(New York, NY): Credit cardholders can be divided into two groups based on their payment behavior—revolvers and transactors. And while this distinction often identifies key differences between those who carry a balance and those who do not, revolvers are not all created equal. Recent research conducted by Auriemma Group compared on-time revolvers (i.e., those who carry a balance but haven’t missed a payment in the last 12 months) to late payment revolvers (i.e., those who skipped/missed a payment on at least one card in the past 12 months) with the aim of understanding the demographic factors that differentiate the groups from one another. In comparing the two groups, the research found that late payment revolvers are a serious retention risk, and that their card experience will need to be deeper than just paying off an outstanding debt to prevent them from cancelling their card.
Revolvers represent 56% of the credit cardholder population, with 38% qualifying as on-time revolvers and 18% as late payment revolvers. Late payment revolvers tend to be younger (34 vs. 46 average age), more highly educated (70% vs. 57% college degree or more) and employed (86% vs. 66%) when compared to their on-time revolving counterparts.
While those demographics would be a welcome addition to an issuer’s portfolio, these customers don’t tend to be especially loyal to specific cards. Most have cancelled (52% vs. 6% on-time revolvers) and/or acquired (55% vs. 14%) a new card within the past year. These customers also tend to have competing financial responsibilities—72% are parents of a minor (vs. 34%), 50% hold a mortgage (vs. 42%), and 36% hold a student loan (vs. 22%).
Because of these competing priorities, this group is motivated to consolidate outstanding balances they have on their cards—creating the opportunity to acquire these customers.
“To better manage their credit card debts, half of late payment revolvers have taken a balance transfer,” said Jaclyn Holmes, Director of Auriemma’s Payment Insights practice. “This is in comparison to just 9% of on-time revolvers, which showcases one way to get these customers into your portfolio.”
While there is ample opportunity to convert late payment revolvers to new customers via balance transfers, the real challenge is keeping them engaged with the product. Late payment revolvers have more inactive cards in their wallet—only 43% have used all their cards (compared to 58% of on-time revolvers), demonstrating a consolidation of spend. And while an attractive balance transfer offer could entice late payment revolvers to acquire a new card, the likelihood of abandonment is high, with more than half of this population cancelling a card in the last 12 months.
Issuers must also contend with the group’s general sentiments toward credit cards as a product. Most (52%) prefer debit over credit. They also tend to have lower average FICO scores than their older on-time revolving counterparts (570 vs. 720), partly due to having limited credit histories. The group also has lower credit lines and lower average outstanding balances ($2,640 vs. $4,446).
“We know from previous research that cardholders’ top reasons for cancelling a card are paying off the balance or getting a new card,” says Holmes. “It is critical for issuers to entice cardholders to want to spend with their cards and not just chip away at an outstanding debt, especially as the balance gets closer to zero. For late payment revolvers to become loyal to a product or brand, they must first develop a more positive relationship with credit generally. Offering incentives to these cardholders that encourage spend and develop loyalty will be the best chance issuers have at retaining the customer.”
This study was conducted online within the US by an independent field service provider on behalf of Auriemma Consulting Group among 800 US adult credit cardholders in March 2018. The number of interviews completed for both is sufficient to allow for statistical significance testing among sub-groups at the 95% confidence level ±5%, unless otherwise noted. The purpose of the research was not disclosed, nor did respondents know the criteria for qualifying. The average interview length was 25 minutes.
About Auriemma Group
For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognized experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximize their performance. Auriemma serves the consumer financial services ecosystem from our offices in New York City and London. For more information, Jaclyn Holmes at (212) 323-7000.