Credit card portfolio premiums are on the rise as demand begins to increase with improving economic conditions.
The average premium for credit card portfolios sold so far this year is 16.85% of total receivables, up from 14.4% last year, Robert Hammer, CEO of Thousand Oaks, Calif.-based credit card consultancy RK Hammer, tells PaymentsSource.
Robert Hammer, the consultancy’s CEO, declines to speculate on the premium Barclays US paid for the $1.3 billion Sallie Mae card portfolio it acquired from Bank of America Corp. earlier this week. But he says such deals indicate buyers and sellers of card portfolios are active once again.
“Prices are lifting,” Hammer says.
Premiums so far this year are varying from as low as zero to as high as 19%, based on a variety of factors, Hammer notes.
Factors include credit quality, defined by the credit scores of consumer accounts within the portfolio, and charge-off and delinquency rates, he says.
The “active” rate of accounts within the portfolio, which Hammer defines as the percent of the accounts and loan balances pertain to actively used accounts, also plays a big role in determining the price a portfolio may fetch, he says.
The proportion of customers within a portfolio that routinely revolve balances also generates higher income for issuers from interest and fees, which plays into premium prices, Hammer suggests.
The arrangement the buyer makes for marketing accounts to new customers after the portfolio sells also is crucial. “It’s very important whether or not the seller maintains an agent relationship with the buyer going forward so that they continue to generate new accounts and active accounts to help the buyer offset attrition in the portfolio, among other factors,” Hammer says.
Despite the potentially improving conditions for selling card portfolios, Target Corp. last week reaffirmed that it plans to keep its $6 billion credit card operation off the sale block until later this year, when executives hope to find “the right buyer”.