Mercator Blog

Credit Advisory Service Update
Date: November 9, 2017
Brian Riley
Director, Credit Advisory Service
The books close on 2017 in less than eight weeks. As bank card issuers take a final look at their 2017 management by objectives goals, as is the standard in most major financial institutions, they likely are finding these results for the top four objectives.

Credit Update_November

Depending on where you sit in the organization, ROA, the return on assets metric, may also be among your annual objectives. If that is the case, anything below a 3.76% ROA would put you at a miss, although you would look like a hero compared to your retail banking counterparts, who will deliver only a 1.35% ROA.

Regarding data security, the recent Equifax breach set a new high (or is it low?) watermark. No card data was exposed by the breach, but personal information, including dates of birth, social security numbers, and other data could help fraudsters create false identities. This will disrupt credit card acquisition strategies for years to come. With 144 million cardholders affected, this might hit home with you. The Equifax debacle is the subject of a forthcoming Mercator Advisory Group research report to be released later this month.

Many of these essential topics were covered in Mercator Advisory Group research released during this and prior quarters of 2017. In Search of a Profit: As Return on Credit Card Assets Continues to Slip, Issuers Must Position for 2018 continued our annual review of the Federal Reserve Bank’s Report to Congress on Credit Card Profitability, observing continued slippage amounting to more than 100 basis point deterioration since 2014. We see challenges in non-interest income at credit card companies, mostly the result of fee reductions at card issuers. You will find Mercator’s seven recommendations for improving the critical ROA metric in that report.

The sustainability of rewards is another topic we covered. Consumers love them; bankers need to think about their worth. Doling out rewards certainly attracts new accounts, but few credit card issuers protect their acquisition investment with a strong second year retention strategy. Large, 60,000- to 100,000-point incentives can excite cardholders in the first year, but when the second year comes, cardholders will attrite at record levels when they face the sticker shock of a $450 annual fee that carries little or no attractive incentive.

For a more global view, we did a deep dive for credit cards in the Mercator research report Brazil, Russia, India, and China: Payment Developments in the BRIC Countries and observed uneven growth as well as more opportunity for debit currently than for credit. The report’s focus is global, but as our report Payment Services Directive 2: Worldwide Industry Implications showed earlier this year, our view on cards is not limited to the United States.

You probably will find my colleague Raymond Pucci’s piece The On-Demand Economy: Mobile Apps that Deliver Convenience Boost Payment Volume interesting, particularly as he defines the mobile market for on-demand services, mobile order-and-pay ahead, merchant mobile pay, and mobile self-checkout. Mobile apps will bring additional scale to card payments with high volumes of low-value payments, requiring proper fraud monitoring.

Our annual Outlook on Credit for the year ahead will be published in mid-December. In the interim, if you are setting 2018 MBO goals, be conservative. Expect growth to soften, revolving debt to be around 6%, ROA to continue to decline based on non-interest revenue, and losses to push toward 4% and beyond.

Also on the docket for this year is the first annual credit data book. It will tie together several pieces of essential data for you to consider in planning for 2018 and beyond. The intent is to complement the Mercator Advisory Group’s 2017 Annual U.S. Debit Data Review, which is available through our Debit Advisory Service.

Meanwhile, we are planning our research agenda for 2018. It is a perfect time to suggest a topic that might be pressing for your business. If you have any thoughts or would like to cover any credit topic, please reach out to me at



Brian Riley
Director, Credit Advisory Service
Mercator Advisory Group