In late 2015 Visa announced its partnership with CFSI to explore the intersection of savings and credit through a targeted focus on secured credit cards . As one component of this project, Visa and CFSI engaged research firm GfK to conduct an online survey* of secured card customers to better understand why and how they use this product. The results surprised us and we’re excited to share a sneak peek here.
[As a reminder: Secured credit cards function like typical credit cards, except that the customer is required to leave funds in a savings account as a security on the credit line. This minimizes issuer risk and enables providers to offer the card as a credit-building tool to consumers whom they might otherwise deny. Customers who successfully use the card can see significant increases in their credit score over time and may eventually “graduate” to an unsecured card and regain access to their savings.]
We began our research with the hypothesis that secured card users consisted of two consumer segments: Establishers and Rebuilders. Establishers are those with minimal credit experience who needed to establish their credit, and Rebuilders are those with a history of negative credit experiences looking to rebuild their credit profile. Secured cards, when used properly, are designed to help both of these segments increase their credit over time.
We were surprised, then, when our research came back with not two, but four distinct consumer segments. 51% of consumers fell into the first two segments as we had hypothesized, but 25% of those polled obtained the card primarily as a way to transact (Transactors) and another 19% saw it primarily as a way to save (Savers). This reveals that consumers are using secured cards in ways previously ignored -- for daily functionality and long-term savings -- in addition to credit score improvement.
So who are these Transactors and Savers? Transactors tended to be both younger (18-24) and older (55 and over) and unemployed or retired. They also tended to have incomes under $40,000. Transactors were most likely to be unbanked (had neither checking nor saving account) and to use prepaid cards. Savers were more likely to be older (55 and over), married, and retired. This group also had the highest average income and rated themselves as having excellent credit scores.
The diversity of consumers within these segments represents a great opportunity for issuers, who can broaden their marketing and design of secured cards to promote the various features to distinct target audiences. For example, because they are more likely to be unbanked and lower-income, the Transactor segment may benefit from partnerships between issuers and community-based institutions. And because a higher proportion of people in the Transactor segment use prepaid cards, prepaid issuers may consider designing secured card products for their existing customer base (indeed, some already are).
The Saver segment highlights the utility of secured cards as a savings vehicle and these consumers may be attracted to an enforced repayment mechanism inherent in the secured card product. Yet the savings component of the secured card is hardly leveraged as a product feature. What if secured card customers were given incentives to increase their security deposit (and thus, their credit limit) over time, or to keep their savings in the security deposit after they graduate from the product? Our research suggests that there is an exciting opportunity to expand the savings components of secured credit cards and respond to consumers’ desire to save.
VISA and CFSI are continuing to analyze the consumer data around secured credit cards and expect additional insights in the months ahead. To learn more, keep your eyes out for the full report which will be released in the spring of 2016.
* 400 consumers were pulled from GfK’s Knowledge Panel, a fully representative random sample of the U.S. population. The survey delved into questions surrounding how and why they got the card, what they use it for, bill payment patterns, credit impact, and overall financial health.