2015 nerdwallet consumer credit card report · fraud and emv: consumer understanding morethan half...

©2015 NerdWallet 1

2015 NerdWallet Consumer Credit Card

ReportPublished September 2015

Data compiled from proprietary NerdWallet data, consumer survey results and reports from various

unaffiliated companies or agencies.

For press inquiries or follow-up questions, please contact [email protected]

©2015 NerdWallet 2

IntroductionNerdWallet’s inaugural Consumer Credit Card Report is an in-depth analysis of the credit card landscape aimed at identifying the industry trends that are most important for consumers to be aware of in 2015.

We analyzed internal and external data sources, then commissioned an online survey, conducted by Harris Poll, of over 2,000 adults to uncover current credit card trends. As part of our mission to deliver clarity for all of life’s financial decisions, we’ve scrutinized the results and found three areas consumers should focus on during the next year.

This data pack will be organized according to the three key findings highlighted in the study. The data was compiled from proprietary NerdWallet data, NerdWallet consumer survey results and reports from various unaffiliated companies or agencies.

©2015 NerdWallet 3

Key FindingsFraud and EMV

Online shopping fraud will likely increase — and counterfeit fraud may increase before it begins to decline — when EMV technology is adopted in the U.S. later this year. As EMV technology rolls out in America, we expect to see trends that surfaced in the UK when it adopted the technology in 2005. There, online shopping and other types of card-not-present fraud increased by 120% between 2004 and 2014. And though counterfeit fraud went down 63% during this time, it peaked in 2008 due to cross-border fraud.

Cost of RewardsNerdWallet found that consumers are overwhelmingly applying for rewards credit cards, but 31% don’t know how much they’re costing them in fees, and almost one in five didn’t redeem any of their rewards last year.

Millennials’ card choicesMillennials have the lowest average credit score — 28.1% have scores below 579 — and the shortest credit history of all age groups, and it may not improve. Some millennials are shunning credit cards completely, while others are applying for the wrong cards and being rejected, both of which are hurting their finances.

©2015 NerdWallet 4

Table of contents

Key findings1 – Fraud and EMV Pages 5-112 – Cost of Rewards Pages 12-193 – Millennials’ Card Choices Pages 20-27

Other highlights from proprietary NerdWallet data

Pages 28-34

©2015 NerdWallet 5

Key Findings: Fraud and EMV

©2015 NerdWallet 6

Fraud and EMV: What is EMV?

Credit cards with an EMV chip – that small, square chip embedded in your credit card – are more secure than traditional magnetic stripe cards because EMV chips create unique, temporary payment credentials for every transaction while the payment information in a magnetic stripe always stays the same. This lowers consumers’ fraud risk substantially because card data can’t be “skimmed” from a magnetic stripe and put onto a counterfeit card to use for fraudulent transactions.

While EMV upgrades aren’t mandated for card issuers and merchants, the entity that doesn’t upgrade to EMV cards or terminals will become responsible for fraudulent transactions, a change known as the “liability shift,” in October. Currently, issuers are responsible for fraudulent transactions. Similar liability shifts have occurred in other countries that have adopted EMV, including the United Kingdom.

©2015 NerdWallet 7

Fraud and EMV: Fraud rates in the UKAs EMV expands in the U.S., we expect a repeat of the UK’s experience: a spike in fraud after EMV rollout and the ongoing growth of online and other card-not-present fraud.

0

100

200

300

400

500

600

700

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fra

ud

loss

per

yea

r (£

M)

Annual fraud losses on UK-issued cards 2004–2014

Counterfeit Lost and stolen eCommerce

Other Card-Not-Present Card ID theft Card non-receipt

EMV liability shift

Sources: Financial Fraud Action UK, Fraud the Facts 2015

©2015 NerdWallet 8

Fraud and EMV: Consumer understandingOnly 41% of consumers are aware of EMV chips’ basic value proposition; consumers ages 65 and up understand EMV technology much better than consumers ages 18-34.

41%

5%20%

34%

EMV chip

Magnetic stripe on the back of a credit cardBoth are equally secure

Not at all sure

Of the following credit card security measures, which do you believe is the most secure?

Sources: NerdWallet Harris Poll, 2015. Numbers may not add up to 100% due to rounding

26%

9%

28%

38%

54%

2%

12%

33%

Ages 18-34

Ages 65+

All respondents

©2015 NerdWallet 9

Fraud and EMV: Consumer understandingTwo in five consumers were not sure what protections EMV offered, and 6% didn’t believe it offered any protection.

0%5%

10%15%

20%25%30%35%40%45%50%

Counterfeit fraud (e.g., if someone makes a physical

copy of your card)

Stolen card fraud (e.g., if someone steals your card)

Online purchase fraud (e.g., if

someone steals your credit card

information online and purchases

items with those credentials online)

None of these Not at all sure

To the best of your knowledge, which of the following types of fraud, if any, will an EMV chip protect you

against? Please select all that apply.

