After several years of strong recovery and rapid portfolio growth following the recession, the credit card industry is entering a period of slower expansion and heightened risk management. New outlooks from Mercator Advisory Group and other industry analysts suggest that rising delinquency rates, tighter underwriting standards, and moderating balance growth will shape the credit market in 2018. Even as consumer confidence and employment remain relatively strong, lenders are increasingly focused on managing portfolio risk and balancing growth opportunities with concerns about rising interest rates and expanding subprime exposure.
Mercator’s annual Outlooks published for all services yesterday; Credit expects slower growth and tighter controls as delinquency volumes begin to deteriorate. The 2018 Credit Outlook rates our projections for 2017 and gives a forward look to next year; you will find Mercator’s expectation for operating expenses, card growth and risk.
Some other predictions are starting to roll in. This report suggests similar trends in credit: slower growth after fast acquisitions, coupled with higher interest rates that are costly but manageable, drawing in thought from TransUnion.
- Despite expected interest rate rises, the prime rate remains well below historic norms and we believe it will remain at levels that can still be well managed by most consumers,” said Matt Komos, vice-president of research and consulting for TransUnion.
- Average credit card balances have grown about 2.5% in 2017, and TransUnion expects them to grow by about 1% in 2018—the fifth consecutive annual rise. The company believes this comes from increased consumer confidence based on higher employment and rising household income.
- Siegfried pointed out that lenders have been increasing their subprime activity, but moderately. He said 10.6% of all credit card accounts were subprime in the third quarter of this year, versus 9.9% in the third quarter of 2016. By comparison, in the third quarter of 2009 13.4% of credit cards were held by subprime customers.
So, here comes 2018, ready or not. Credit rebounded since the recession and portfolios are back to record levels. It is time to work with what the industry built over the past few years. Nuture customers and let accounts season.
It will make for a much better 2019!
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
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