Credit card asset-backed securities remain a critical funding mechanism for major card issuers, allowing lenders to recycle capital and continue expanding their portfolios. Research from Mercator Advisory Group explains how issuers build and season card portfolios before transferring receivables into specially structured trusts that can be sold to investors as asset-backed securities. As the credit card ABS market continues to be dominated by the largest issuers, securitization plays an essential role in supporting portfolio growth, managing risk, and maintaining liquidity across the broader consumer credit market.
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Data for this episode of Truth In Data provided by Mercator Advisory Group’s report – Asset-Backed Securities: A Primer for Credit Card Managers
- Card issuer builds portfolio fueled by marketing, accounts season
- Card issuer classifies its accounts, creates a trust to buy receivables (CC accounts)
- Asset-Backed Security trust is created; prospectus prepared, Issuer shifts from owner to servicer
- Trust becomes investment grate entity, rating agencies assess, investors purchase
- Continuation: trust follows its prescribed term; cardholders pay; Issuer reinvests with new bookings
- The top 15 credit card issuers dominate the CC ABS market – smaller players lack volume to justify
- In 2018, $28 billion worth of CC ABS was issued by the US credit card market
About this report
Mercator Advisory Group has released its latest research report. Titled Asset-Backed Securities: A Primer for Credit Card Managers, this report is the first analysis of the asset-backed securities (ABS) market since the recession that focuses on the credit card industry.
Readers will learn about the logical and legal flows of credit card asset-backed securities (ABS), an important financing tool used by many top issuers. Asset-backed securitization enables lenders to originate credit card accounts, season their portfolios, and then sell the receivables to bank-owned trusts that enable investors to buy future revenue streams. Credit card issuers can generate servicing fees and then use the funds to reinvest in new accounts. One top-tier bank has 50 percent of its portfolio securitized, which is a key component of its growth strategy.
“The report presents a case study of the asset-backed securitization of a credit card portfolio of a major global bank to illustrate the level of analytics covered in an ABS prospectus. One important facet that is apparent is the importance of the FICO® Score and the way it is used throughout the credit cycle from origination to credit cycle management and ultimately through securitization,” notes the author of the report, Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group. He adds: “Dodd-Frank brought discipline to the ABS process, and issuers have a requirement to effectively manage their portfolios, particularly as they place blocks of accounts into the capital markets.”
