Responding to clients’ concerns over a rise in delinquencies among newly booked card accounts in the UK, our benchmarking team analyzed the performance of UK card accounts that had been on the books less than 4 months.
As the data shows, there was indeed a rise in August, though this slipped back to the recent levels in September and October. The chart below shows the percentage of new accounts that were delinquent, and the balances that were delinquent relative to new accounts’ card balances. Delinquencies peaked around the holidays, which is normal. Year on year the percentage of accounts has remained stable, growing by less than 1%, but delinquent balances positively declined by 4%.
This backs up other benchmarking results which show generally positive delinquency results. However, we were surprised that this amount of accounts and balances were delinquent so early in their lifespan.
And while these amounts may seem small, we also observed an 8.84% or £161 increase in the average 1-cycle balance for these accounts. This supports a previous review by the FICO® Benchmark Reporting Service, which highlighted the increase in the average credit line for new accounts and a worrying decrease in the % payments to balance.
It may be wise for card issuers to analyze these accounts further, and see review their application criteria to ensure they are still robust risk-wise. It’s also a good idea to review initial documentation provided to consumers to make sure they understand about their payment responsibilities and the ramifications of late payments.
When it comes to collections, as the volume of accounts would be relatively low, these accounts could be segmented for specific treatment, including education. Industry standard for segmenting young accounts in collections is 6 months, so issuers could include more accelerated communication for accounts on books just o-3 months.
One more thing: Among accounts on the books less than four months, the percentage of active accounts rose by 22.75% October to October, reaching 67.14%. That’s a good trend, but it still leaves about one-third of new accounts with no activity. Issuers may wish to review the communication strategies for inactive accounts at this level of months on book, and understand why customers apply for cards and then do not make use of them immediately.