Providian Reshapes Itself

The new management team at Providian is hard at work reworking its portfolio and recasting its image with consumers. Providian fell into serious performance trouble two years ago with its $32 billion card portfolio that was heavily biased toward subprime borrowers. By the end of 2002, the portfolio had been scaled down to $19.6 billion, which still put it among the top 10 largest card issuers in the United States. More importantly, the company returned to profitability in 2002. Going forward, the company is targeting the middle market rather than the subprime. The American Banker reported that Warren Wilcox, Providian's vice chairman for marketing and strategic planning, said that a thorough evaluation of the remaining portfolio has resulted in significant, risk-based adjustments in pricing. The new rates will more sharply differentiate higher-risk from lower-risk borrowers. At the start of 2002, only about 7.5% of Providian's receivables had adjustable interest rates. Wilcox said this will increase to 50% by the end of the first quarter 2003.

Providian's market research has indicated that middle-market consumers are pragmatists when it comes to expectations for card pricing. Providian views the middle market as those cardholders with Fair, Isaac risk scores of 600 - 739. These customers are willing to pay more if they have had payment problems, as some occasionally do, but above all they want to be treated fairly. Wilcox reported a representative quote from a customer as follows: "When I've been bad, I deserve to spend some time in the penalty box, but not for the rest of my life." One idea that the company is considering is to allow cardholders to use rewards points earned on card purchases to offset late fees.