You may not have a good understanding of an “inverted yield curve” but if you are in credit cards, you probably can recall the impact of a recession on your credit card portfolio, your MBOs, and your bonus.
Either way, it is a good time to batten down the hatches.
There is no shortage of dismal coverage on the brewing recession. The Washington Post covers it well in this read.
- Stock markets tanked Wednesday after the bond market sounded a loud warning that the U.S. economy might be headed toward a recession.
- Investors are spooked by a scenario known as the “inverted yield curve,” which occurs when the interest rates on short-term bonds are higher than the interest rates paid by long-term bonds.
- What it means is that people are so worried about the near-term future that they are piling into safer long-term investments.
Mercator Advisory Group’s latest credit card research explains the risk lifecycle and discusses the importance of third party agents. Credit Card Charge-off Collections Takes Brains not Brawn is not just good summer reading. You will get a thorough understanding of the collection credit cycle and the importance of aligning with third parties to handle the flow of delinquency, particularly as the economy goes through another sour cycle.
Credit card loss rates for top credit card issuers are still below 4%. Many smaller issuers are running twice that today. If you recall the dismal days of 2007-2008, top issuers each peaked above 10% for their bad debt write-offs, and America’s top issuers reported net losses of more than $1 billion.
Credit card performance has been strong so far, but as we have seen, one adverse event leads to another. Today is a great day to start stress-testing your collection function. Are overflow and diversion strategies in place? Do you have professional relationships with third-party firms, and are they effective?
There is no cause for shock right now, but business managers must look at their functions with a keen eye to be sure the process can absorb the potential risk flow. Our recently published research can help you get through the storm.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
