruent. But some of these folks the banks are reaching out to with 20 percent-plus interest rates are sure to be some of those who may have been squeezed partly or wholly out of the banking system by hard times, hard terms and regulation.
While the Journal adopts a pretty neutral tone regarding both this demographic (if that’s what it is, and, I think, it isn’t) and issuers’ strategies in reaching out to them, such a gambit is not necessarily a bad thing.
Since the crisis—and the numbers bear us out— it has been the contention of Global Insights that U.S. consumers of every FICO band—except perhaps for the tippety top—had the living daylights scared out of them by the 2008 collapse and the aftermath. In fact, a 2013 Associated Press study found that debt per adult in the 10 countries fell 1 percent in the 4½ years after 2007, which hasn’t happened since the end of World War II. As a result of that scare, U.S. consumers’ minds were wonderfully concentrated, and they are using credit cards as household expense management tools, not wish fulfillment devices. The banks are betting that by and large the “fallen angels” will behave the way their neighbors in the higher FICO bands do—that is to say, that they will use the card responsibly.
In the Journal piece, there’s a fellow who’s dutifully trying to pay off his student debt, and so is sticking to his debit card. Some bank, somewhere, ought to be able to make it easy for him to be responsible, and have a line of credit for a rainy day.
When will we find out whether all FICO bands have changed their ways? The usual industry standard for the “seasoning” of a credit card portfolio is 18 months. Check in around Christmas 2015. Ho ho ho.