By Jack Dobbin, Direct of Research & Insights
Over the past decade, a surge of upstart non-banks have incorporated new techniques and technologies to personal loan underwriting, marketing, and operating models. This has allowed them to offer credit solutions to the underbanked sub- and near-prime market, a customer base of tens of millions of Americans who may not be served by traditional systems of credit. Another option for these customers has been credit cards with low credit limits and typically no annual fees or rewards programs aimed at building credit history. We are now observing an accelerating trend of non-bank lenders leveraging their immense data sets and expertise servicing the sub- and near- prime market to develop their own credit building card products, and we can analyze similar deployments from the past to predict upcoming marketing strategies from lenders who are expected to make that jump in the near future: OneMain Financial, Best Egg, and OppLoans.
From Iteration to Full Adoption
LendUp’s transition from offering short-term loans to credit cards took a sprawling path across multiple products and restructurings. Competiscan observed direct mail marketing for the L Card through the end of 2017, a switch to the LendUp Arrow Card from mid-2017 through mid-2019, and then another transition to the Mission Lane Visa in 2019. Mission Lane has since been spun off into a standalone company whose product suite recently expanded to offer a cash back rewards card. Direct mail offers for LendUp Personal Loans have been seen only sparingly since the introduction of the Arrow Card in 2017, implying a trade-off in marketing resources as the focus on credit card marketing was met with the deemphasis of personal loan marketing.
Finding the Right Balance With a Segmented Audience
Competiscan first observed direct mail solicitations for the Avant Mastercard in late 2018. Estimated volumes for Avant’s personal loan product were reduced by about half in the quarter before the card’s debut, and even further once marketing for the card was seen alongside the loan offers. In the quarters that followed, marketing resources were split between the personal loan and credit card, and loan volumes never again reached their precard levels. Another distinction of Avant’s marketing strategy for the two products was the divergence in credit targeting. In 2019 recipients of Avant Personal Loan offers had an average VantageScore* credit score of 638, compared to 643 for recipients of Avant Mastercard offers. Since then, the average score of loan offer recipients increased to 656 while the average score of card offer recipients decreased to 637, per 2021 year-to-date mail collected by Competiscan. This indicates a strategic decision by Avant to push their loan product more toward the near-prime customer base while their credit card continues to be an option for sub-prime customers.
New Entrants Emerge
The next cadre of credit cards to be rolled out by non-bank lenders is rapidly approaching. OneMain Financial is on track to launch their card in the second half of 2021, per their Q2 Earnings Report. Competiscan has already received a confirmation email from a Best Egg Credit Card applicant, and has captured promotions for the OppFi Card on social media (OppLoans’ parent company recently rebranded as OppFi).
Applying Lessons From the Past to Predict Marketing Behavior
It may be difficult to attribute changes in marketing over the past year-and-a-half due to pandemic-related turbulence, but OneMain Financial maintained their industry-leading mail volumes throughout the greatest period of uncertainty, Q2 and Q3 2020. We have since observed steadily decreasing volumes for OneMain Financial loans for three straight quarters, down 27% overall from Q3 2020 to Q2 2021, which may be an indication of resource allocation like that seen from LendUp and Avant. Best Egg’s Personal Loan direct mail volume has shown fewer signs of slowing so far in 2021, but OppLoans’ volume is down significantly since the end of 2020 as they undergo major structural changes. We expect to see a continued reduction in personal loan solicitations from these three lenders for the rest of 2021 as they cast wider nets, with potential for strong introductory credit card campaigns in Q4 to capitalize on holiday spend. Whether these new credit products will trigger segmentation of each lender’s credit targeting strategies or will simply diversify their credit offerings remains to be seen, but at the very least they entrench these lenders as comprehensive financial services providers.
For more information on marketing trends, Competiscan clients can view the archive of reports and insights online at www.competiscan.com.
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*VantageScore 4 based on Equifax data