Sources: NerdWallet Harris Poll, 2015

The correct answer

©2015 NerdWallet 10

Fraud and EMV: Consumer understandingMore than half — 52% —of consumers were able to correctly report which types of activities are made more secure by EMV chips.

0%

10%

20%

30%

40%

50%

60%

Making a purchase in

person at a store

Transacting at an ATM

Storig credit card information

with an online store (e.g.,

Amazon.com, Nordstrom.com)

Giving a credit card number

over the phone

None of these Not at all sure

To the best of your knowledge, which of these activities will be more secure when using a card with

an EMV chip? Please select all that apply

Sources: NerdWallet Harris Poll, 2015

The correct answer


Fraud and EMV: Consumer understandingAn astounding 59% of consumers reported that they are not at all sure who is liable for fraudulent charges; 7% incorrectly believe that consumers bear the burden.

Banks, 21%

Stores, 12%

Consumers, 7%

Not at all sure, 59%

To the best of your knowledge, after October 2015, who is liable for fraudulent charges on cards with an EMV

chip?


Both correct answers, depending on whether or not the store’s payment terminals are EMV-ready. If they are, then the bank is liable for the fraud. If

not, then the store is liable for the fraud.


Key Findings: Cost of Rewards


Cost of Rewards: Annual feesIn June 2015, the average annual fee for rewards cards and cash back cards hit a 3-year low while the average annual fee for miles cards climbed 22%.

0

20

40

60

80

100

120

2012 2013 2014 2015 1st Half

Annual fees by card type for cards with annual fees

Rewards No Rewards Points Cash back Miles

Sources: Internal NerdWallet data. Fees are weighted by sign-up rates by card type. Cards with no annual fee are excluded from this data set

Including cards with no annual fee, the average fee for cards without rewards comes out to 1.5¢ per year


Cost of Rewards: Breakeven values

0 5000 10000

Card

Avg point value

(cents)Annual

feeVirgin America Visa Signature® Card 2.2 $49*JetBlue Card from American Express 1.4 $40British Airways Visa Signature® Card 2.4 $95Amex Starwood Preferred Guest® 2.4 $95Amex Gold Delta SkyMiles® 1.9 $95Capital One® Venture® Rewards Credit Card 1.0 $59United MileagePlus® Explorer Card 1.6 $95Citi AAdvantage Credit Card 1.3 $95Chase Sapphire Preferred® Card 1.3 $95Southwest Airlines Rapid Rewards® Premier 1.1 $99*Marriott Rewards® Premier Credit Card 0.9 $85*Citi ThankYou® Premier Card 1.0 $95Citi® Hilton HHonors™ Reserve Card 0.5 $95*

Breakeven values by card, accounting only for value of points and annual fee

*Card does not waive first year’s annual feeSources: Internal NerdWallet data. Note: Some card names shortened for brevety

Weighted average


Cost of Rewards: Cards’ popularityConsumers continue to prefer rewards cards over non-rewards cards, with Non-Air Cobrand cards and Cash/Points/Miles cards being roughly equally popular.

27% 23% 22% 21% 20% 20% 20% 20% 24% 24% 24% 26% 22%

30% 34% 34% 37% 35% 35% 35% 40% 32% 32% 32% 34%31%

9% 9% 9% 9% 9% 7% 7%8% 8% 8% 7% 6%

8%

34% 34% 35% 34% 36% 38% 39% 33% 36% 37% 38% 34% 39%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1

Total new account volume distributed by product, all consumer categories combined

Non-rewards Non-Air Cobrand Cobrand Air Cash/Points/Miles

Sources: Argus Information & Advisory Services via American Bankers Associate Rewards Credit Cards Study


Cost of Rewards: Consumer knowledge Of consumers with rewards cards that charge annual fees, 31% do not know how much they are paying.

Yes29%

No, 13%

I do not own a rewards card

with an annual fee, 59%

If you own a rewards credit card (e.g., cash back, miles, points cards), do you know how much your annual fee

is?


Percent of consumers with rewards cards with

annual fees

69%

31%


Cost of Rewards: Consumer knowledge Consumers were evenly divided on their willingness to pay annual fees on rewards credit cards.

Up to $50/year34%

$51 to $100/year, 7%

$101 to $150/year, 4%

$151 to $200/year, 1%

More than $200/year, 2%

Nothing - I would not

pay to earn credit card

rewards, 50%

How much money per year would you be willing to pay to earn credit card rewards?



Cost of Rewards: Consumer knowledge Most consumers who accrue rewards points appear to be effectively managing their points.

I redeemed all my available

rewards points23%

I redeemed some of my available rewards points,

22%

I did not redeem any of my available

rewards points, 11%

I didn't have any rewards points to

redeem last year, 9%

N/A - I don't have a credit card with rewards points,

35%

Which of the following best describes how many credit card rewards points you redeemed last year (e.g., cashing in

airline miles, getting cash back from your bank)?


