Three unique strategies unfolded in U.S. credit cards this week:
- Capital One reacted to an unstable economy with the traditional approach of harnessing credit lines.
- Chase launched a new Mastercard product, an unusual step for the Visa-centric issuer.
- American Express extended their installment option to small businesses.
Each strategy may be appropriate for the issuers, but the divergence is notable.
Today’s American Banker notes: “risk management pioneer Capital One Financial is reining in credit lines to reduce its exposure.” Last week, Bloomberg headlined that “Capital One Cuts Card Limits Amid U.S. Jobless Aid Impasse.” A common challenge for issuers is that with current relief programs, it is hard to get a read on who is working and who is not.
- Banks cut overall limits for subprime cardholders by 19%
- Moves come as unemployment soars during the Covid-19 pandemic
On the other hand, is Chase, who launched a Mastercard branded card, outside its typical Visa framework. Long ago and far away, Citi primarily aligned with Mastercard, as a member of the 1970’s original issuer program under the Master Charge brand. Cross-town rival Chase opted for Visa, which at that time was issuing under BankAmericard.
Fox Business describes the card, dubbed Freedom Flex (which will compete with a card I carry in my pocket), as the Chase Freedom Unlimited card.
- JPMorgan Chase will launch its new Freedom Flex card on Sept. 15, its first Mastercard-branded card in five years, with new reward, offers for its Freedom Unlimited Card.
- The no-fee credit cards will allow customers to earn 5% on travel purchased through the Chase Ultimate Rewards program, 3% on dining purchases, including take-out or eligible delivery services, 3% on drug store purchases, and 1% unlimited cash back on other purchases.
The Chase Freedom Flex Mastercard receives coverage at Chase’s media site at this link.
Now, consider American Express’ play as covered in this article from today’s Washington Post: “AmEx Breaks With Card Tradition to Let Businesses Borrow.”
- American Express Co. is making another bet on small businesses, this time letting them borrow more on their cards.
- AmEx, long known for charge cards that business customers have to pay off in full each month, will now let those cardholders pay off individual purchases over more extended periods, with interest. Customers with the firm’s green, gold and platinum business cards will begin to see the option in November.
The three strategies are not out of sync. Capital One plays its credit strategies close to the edge and harnesses risk with industry-leading portfolio analytics. Chase is right to balance their Visa portfolio with a few Mastercard products, and Amex has traditionally been a top small business card player.
The bigger question is what is next?
- Will Capital One’s play to harness credit lines extend to other issuers? If you follow the New York Fed as closely as Mercator does, you will see the first downtick in open credit lines since 2013 (see page 10).
- How will Mastercard counter with their next acquisition flash? I just opened an Apple/Goldman Sachs Mastercard, and the integration between my mobile device, bank account, and the credit line is the smoothest I’ve ever seen.
- In the world of small business, Amex’s move builds on the recent Kabbage acquisition. How will Chase, Bank of America, Citi, Capital One, and the other 25 significant small business card lenders respond?
Lending during a recession is risky, but it is undoubtedly a time for creative solutions!
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group