Asset-backed securities play a critical but often overlooked role in the credit card industry, helping issuers fund growth, manage risk, and recycle capital into new lending opportunities. Research from Mercator Advisory Group examines how credit card receivables are packaged into securities and evaluated using factors such as account seasoning, geographic diversification, portfolio composition, and borrower credit quality. Understanding the structure and analytics behind credit card ABS portfolios is becoming increasingly important as issuers navigate evolving regulatory expectations and changing credit market conditions.
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Data for this episode of Truth In Data provided by Mercator Advisory Group’s report – Asset-Backed Securities: A Primer for Credit Card Managers
- “Seasoning” in credit card asset-backed securities refers to how long each CC account within has been active
- Credit card accounts are broken into “Vintages” which reflect their tranche of seasoning (ie. the 6-12 months group)
- A balanced Credit card ABS draws accounts from across geographies to offset regional risk
- Often credit card asset-backed securities use a blend of general purpose and co-branded credit cards
- FICO scores represent an acidity test for an ABS portfolio: rating an individual’s risk for assuming debt
About this report
Mercator Advisory Group has released its latest research report. Titled Asset-Backed Securities: A Primer for Credit Card Managers, this report is the first analysis of the asset-backed securities (ABS) market since the recession that focuses on the credit card industry.
Readers will learn about the logical and legal flows of credit card asset-backed securities (ABS), an important financing tool used by many top issuers. Asset-backed securitization enables lenders to originate credit card accounts, season their portfolios, and then sell the receivables to bank-owned trusts that enable investors to buy future revenue streams. Credit card issuers can generate servicing fees and then use the funds to reinvest in new accounts. One top-tier bank has 50 percent of its portfolio securitized, which is a key component of its growth strategy.
“The report presents a case study of the asset-backed securitization of a credit card portfolio of a major global bank to illustrate the level of analytics covered in an ABS prospectus. One important facet that is apparent is the importance of the FICO® Score and the way it is used throughout the credit cycle from origination to credit cycle management and ultimately through securitization,” notes the author of the report, Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group. He adds: “Dodd-Frank brought discipline to the ABS process, and issuers have a requirement to effectively manage their portfolios, particularly as they place blocks of accounts into the capital markets.”
