More important than high-priced travel cards, credit card profitability is under stress

New research from Mercator Advisory Group suggests that decreases in credit card profitability can lead to higher-priced consumer credit. 

Boston, MA – August 24, 2017 – While the industry focuses on the reward-point wars aimed at top end customers, credit card issuers should look to their revenue models to ensure that increased delinquency and lower margins do not force the cost of credit up in 2018. 

In a new ForeSight report, In Search of a Profit: As Return on Credit Card Assets Slip, Issuers Must Position for 2018, Mercator Advisory Group reviews the Federal Reserve’s report to Congress on the profitability of credit card companies and projects that 2018 return on credit card assets (ROA) will be 3.49%, plunging almost 30% from 2014.

Download this complimentary ForeSight report, In Search of a Profit: As Return on Credit Card Assets Slip, Issuers Must Position for 2018 for free.

"Given the trends of decreasing revenue and higher risk, will credit card issuers accept thinner net income streams, or will they force the cost of credit up for U.S. consumers?” commented Brian Riley, Director of Mercator Advisory Group’s Credit Advisory Service, author of the report. “Three key factors indicate that credit card issuers will have to increase consumer costs to maintain the level of returns that the industry has become accustomed to: (1) interest rates are climbing as the Federal Reserve slowly raises the rate; with built-in spreads against the Prime rate, this will naturally increase costs; (2) weakend non-interest revenue, which ended 2016 at a negative rate north of 2% (-2.07%) means that business costs are exceeding revenue generated from fees and ancilliary income; and (3) increased loan loss provisions and writeoff will bring additional revenue risk.” Riley continues: “There three ways to squeeze more out of revenue. You must either drastically reduce operating costs, charge customers more, or charge merchants more. There is no fourth option.”

Highlights of the ForeSight report include:

  • A reconcilement of interest and non-interest net revenue
  • Comparison of retail banking and credit card bank return on assets
  • Seven steps to help improve credit card ROA

One of the 2 exhibits in this ForeSight report:

In Search of a Profit: As Return on Credit Card Assets Slip, Issuers Must Position for 2018_IMAGE

The research report is 9 pages long and contains 2 exhibits.

 
Download this complimentary ForeSight report, In Search of a Profit: As Return on Credit Card Assets Slip, Issuers Must Position for 2018 for free.

Members of Mercator Advisory Group's Credit Advisory Service have access to this report as well as the upcoming research for the year ahead, presentations, analyst access, and other membership benefits. 


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About Mercator Advisory Group
Mercator Advisory Group is the leading independent research and advisory services firm exclusively focused on the payments and banking industries. We deliver pragmatic and timely research and advice designed to help our clients uncover the most lucrative opportunities to maximize revenue growth and contain costs. Our clients range from the world's largest payment issuers, acquirers, processors, merchants and associations to leading technology providers and investors. Mercator Advisory Group is also the publisher of the online payments and banking news and information portal PaymentsJournal.com.