Credit Card Issuer Profitability In a Difficult Economy: Issuers must Focus on Interest Income While Balancing Against Increased Default Risk
Javelin Strategy & Research, July 2008, Pages: 28
Overview Primary Questions Findings and Analysis Methodology Executive Summary The Economy Affects Financial Institutions’ Credit Card Issuance Policies Decreased Consumer Spending and Potential Shift to Interest Income for Card Issuers is Not Without Risks—Political and Otherwise Consumers Attempt to Reduce Credit Card Usage, But are Less Able to Pay Off Balances Interchange Revenue May Suffer in the Immediate Term as Consumers Curtail Spending Potential for Increased Consumer Reliance on Credit Cards as Recession Wears On Consumers Show Increased Difficulty in Paying Off Credit Card Debt Card Issuers Face Increased Regulation and Scrutiny with Regards to Interest Rate Policies Over Half of Credit Card Issuers Surveyed Suffered Exposure and Losses Does the Economy Pose a Threat or Present an Opportunity? Issuers Cut Back Lines of Credit as a Response to Losses and Exposure More than Half of Middle-Aged Consumers Less Able to Save Economic Difficulties Lead Middle-Aged Consumers to Cut Back Credit Card Usage Economic Situation Results in More Credit Card Debt for Middle-Aged Consumers Build or Buy: Vendor Solutions from the Credit Bureaus Intend to Find the Balance and Allay Risk for Issuers Level of Trust in Financial Institutions Drops Among Middle-Aged Consumers Issuers Constrict Acquisition of New Cardholders: Opportunity for Aggressive Issuers Mirror Image: One-Third of Issuers Expand Acquisition Monitor Middle Income Consumers Closely to Maintain the Risk-Opportunity Balance Credit Card Charge Off Rates Increase Over the Past Several Quarters Consumer Credit Outstanding Also Shows Increases 2007 to Early 2008 Gas Purchases and Other Staple Purchases are of Particular Interest in Shifting Behaviour Appendices: Additional Consumer and Executive Information
Table of Figures
Figure 1: Economic Impact of Various Consumer Behaviours Figure 2: Financial Institutions Suffering Losses due to Economic Conditions Figure 3: Financial Institution Reaction to Economy with Existing Cardholders Figure 4: Consumer Ability to Save as a Result of the Economy by Age Figure 5: Credit Card Usage Changes as a Result of the Economy by Age Figure 6: Ability to Pay off Credit Card as a Result of Economic Changes by Age Figure 7: Consumer Trust in Financial Institutions by Age Figure 8: Issuer Constriction of Cardholder Acquisition Figure 9: Issuer Expansion of Cardholder Acquisition Figure 10: Consumer Ability to Pay off Credit Card by Income Figure 11: Credit Card Chargeoffs by Quarter Figure 12: Credit Card Outstanding by Time Period Figure 13: Specific Behaviour Spending Changes among Consumers Figure 14: Credit Card Usage by Income Figure 15: Purchase of Luxury Good by Age Figure 16: Purchases of Luxury Goods by Income Figure 17: Credit Card Balance Changes by Age
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