Consumer sentiment and shifting spending patterns mean that merchants, issuers and traditional credit are facing challenges.
The expansion of co-branded credit card options to the non-prime consumer segment introduces a pathway to credit inclusion. These programs help boost consumer engagement while offering consumers the potential to “graduate” to more robust credit access as their financial health improves, Concora Credit Chief Commercial Officer Rolando De Gracia told PYMNTS.
Co-branded credit cards remain the leading engagement methodology for most brands, he said.
“That person has daily engagement with your brand,” he said. “When they pull that card to get coffee, or they pull their card to buy something else, they’re tapping with your brand. Once someone has that kind of dedicated line of credit or they have that additional reward in their payment methodology with you, the frequency of visits increases.”
This translates into a rationale for consumers to return to a specific store, book another flight with an airline, or extend their stay at a hotel. Ultimately, this makes the brand “top of mind” when booking decisions are made, potentially swaying a consumer toward a particular offering simply because of the accumulated points, he said.
From a credit perspective, co-branded cards are still delivering more value to partners than other engagement methods.
The Current Environment
The current economic climate, shaped by the events of the pandemic, has underscored the need for such adaptive strategies. During the pandemic, the behavior of specific FICO bands changed dramatically, leading to a form of “credit score inflation,” De Gracia said.
Consumers became delinquent on accounts, and banks tightened credit as a result. The traditional approach, which has historically excluded consumers with less-than-perfect credit from loyalty program acceleration through credit offers, meant many potential loyal customers were left out.
There’s a critical need for alternative providers, such as Concora Credit, to maintain a brand’s overall approval and engagement rates, De Gracia said.
Concora’s approach directly addresses the challenge of broadening loyalty program participation without diluting the value of existing programs. The company achieves this by collaborating with partners on program design, recognizing that non-prime consumers will likely yield a “lower revenue share” for the issuer, De Gracia said.
As he told PYMNTS, “any value proposition that you offer to these consumers will be actually incremental to what they have today. They may be members of the partner’s loyalty program, and they’re paying with their debit card. [Merchants and issuers] are getting the very base, and they’re already enrolled in that loyalty. They’re part of the ecosystem for the partner, but they’re not yet getting the acceleration of a credit card. And that’s where we can [come] in and really help.”
This incremental reward philosophy ensures that retailers, airlines or hotels avoid feeling “underwater in the program,” making the expansion to non-prime segments a sustainable venture, De Gracia said.
This collaborative spirit, where Concora Credit helps partners understand what truly brings value to this underserved segment by analyzing their loyalty program data, is key to designing effective programs.
The Starter Card
A core component of this inclusive strategy is the concept of a starter card. Consumers are already accustomed to the tiered product offerings from banks and airlines, so basic offerings geared toward certain non-prime profiles can be a means to draw more individuals into the loyalty ecosystem, De Gracia said.
For non-prime customers, who often lack specific airline, hotel or club-branded cards despite frequently shopping at these establishments, a starter card provides an entry point to lead to a “graduation strategy,” he said.
That strategy addresses the often-rapid credit improvement seen in non-prime consumers who consistently make payments. Unlike prime consumers whose FICO scores remain relatively stable with on-time payments, non-prime individuals — whose credit may have declined due to life events like healthcare issues, divorce or unemployment — can see their credit profiles increase with haste.
De Gracia said approximately 30% of Concora Credit’s cardholders will improve their FICO score sufficiently within six or seven months to become eligible for the partner’s primary “champion product.” Concora Credit facilitates this by collaborating with the partner’s primary bank, providing lists of eligible cardholders. When these consumers are identified as having improved their FICO score by hundreds of points, they are often offered the prime product.
“Once that consumer is eligible for that product, they’ll take it,” De Gracia said. “Why? Because of better rewards and lower fees.”
In the meantime, these credit amateurs become credit professionals.
The graduation strategy also strengthens the partnership between brands and issuers. When a retailer, for instance, sees approval rates at the point of sale jump from 50% to 70% due to an alternative product launched in tandem with Concora Credit, issuers and merchants become more confident and “motivated to pitch the product,” De Gracia said.
“Having someone like us with an alternative non-prime product,” he said, helps “really maintain the overall approval rate and the overall engagement for the brand.”
