For credit card issuers, 2023 closes with strong portfolio performance. But the question now is whether 2024 will continue this growth—or mark the start of significant losses.
Consumers Turn to Credit Cards as Savings Decline
As inflation and high interest rates continue to challenge household budgets, many consumers are turning to credit cards and buy now, pay later (BNPL) loans to maintain their lifestyles. A recent Wall Street Journal article highlights that consumers are spending more on credit—even as their personal savings dwindle.
In Q3, credit card spending surged at several major banks:
- JPMorgan Chase saw a 9% increase.
- Wells Fargo posted a 15% increase.
- Citigroup’s growth was a modest 2%, partly due to its inclusion of store cards, which have fallen out of favor.
This growth suggests that credit card portfolio managers may meet or exceed their performance goals, at least when measured by volume.
Deposit Declines Signal Budget Strain
Despite higher credit card usage, signs of financial strain are emerging. JPMorgan reported a 3% year-over-year drop in deposits within its consumer segment, while Citigroup saw personal banking deposits decline by 5%. These reductions reflect the extent to which consumers are dipping into their savings to stay afloat.
Rising Loan Balances and Delinquencies Raise Red Flags
Increased spending also means rising unpaid balances. According to the same WSJ article, credit card loans rose nearly 16% at JPMorgan in Q3. At Wells Fargo, they climbed 14%, and at Citigroup, 11%.
Federal Reserve data shows delinquencies are trending upward:
- Total delinquency rate reached 2.98%—the seventh straight quarterly increase.
- Charge-offs increased to 3.79%, a sign that more consumers are failing to repay.
Small issuers are hit especially hard, with an 8.50% charge-off rate compared to 3.57% at top-tier banks.
Looking Ahead: 2024 Credit Card Outlook
Javelin projects that revolving credit card debt will continue growing—not from successful marketing, but from consumer distress. Rising costs and higher interest rates are driving more Americans to carry balances from month to month, an indicator of budgetary pressure.
Losses are expected to rise significantly. Our estimate is that the charge-off rate could climb from 3.49% to 6% in 2024. Continued regulatory scrutiny of late fees—viewed by some as “junk fees”—could put further pressure on card issuers’ margins.
Prepare for a Tougher Year Ahead
Credit card profitability will likely decline in 2024, with tighter lending standards and more selective card issuance. Issuers may need to reassess their risk models and revenue structures to maintain stability during economic uncertainty.
For consumers and businesses alike, the message is clear: spend less and save more.
