(New York, NY): The battle for market share among branded credit card programs seeking prime and superprime customers has been fierce. Rewards have grown ever richer and, as the cost per acquired account rises, marketing efforts come with diminishing returns for both brands and issuers.
In contrast to the proliferation of products targeting prime and superprime customers, there has been relatively little product innovation for customers with less developed credit profiles, whose access to credit tightened as a result of the recession and some of the sizable regulatory changes that occurred soon afterward. But, increasingly, both issuers and brands are considering “second look” programs, which use different underwriting criteria to reevaluate declined applicants for credit with separate terms. For the benefit of brands and issuers, second look programs can approve more credit applicants and drive incremental sales by expanding credit access to customers who have lower FICO scores or thin credit histories.
“This segment of under-served customers is a significant opportunity for issuers and brand partners,” said Steve Serra, Senior Director of Partnerships for Auriemma Consulting Group. “With the intense competition now underway for each new cardholder, portfolio growth is a pressing concern, and issuers cannot afford to ignore any sizable pool of potential customers.”
At a time when many brands may be experiencing portfolio stagnation, second look programs can expand the penetration rate of a given co-brand or private label card by underwriting customers who would otherwise be declined for the primary credit program.
These second look programs layer onto an existing primary credit program, often in partnership with a second issuer. Second look programs can be seamlessly integrated into the application flow within existing point-of-sale (POS) technology to provide a smooth customer application experience.
“Previously, these customers would have been declined at POS and forced to look outside the brand for quality financing options,” Serra said. “These second look programs provide a better customer experience, strengthen a brand’s relationship with its retail customer and make store employees more comfortable offering credit.”
Brand partners that use second look programs can drive significant uplift in their credit application approval rates – typically 10 to 20 percent of customers who are declined for a primary program can be approved by a second look program. More approvals also translate to more loyalty – having a branded card motivates shoppers to spend and shop more, with 30 percent of co-brand and private label cardholders saying they have increased their spending with a retailer after being approved for its branded card, according to Auriemma Cardbeat research. A second look program can also drive incremental sales for a brand – in some cases, up to 10 percent year-over-year – according to a recent Auriemma case study.
Given the significant potential to increase approval rates and drive sales growth, brands should incorporate second look issuing rights into their issuer co-brand and private label agreements to ensure that the opportunity is available to them at any point in their contract term.
The benefits of second look programs are also manifold for card issuers. Issuers that build second look capabilities can increase the size of their card portfolios and gain greater market share. Additionally, many brands are looking for deeper underwriting as they have deep pools of under-served customers with an appetite for credit, and most major issuers do not offer second look services today. Thus, the ability to offer second look services can be a major point of distinction for issuers seeking to win brand partnerships.
“Second look programs are beneficial for customers and card programs alike,” Serra said. “Through collaboration, brands and issuers can better serve their customers, improve the acquisition experience and drive more loyalty and sales.”
With over 30 years of experience crafting profitable, long-lasting partnerships in the Cards and Payments industry, Auriemma is well-suited to facilitate these collaborations between issuers and brands. For more information, please contact Steve Serra at 212-323-7000.
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, call Steve Serra at (212) 323-7000.