Late payments by credit card and holidays: making the process work
Credit card issuers are willing to help consumers find a financial bridge during the COVID crisis. As you’ve probably observed with your personal credit card account issuer, the websites indicate a backlog in the call center’s ability to handle inbound calls and a willingness to help consumers.
Typical programs, such as those offered in the United States by American Express, Bank of America, Chase, Citi, Discover, and other issuers, take into account the current account status of an account. If the account was up to date on March 1st, 2020, the account will likely receive a payment holiday, or deferral, for a period of 90 to 120 days.
Payment holiday does not mean that the payment is canceled. The money is still owed, but the consumer may be offered an interest-only payment or a skipped payment when the interest ends up in the principal balance owed.
Under the current circumstances, payment holidays often receive regulatory approval or at least recognition. In the UK, for example, “a UK watchdog has ordered major banks to offer three-month payment holidays on credit cards and loans to customers affected by the coronavirus crisis.” This affects the major banks in this market, including HSBC, Lloyds, Royal Bank of Scotland, Barclays, Santander and Nationwide, according to Yahoo finance. The Australian credit card market is similar, as Westpac indicates.
There is no official regulatory tracking of the number of holiday programs validated, although Mercator makes a reasonable estimate of the scope. Most markets appear to have a 20-25% range of active accounts in need of support. In the US market, out of nearly 500 million active cardholders, the number of deferrals is likely to be 100 million cardholders. In Canada, we estimate the number of deferrals and payment holidays to be closer to 9 million, while the number in the UK is closer to 14 million. In total, the overall number of deferrals is probably 150 to 180 million credit card holders.
The big question: how will credit card issuers respond to the deferment request?
It would not be appropriate for credit card issuers to simply postpone all payments due, so issuers would have to rely on cardholder demands. These requests mean that credit management systems receive an incremental flow to open an account, test it for compliance, re-age or maintain the account and document the transaction.
For credit card issuers that use platform service providers, such as FIS, Fiserv, and TSYS, the process involves activating existing features. For those issuers, typically the largest and most dominant players, deploying on-premise software and cloud-based solutions, programming support is likely needed.
Today we take a look at ACI Worldwide, a leading global payment technology founded in 1975. The company brought BASE24 to the market, which characterized the demands of credit card payments and the need to be operational 24 hours a day. on 24, without interruption. BASE24 has been modernized over the years and is addressable via the cloud. It interfaces with Universal Payments (UP) and a wide range of retail, wholesale, merchant and quick payment offerings offered by ACI. With UP, users can interface just about any system with another.
In one press release today, ACI has announced several product features that are sure to enhance the agility of card issuers in today’s market. This covers four timely improvements:
Late payments (topic of the day)
Many regulators and banks around the world are giving credit cardholders, loan holders (e.g. mortgages, automobiles) and others relief on principal and interest payments for up to 6 months due to the COVID-19 crisis. ACI Issuer allows banks to temporarily withhold interest or penalties by offering general or partial “payment leave”.
Credit card expiration bypass
As trade and manufacturing have slowed globally, some banks predict a shortage of physical cards to replace customers’ expired cards. The ACI issuer can be configured to bypass expiration date control for specific transaction types so that customers can still access their money and make payments.
Virtual cards (a great idea)
Banks can generally issue cards that limit the type of transactions that cardholders can make. For example, employees cannot use cards issued for business travel to do their shopping. However, in these unprecedented times, ACI Issuer allows banks to allow business customers to issue virtual cards (which are only available through a mobile wallet) to help employees, for example, with their shopping.
With many consumers and businesses facing temporary cash management issues, ACI Issuer enables banks to offer customers a phased payment plan for one-off purchases. Banks can set up a repayment schedule based on consumer or business demand, thereby avoiding delinquencies due to temporary cash management issues.
Some of these features will be useful beyond the current crisis. The deferral option, for example, should be in every credit card issuer’s emergency plan. The Card Expiration Management Tool is a smart workaround when the plastic card return function is in a significant backlog. Virtual cards, which can keep accounts open and limit purchases to life and death transactions, are brilliant and show that the ACI is filled with people who understand payments. And the installment option will surely become relevant when the world returns to normal, or if COVID-19 has a longer resolution path than expected, a way to offer cardholders the ability to move their debt away from home. revolving debt to installment loans.
Overview provided by Brian riley, Director, Credit Advisory Service at Mercator Advisory Group.