All respondents


Cost of Rewards: Consumer knowledge Nearly 2 in 10 — 18% — of consumers let points sit unredeemed over the course of last year.

I redeemed all my available rewards

points35%

I redeemed some of my available rewards

points34%

I did not redeem any of my available rewards points

18%

I didn't have any rewards points to redeem last year

13%

Which of the following best describes how many credit card rewards points you redeemed last year (e.g., cashing in

airline miles, getting cash back from your bank)?


Respondents with rewards credit

cards


Key Findings: Millennials’ Card Choices


Millennials: FICO distribution by ageOver 50% of millennials have FICO scores below 670.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

300-579 580-669 670-739 740+

Percent of scorable files by FICO score

Millennials (Age 18-34) Total Population

Sources: FICO.com, June 2015


Millennials: Card applications by FICOMillennials with lower credit scores are seeking new credit more frequently but are ultimately opening fewer accounts. Each of these failed applications hurts the applicants’ credit scores, perpetuating a vicious cycle.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Inquiries New credit opening

Percent of millennials with inquiries or new credit openings over 6 months, by FICO band

300-579 580-669 670-739 740+

Sources: FICO.com, June 2015


Millennials: Card applications by FICONearly 1 in 4 credit seekers with credit scores below 681 were rejected, further damaging their credit scores without getting the card.

33.5%42.6% 42.7%

24.2% 7.8%2.0%

17.3%

2.8% 0.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

<= 680 681-759 760+

Types of credit seekers, by credit score, June 2015

Applied and Accepted Applied and Rejected Discouraged

Sources: New York Fed SCE Credit Access, June 2015


Millennials: How all consumers pick cards Nearly half – 48% — of all consumers selected their credit card through an ad or promotion; only 11% did so by conducting research.

21%

14%

9%3%10%

7%

16%

19%

I received a promotional offer in the mail

My bank promoted it to me directly (e.g, in branch, mail)

I applied through a retailer, airline, etc. (i.e., signed up for a store card to receive store discont, an airline card to earn miles)I saw an advertisement (e.g., online ad, TV commercial)

I conducted research based on my credit score, reading card reviews and comparing credit card statisticsMy friends/family recommended it

Some other way

N/A - I have never applied for a credit card

Which of the following best describes how you selected the credit card you most recently applied for?


All respondents

48% Via an ad or

promotion


Millennials: How all consumers pick cards More than half of consumers who applied for credit cards did so via an ad or promotion.

26%

18%

12%4%

13%

8%

19%





Some other way


Sources: NerdWallet Harris Poll, 2015. Numbers may not add up to 100% due to roundingAll respondents who have applied for credit cards

60% Via an ad or

promotion


Millennials: How millennials pick cards Far fewer consumers ages 18-34 selected their credit card through an ad or promotion when compared with the overall consumer pool, and a greater percentage selected their card by conducting research. However, 31% of respondents in this age group have not yet applied for a credit card.

11%

13%

6%4%

14%14%

8%

31%





Some other way

N/A - I have never applied for a credit card



Respondents ages 18-34

33% Via an ad or

promotion


Millennials: How millennials pick cards Nearly half of millennial consumers (ages 18-34) who applied for credit cards did so via an ad or promotion.

16%

18%

9%5%20%

21%

11%





Some other way



Respondents ages 18-34 who have applied for credit cards

48% Via an ad or

promotion


Other highlights from proprietary NerdWallet data


Other highlights: Sign-up bonusesThe value of miles cards’ sign-up bonuses plummeted in early 2015, while points cards have hit an all-time high.

$349.32

$113.83

$283.95

$0

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Points Cash back Miles

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Other highlights: Late feesLate fees have stayed relatively static over time, hovering around $30.

$33.79

$28.81

$35.15

$0

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Late fees over time

Overall No rewards Points Cash back Miles

Sources: Internal NerdWallet data. Statistics are weighted by sign up rates


Other highlights: Other feesFees have not changed substantially since mid-2011. Interestingly, foreign transaction fees appear to spike around the holiday season.

2.0%

3.8%

1.3%

0.0%

0.5%

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Fee changes over time

Balance transfer Cash advance Foreign transaction fee



Other highlights: APRsAPR have not changed substantially since mid-2011. Penalty APRs dropped significantly in late 2013 and early 2014 but have since recovered.

18.0%

20.7%

26.1%

0%

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APR changes over time

Purchase APR Cash advance APR Penalty APR



Other highlights: Balance transfer periodsBalance transfer periods appear to be converging to around 15 months across all card types.

16.6

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Average balance transfer period by card type




Other highlights: Intro APR periodsIntroductory APR periods appear to contract at the beginning of the new year. This may be the result of some cards offering balance transfer periods through a fixed date, as opposed to a set of months, which needs to be reset every year.

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2015 nerdwallet consumer credit card report · fraud and emv: consumer understanding morethan half...

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