Credit card issuers are receptive to helping consumers with a financial bridge during the COVID crisis. As you probably observed with your personal credit card account issuer, websites indicate a backlog in call center capacity to service inbound calls, and a willingness to help consumers.
Typical programs, such as those offered in the United States by American Express, Bank of America, Chase, Citi, Discover, and other issuers, consider the current account status of an account. If the account was current as of March 1st, 2020, the account will likely receive a payment holiday, or deferment, for a period of 90 to 120 days.
The payment holiday does not mean the payment is forgiven. The money is still owed, but the consumer may be offered an interest-only payment or a skipped payment where the interest rolls into the principal balance due.
Under current circumstances, payment holidays often receive a regulatory endorsement or at least acknowledgment. In the United Kingdom, for instance, “A UK watchdog has ordered leading banks to offer three-month payment holidays on credit cards and loans to customers affected by the coronavirus crisis.”. This affects top banks in that market, including HSBC, Lloyds, Royal Bank of Scotland, Barclays, Santander, and Nationwide, according to Yahoo Finance. The Australian credit card market is similar, as Westpac indicates.
There is no official regulatory tracked number of validated holiday programs, though Mercator makes a reasonable estimate on the scope. Most markets appear to have a range of 20-25% of active accounts in need of support. In the United States market, of nearly 500 million active cardmembers, the number of deferrals is likely 100 million cardholders. In Canada, we estimate the number of postponements and payment holidays to be closer to 9 million, while the United Kingdom number is closer to 14 million. All totaled, the global number of deferments is likely 150-180 million credit cardholders.
The Big Question: How Will Credit Card Issuers Accommodate the Deferment Request?
It would not be appropriate for credit card issuers to simply defer all payments due, so issuers do need to rely on cardholder requests. These requests mean that credit management systems receive incremental flow to pull up an account, test it for compliance, re-age or hold the account, and document the transaction.
For credit card issuers who use platform service providers, such as FIS, Fiserv, and TSYS, the process comes through activating existing features. For those issuers, typically, the more significant and dominant players, deploying on-premise software and cloud-based solutions, programming support is likely required.
Today, we look at ACI Worldwide, a top global payments technology founded in 1975. The firm brought BASE24 to market, which typified the requirements of credit card payments and the necessity to be up and running 24 hours a day, nonstop. BASE24 has been modernized over the years and is addressable through the cloud. It interfaces with Universal Payments (UP) and a wide array of retail, wholesale, merchant, and fast payment offerings offered by ACI. With UP, users can interface just about any system to another.
In a press release today, ACI announced several product features that are certain to add to card issuer agility in the current market. This covers four timely enhancements:
Payment Deferments (Today’s Topic)
Many regulators and banks around the world are giving credit card holders, loan holders (e.g., mortgage, auto), and others relief from principal and interest payments for up to 6 months as a result of the COVID-19 crisis. ACI Issuer enables banks to temporarily hold interest or penalties by offering a blanket or partial “payments holiday.”
Credit Card Expiry Bypass
Since trade and manufacturing have slowed globally, some banks are anticipating a shortage of physical cards to replace customers’ expired cards. ACI Issuer can be configured to bypass the expiry date check for specific transaction types so that customers can still access their cash and make payments.
Virtual Cards (A Great idea)
Banks can typically issue cards that limit the type of transactions cardholders can make. For example, employees cannot use cards issued for business travel to buy groceries. However, during these unprecedented times, ACI Issuer enables banks to allow business customers to issue virtual cards (that are only available via a mobile wallet) to help employees, for example, with grocery shopping.
Installment Payment Options
With many consumers and businesses experiencing temporary cash management issues, ACI Issuer enables banks to offer customers a payment installment plan for one-time purchases. Banks can set up a repayment schedule based on a consumer or business request, preventing delinquencies because of temporary cash management issues.
Some of these features will be useful beyond the current crisis. The deferment option, for example, should be in every credit card issuer’s contingency plan. The card expiration management tool is a clever workaround when the card-plastics rendition function is in a severe backlog. Virtual cards, which can keep accounts open and restrict purchasing to life-and-death transactions, is brilliant and shows that ACI is filled with people who understand payments. And the installment option will surely become relevant when the world returns to normal, or if the COVID-19 has a longer resolution path than expected, a way to offer cardholders an option to move their debt from revolving debt to installment loans.
Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group.