Credit policy managers continue to scratch their heads about many of the metrics affected by COVID-19. Instead of raging loss rates, and rapid deterioration, most lenders passed through the storm with better numbers than they ever experienced. Case in point: charge off rates for all bank credit cards in Q12021 was a mere 2.95%; in Q2 2020, the trigger point for the virus, was 4.01%.
Indeed, no credit manager was asleep at the wheel. The CARES Act kept many consumers afloat, but credit management also played a leading role.
Here’s an example. MarketScreener reports:
- The duration and depth of the COVID-19 pandemic have been increasingly challenging to predict, especially its impact on consumer finances.
- Many credit card issuers were faced with making new operational decisions, adapting to new regulations, and providing a safe and engaging customer experience.
- Since March 2020, the impact of COVID has also influenced spending patterns, payment rates, and delinquency levels across revolving bank card debt.
- To date, the US bankcard delinquency rates have improved drastically largely due to reduced transactional spend, tax refunds, government stimulus checks, and payment deferment programs.
Employment is a top driver, as we all know. No paycheck, no bill payment, but wait…
- As we passed the one-year mark since the onset of the pandemic, most global economies are still in recovery.
- The US unemployment rate improved to 6.10% in April 2021 after hitting a record high of 14.8% one year earlier in April 2020.
- The number of jobs lost during the last 12 months is still in excess of 8.2 million with most impacted sectors occurring in food, travel, retail and recreational services.
The article pulls data from Fiserv’s excellent SpendTrend report.
- US Visa and Mastercard processor data indicates card issuers tightened up over-the-credit-limit transactional spend almost immediately following lockdown.
- Historically, approximately 32% of over-limit transaction attempts are typically approved, and this percentage has now dropped to 27-28% and continues to track below pre-COVID levels through 1Q 2021 (Fiserv SpendTrend 2021).
And, it is not just over-limit management.
- On average, authorization approval rates are higher for delinquent credit card transactions.
- Many issuers will approve delinquent transaction attempts, especially if the payment is only a few days late.
- Historically about 65% have been approved. However, many US card issuers modified authorization strategies to tighten criteria allowing fewer delinquent transactions to be approved.
- The approval rate dropped to about 50% throughout 2020 but has recently increased back up to 60% in March 2021, which is just below pre-COVID levels.
Credit policy managers need to keep an eye on the next potential storm. Will it be inflation? Interest rates? Or overlending? At least for now, the COVID storm might be over. But there is always the next crisis to manage.
