Not every consumer warrants an Amex Gold Card, a Chase Sapphire, or a Citi Custom Cash Card. With consumer credit so aligned with household budgets, you can be confident that every consumer won’t hold a FICO score of 760 or better. With more than 100 million households having a credit card as a spending option, a good credit manager expects that a portion of the portfolio will face challenges such as unemployment, household discord, indebtedness, and turmoil.
Maybe 5% of the portfolio will experience those pains in good years. However, one of the risks in consumer credit is that a bad year can be highly disruptive. Think about the Great Recession, not quite two decades ago. Top U.S. banks, arguably the world’s most experienced and best-run card businesses, faced billion-dollar losses with charge-offs north of 10%.
But there is a way out, and many credit card issuers have a strong solution to help people re-establish their credit: enter the Secured Credit Card
Secured Credit Cards Help Consumers Re-Establish Their Credit
Before the Card Act of 2008, predatory lenders dominated the market with complex money lending options that often took advantage of people trying to reestablish their credit to rent cars, stay in hotels, or have some transacting capability. Those horrific models were outlawed, and many mainstream lenders entered the market in 2009. Today, various programs exist. Javelin respects this niche and publishes a deep dive every three years. The latest report can be found here.
Chase does not offer a secured card, but they have a version with a unique product called the Chase Freedom Rise card. While it may not be much help for those in credit recovery, it does help those trying to obtain first-time credit. However, you will see secured card offers from Bank of America, Citi, Capital One, Discover, Synchrony, and U.S. Bank.
Looking Out for Exciting Innovations
The secured card market is projected to have 5.8 million cards by 2026, with an addressable market of 20 million consumers. While the credit quality may be low when these accounts are originated, most of the risk is mitigated by having cash as collateral squirreled in a bank account in the event of default.
There has been some exciting development in the space. In other PaymentsJournal articles, we’ve noted that Bank of America offers a small business secured card, and Amazon and Synchrony offer the first-ever private label secured card.
Loud and Proud
In 2019, we noticed that KeyBank had an exciting strategy in place, which it has continued to follow since then. KeyBank tracks and publishes numbers on consumers who started with secured cards and earned their way to full-featured, unsecured programs. KeyBank reported:
- Secured Credit Card customers are graduating this month after less than one year of using the tool, and two-thirds (65%) of those graduates are Millennials (those born between 1982 and 2000), as many in this generation struggle to find their financial footing and are turning to secured credit cards to establish good credit.
- “Millennials, many of whom came of age during the 2008 recession, are saddled with debt and looking for ways out of it. Our Secured Credit Card helps them overcome the barriers they face to establishing a strong credit history that makes financial achievements, like renting their apartment, a reality.”
In its latest announcement, Yahoo News reported that more than 30,900 KeyBank customers graduated from their secured card program, with more than 2,800 in the current “Spring 2024 Graduating Class.”
Sure, there may be more found at Bank of America, Citi, Capital One, Discover, Synchrony, and U.S. Bank. Still, KeyBank takes pride in helping their consumers, and it is an excellent way to acknowledge the program’s success.
