Chase May Give Rejected Travel Card Applicants A Second Chance—With Other Lenders Taking The Risk

Chase is exploring a second chance for people it turns down for some of its co-branded credit cards, with other lenders taking on the risk. United is interested, and increasingly makes having its card essential to getting the most from MileagePlus. According to the Wall Street Journal, Chase sent inquiries to more than a dozen firms about handling “second look” applications which then approached private credit firms including Blue Owl, Blackstone, KKR and Sixth Street, about providing funding. This is still exploratory. A Chase spokesman told the Journal that the bank doesn’t (yet) have a plan to launch a second-look program. But what’s especially interesting, I think, is that United had already expressed interest in finding another lender to approve customers Chase rejects. So this is a positive with the Chase-United relationship, because it expands the universe of cardmembers that could be driving the airline revenue. United Is Making Its Credit Card Harder To Do Without When a bank rejects an airline’s customer, the airline loses a potential cardmember and the revenue from selling miles and benefits for them to the bank. But it also angers the customer who may spend a great deal of money flying. A United Global Services member getting turned down for a United credit card risks their United business, too. And United has made the consequences of not having a card much greater. Since April 2, general members earn just 3 miles per dollar on standard United tickets, versus 6 for qualifying cardholders. Cardholders also receive at least 10% off United flight awards, rising to at least 15% for Premier members, plus access to additional saver award inventory. United’s debit card provides another route to some of those benefits, although debit and no annual fee Gateway customers need $10,000 in annual card spending to qualify for the enhanced flight-earning rates. The more United builds MileagePlus around having a card, the more Chase’s approval decisions affect the value of being loyal to United. An airline can decide a passenger is worth keeping even when a bank decides their borrowing risk isn’t worth taking. Why Chase Would Want To Arrange The Second Look Itself Second-look arrangements have existed for years. Exclusive cobrand agreements can make room for another issuer to serve customers the primary bank won’t approve. Retailers have pursued this much more than travel companies. The main bank doesn’t necessarily love the exception. Another issuer gets access to the brand’s customers, establishes its own relationship with them, and may eventually compete for better customers as well. There’s also a messaging problem. The Consumer Financial Protection Bureau has documented retail card agreements that require second-look products to have meaningfully different designs or marketing from the primary card. The brand winds up explaining multiple products from multiple banks, with different rules. Spirit was an unusual airline for this. In 2021 it added a Mercury Financial card issued by First Bank & Trust, targeting near-prime customers alongside its Bank of America cards. As I covered earlier this year, the Mercury partnership ended March 31. It demonstrated that an airline could serve more than one credit audience, but with separate products and a separate relationship to manage. If Chase arranges the second look, it could satisfy some of United’s demand for more approvals while reducing the reason to bring in another consumer-facing credit card competitor. Chase would still get first choice of applicants. An outside funding partner could take customers Chase doesn’t want to finance. There’s also a related logic in Chase’s partners offering debit cards. Southwest’s debit card and United’s debit product let customers participate without qualifying for a credit line. I’d expect Chase to be more comfortable with that than with an airline establishing a rival credit card relationship (even though it’s generally allowed in cobrand agreements). Some younger customers, or customers rebuilding credit, may eventually become Chase credit card prospects. I don’t know that second look would add a huge percentage to these businesses. They may not mean a lot of incremental approvals. But these companies already have the program, they’re already invested in marketing it, so it could be worth the much more modest incremental investment. A Second Approval Doesn’t Guarantee The Same Deal There should be demand from near-prime and subprime customers for travel cards they couldn’t previously get. A denied applicant isn’t necessarily subprime, either: limited credit history or a bank’s existing exposure to that customer can also affect the decision (too much credit, 5/24). A specialist lender may evaluate those applicants differently, offer smaller credit lines, or accept more risk at a higher price. But high interest rates are needed to cover higher defaults. There’s a greater underwriting lift for customers that Chase is already looking at and rejecting. And a separate product might come with different benefits. As this develops I’ll be especially interested in how any deal treats customers who eventually become eleigible for Chase’s regular cards – building a second look business could create a pool of potential future customers for them as they build and improve credit (even if only a small percentage do) but the outside lending partner would be losing a customer just as the cardmember de-risks. So Chase’s right to market to those customers, and the price for moving their accounts, could be a significant piece of the negotiation. (HT: Doctor of Credit) Topics on this page