Approaching Strategies for Tapping into the $2 Billion Secured Credit Card Industry
A new report titled "Secured Cards: Five Reasons Credit Card Issuers Should Serve This Market," provided by Mercator Advisory Group, highlights key trends and strategies for issuers in the secured credit card market. The report underscores the increasing attractiveness of the secured card segment and the benefits that issuers can reap by targeting it.
Why Secured Cards Matter
The report identifies five primary reasons for issuers to serve the secured card market:
- Underserved Consumer Segment: Many consumers with poor or no credit history rely on secured cards as a credit-building tool. Issuers have a strategic opportunity to attract and retain these customers early in their credit journey.
- Lower Risk Profile: Secured cards are backed by a cash deposit, which mitigates risk for issuers compared to unsecured products. This makes it easier to manage credit exposure while expanding the customer base.
- Cross-Selling Potential: Serving secured card customers allows issuers to establish relationships and market other credit products as customers improve their credit scores.
- Revenue Opportunities: Secured cards generate revenue similar to unsecured credit cards through fees and interest, contributing to a profitable portfolio.
- Brand Loyalty and Differentiation: Offering secured cards demonstrates financial inclusion, enhances brand perception, and differentiates issuers in a competitive marketplace.
Strategies for Success
To capitalise on the secured card market, issuers are advised to:
- Leverage data analytics to identify ideal secured card candidates and tailor marketing.
- Provide educational resources to help cardholders build credit responsibly.
- Design competitive, transparent fee and interest rate structures to attract and retain customers.
- Use digital onboarding and servicing tools to enhance customer experience and reduce operational costs.
- Emphasise the transition path from secured to unsecured products to encourage customer growth and loyalty.
Tapping into New Markets
Downstream secured card issuance programs can potentially cater to a different demographic than the mass-affluent consumers and those with high FICO Scores. These programs could provide an opportunity for credit card issuers to tap into a market that may have been previously overlooked.
Three methods to approach the Secured Card market are: counteroffering on declines, converting prepaid programs, and targeting specific segments. A downstream secured card issuance program, which includes a progression plan for advancing cardholders from secured to unsecured account status, can be a strategic advantage for credit card issuers.
By 2023, the number of secured credit card accounts is expected to exceed 6 million, and the revolving debt carried by these cards is expected to exceed $6 billion. The Secured Card market is worth approximately $2 billion.
Mercator Advisory Group recommends issuers view the secured card market not merely as a risk mitigation tool but as a strategic growth segment with long-term value through customer development and cross-product engagement. The success of downstream secured card issuance programs depends on their ability to effectively manage the progression of cardholders from secured to unsecured accounts.
- In the realm of finance and business, a strategic approach for issuers involves investing in secured cards, as this market offers a chance to attract and retain customers with poor or no credit history, thereby expanding the customer base and generating revenue.
- To capitalize on the growth potential of the secured card market, issuers could employ various strategies such as leveraging data analytics, providing educational resources, designing competitive fee structures, utilizing digital tools, and emphasizing the transition path from secured to unsecured products, all aiming to build customer loyalty and differentiate their brand.
