Until now, mortgage lenders frowned on using credit cards to make mortgage payments as it signalled that the cardholder was becoming increasingly indebted. However, the Amex programme is aimed at affluent prime consumers who are considered to be low-risk credit customers. To be eligible for the programme, cardmembers must qualify for and close on a participating prime loan under the lender’s underwriting standards and must be pre-authorised by the issuer to make the anticipated monthly payment.
A boost to card volume and spending
Housing or mortgage payment is one expenditure category in which payment cards are under-represented, and the ability to pay recurring mortgage payments through a payment card could significantly boost volume and spend on the cards. Visa has made efforts to expand card payments in the household utility bill payment sector, but Amex is the first payment network to have tapped into the recurring mortgage payment sector.
American Home Mortgage Corporation is the first lender to offer the Express Rewards Mortgage programme to eligible prime home loans. IndyMac Bank, the second-largest independent mortgage lender in the US, will also offer the programme, which Amex says is designed for consumers seeking a new or refinanced prime loan. Amex cardmembers will be able to collect Membership Rewards loyalty points under the programme.
Amex said that the programme would increase card spending by affluent consumers who have strong credit histories, along with uptake of the Membership Rewards programme, as the increased card expenditure would lead to greater rewards or cashback amounts for the cardholder. Amex said that independent research had shown that consumers “overwhelmingly cited” monthly mortgage payments as an ideal opportunity to use their card. In particular, the research indicates the desire to earn rewards for mortgage payments as a key motivating factor.
Amex cardmembers with qualifying new purchase or refinance loans with American Home Mortgage will pay a one-time fee of $395 to the lender for enrolment in the Express Rewards Mortgage programme at the time of closing. By participating in the programme, Amex said, cardmembers would have the convenience of automatically charging recurring monthly mortgage payments to their Amex card, decreasing the chance of late payments. In addition, programme enrollees receive a package of benefits including access to premium service with a dedicated loan sales and processing group and an exclusive set of home-related offers from Amex merchants.
“By introducing an entirely new industry to card acceptance, American Express is providing tremendous value to our cardmembers, issuers and our merchant partners,” said Bill Glenn, president of Establishment Services North America and Global Merchant Network Group at American Express. “The ability to pay recurring monthly mortgage payments on the card, typically a consumer’s largest monthly expense, brings unprecedented convenience and rewards to our cardmembers. This builds on the American Express tradition of innovation, enabling our cardmembers to use their card where and when they want to spend in categories such as luxury apartment rentals, private jets and corporate events.”
Joe Dickerson, an analyst at Atlantic Equities, commented: “Such programmes would underscore Amex’s focus on increasing penetration in spending categories where plastic is currently under-represented. With an estimated 1 percent of payments on plastic, housing is the least penetrated of the major spending categories, and presents an enormous opportunity, given over $1 trillion per annum is spent on such expenditures.
“In its proprietary (ie, non bank-issued) US business, Amex has 30.1 million cardholders, who spent a total of $333 billion on their cards in 2006. Assuming an average monthly mortgage expense of $2,500 per month, if Amex were to penetrate just 2 percent of these cardholders, it could lift US proprietary card billings by $18 billion. Over the longer term, if plastic penetration of housing payments were to reach that of, say, transportation, at 19 percent, the incremental card billings would be $172 billion (on the 2006 cardholder base).”