THOUSAND OAKS, CA (September 5, 2013) -- Credit card advisory firm R.K. Hammer has released their findings for card industry attrition and recent trends in this important metric.
The R.K. Hammer model shows an average 12% “gross” attrition rate for prime card issuers for 2012, down from 14% for 2011. Gross attrition is defined as the percentage of issuers’ total number of accounts who voluntarily or involuntarily have their card accounts closed, prior to netting those closures from the new card accounts added during the same reporting period.
Half of the 12% (6%) came from charge offs last year (involuntary closures), with the other half (6%) coming from card members calling the issuers to have their accounts closed (voluntary closures).
The range of gross attrition observed, however, was very wide, from as low as 6% to as high as 18%. Variables which impact this metric and other factors noted by Hammer report include:
- The asset quality initially sought by the issuers in the new account decisioning process (cutoff and FICO scores used), and the competitiveness of their card product line (APR’s, fees, customer service levels, and incentives and training given to CSR’s to persuade card members who call in to cancel their accounts to instead save the member’s relationship).
- Issuers who have best practices in those relevant areas have proven they can save as much as 75% of the voluntary account closures; the industry average account save rate is closer to 25% according to Hammer’s research.
- Account attrition estimates from the recession/post-recession period (2008-2010) are not included in the Hammer model, due to the widespread industry practice at that time of mass portfolio account purges, which inevitably skewed the involuntary card member attrition figure far higher than during more normal periods, making reasonable comparisons year over year from that period much less meaningful. Industry loan losses were also skewed far higher than normal due to the anemic economy.
- Empowering CSR’s to spend up to 10% of the net present value (NPV) of the card member’s relationship value to save an account (average annual pre-tax earnings times an account life expectancy (10-18 years, based upon risk level) estimate, discounted into today’s dollars and incenting a favorable call outcome to the CSR can produce far better results. With the Hammer model reporting a $1,300 2012 NPV for every new account booked or saved account, that would equate to a card member investment of $130, and a resulting payback in as little as one year.
ABOUT R.K. HAMMER & CARD KNOWLEDGE FACTORY
R.K. HAMMER is an internationally known card consulting firm formed in Thousand Oaks in 1990, specializing in best practices card marketing, card portfolio valuations and portfolio sales, and expert witness services for card issuers in litigation. The research and analysis division at the company is known as CARD KNOWLEDGE FACTORY, with actionable research reports for issuers wanting the latest data metrics to grow their businesses and to be more profitable in the process.
Company Founder and CEO, Bob Hammer has over 30 years in consumer credit, managing virtually every operating area of the credit card business. More information may be viewed by searching rkhammer.com and cardknowledgefactory.com