Q4 2013 U.S. Credit Card Issuer Performance Snapshot
Although growth continued to be a challenge for the nation’s largest credit card issuers, the outlook for growth in 2014 looks marginally better than the past couple of years (quarter-over-quarter receivables increased by 4.3%, consistent with seasonal trends). Purchase volume increased by 7.5% on a year-over-year basis and 6% quarter-over-quarter; trends that are similar to the growth experienced in the fourth quarter of 2012. There are several trends worth noting:
- Receivables Growth Gains Some Traction: Although single digit receivables growth both quarter-over-quarter and year-over-year is short of impressive, growth is positive and unlike the declines we have seen in previous quarters. Most industry experts are improving unemployment estimates and predicting an increase in consumer spending and modest growth in receivables in 2014 on the heels of a positive uptick in GDP.
- Charge-Offs Near 20 Year Lows: Although the Federal Reserve has not released 4th quarter credit card charge off figures, it is reasonable to expect that the charge-off rate in the 4th quarter of 2013, estimated at 3.02% industry-wide, will reach the lowest recorded point since 1995. Similar to 1995, 2013 marks the fourth year of economic expansion following a recession and unemployment rates are approaching 6% (moderately higher than 1995). Looking back to 1995, credit card charge off rates rose by nearly 100 basis points in a year span after a protracted decline and industry experts pointed to both slowing employment and aggressive credit card marketing to lower segments of the credit spectrum, a trend that started as early as the 1980s. While the potential easing of credit standards has been a hot topic as of late, the most recent Federal Reserve Senior Loan Officer Opinion Survey reports that demand for credit card and other non-auto consumer loans did not change significantly and that bank standards on credit cards and other loans remained unchanged for most respondents. Based on the elongated consumer and lender conservatism driven by the fact that the recent Great Recession had a much more significant impact on growth rates than the recession in the early 90’s, it is reasonable to expect a much slower return to historical averages.
- Issuers Continue to Seek Growth: Investments in new products and value propositions continued in the fourth quarter of 2013. For example, U.S. Bank and Wells Fargo announced third-party issuance deals with American Express. Additionally, Citi and American Express made several investments in rewards and digital offerings both domestically and abroad and Capital One launched a new General Motors product offering. Many issuers have already signaled that product, technology, and investment trends will likely continue in 2014.
1 Includes income from acquiring business and private label receivables and volume.
2 Purchase volume includes cash advances.
3 Receivables, purchase volume, and net loss rates are for U.S. consumer cards.
4 U.S. card business, small business, installment loans only. Purchase volume excludes cash advances.
5 Receivables and charge-offs are for U.S. Cardmember Lending business only. Purchase volume is for U.S. Card Services segment, consumer and small business. Average earning assets is defined as all cardmember receivables (charge) and loans (revolving credit).
6 Includes U.S. domestic receivables and purchase volumes only. ROA includes merchant services and implied U.S. Cards tax rate of ~40%.
7 After Tax ROA reflects Payment Services line of business income and average loans.
8 After Tax ROA excludes Wells Fargo as credit specific income not reported.
For more information, please contact James Watts, Manager, specializing in Credit Card Issuing, firstname.lastname@example.org.
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