Non-Prime Credit Card Segments 2011: An Opportunity Waiting To Happen

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New Mercator Advisory Group report highlights opportunities in subprime credit card segment

Issuers are exploring new strategies to selectively identify better risk consumers who have been through understandable economic difficulties.

At present, credit card issuers appetite for the non-prime segments has not yet returned. In fact, most major issuers continue to do battle on the prime/superprime playing field, trying to entice these well-saturated consumers to put another card at the top of their wallets. However, the need to avoid excessive risk is real, as charge-offs remain high.

At some point, the tide must turn. There are only so many affluent, low-risk consumers to go around; indeed, between charge-offs and account closures, the U.S. bankcard account base has contracted by over 25 percent since 2008, and is only just beginning to stabilize. From a growth standpoint, issuers are nearing a time when the only direction to go for growth is down.

Mercator Advisory Group's Non-Prime Credit Card Segments 2011: An Opportunity Waiting To Happen report highlights opportunities in three heterogeneous credit card prospect segments outside prime territory: subprime -- consumers with established credit track records indicating a higher risk of credit default, thin file --consumers with credit bureau files insufficient for traditional credit scoring and underwriting, and no file/no hit -- consumers with no identifiable records at the major bureaus. While most credit card issuers favor prime-plus consumers as they recover from the recession, appetites for non-prime consumers are beginning to increase.

Highlights of the report include the following:

Credit standards are beginning to loosen, as card issuers continue to work through elevated charge-off levels.

Issuers' return to non-prime segments is likely to be highly selective, focusing on new segmentation approaches and using new analytics and data types.

Six types of tools will support issuers' return to these segments:
•scores adapted to decisioning the thinnest files
•forward-looking data to evaluate performance under future economic conditions
•alternative (non-bureau) consumer data
•tools for matching disparate data to minimize thin files and no-hits
•tools to identify consumers who have made strategic (mortgage) defaults
•and credit education/rehab services that may generate attractive prospects.

"Make no mistake, we are not about to experience a massive new wave in subprime credit card account issuing. Issuers are exploring new strategies to selectively identify better risk consumers who have been through understandable economic difficulties, and they are also looking for better ways of identifying the hidden gems among those consumers with little credit track record," Ken Paterson, VP for Research Operations at Mercator Advisory Group and Director of the Credit Advisory Service comments. "Selectivity and super-segmentation might be better terms for describing the interests of issuers as they seek new ways to grow responsibly."

The report is 23 pages long and contains 7 exhibits.

Members of Mercator Advisory Group have access to this report as well as the upcoming research for the year ahead, presentations, analyst access and other membership benefits.

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About Mercator Advisory Group
Mercator Advisory Group is the leading, independent research and advisory services firm exclusively focused on the payments and banking industries. We deliver pragmatic and timely research and advice designed to help our clients uncover the most lucrative opportunities to maximize revenue growth and contain costs. Our clients range from the world's largest payment issuers, acquirers, processors, merchants and associations to leading technology providers and investors. Mercator Advisory Group is also the publisher of the online payments and banking news and information portal


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Brent Watters