Credit card interest rates and revolving debt hit historic highs in 2019:
- Credit card interest rates hit a 25 year high in 2019 as lenders increased their rates
- Mercator expects momentum to continue through 2023 with interest rates at 17.10%
- At 17.10% and a prime rate at 6.5% – the interest spread will likely be 10.6% in 2023
- Revolving debt hit historic highs at $1.03 trillion in 2019
- Revolving Debt by year:
2004: $781 billion
2008: $988 billion
2011: $815 billion
2019: $1.03 trillion - Mercator expects revolving debt to climb to $1.117 trillion by 2023
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Data for today’s episode is provided by Mercator Advisory Group’s report – Credit Card Profitability: Interest Spreads and Credit Quality Set the Course for 2020.
About Report
Credit cards remain one of the most profitable offerings by retail banks in the United States. Still, margins began to slip between 2014 and 2017 as credit card issuers rebuilt their portfolios after the recession and normalized strategies in response to the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act). Return on Assets (ROA) for credit card banks fell from 4.94% to 3.37% during that period.
The tides turned in 2018, when the ROA metric improved 42 basis points to 3.79%. Credit card issuers increased their lending margins and benefited by improved credit quality.
The analysis presented in Mercator Advisory Group’s latest research report, Credit Card Profitability: Interest Spreads and Credit Quality Set the Course for 2020, explains the Return on Assets metric, illustrates which components affect the results, and describes why momentum should keep top credit card issuers profitable in the coming decade.
“Credit card issuers began to increase credit card interest margins in 2017 when the prime rate was 3.75%, and they continued to improve their margins in 2018. Indications are that the interest spread., or margin, will rise slightly into 2020,” Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group. “The momentum will likely continue through 2020 as almost 200 million cards were issued since 2017.” Riley also notes that the increased margin protects the credit card Return on Assets metric and helps shield against credit losses if the U.S. market should experience a downturn.
This research report contains 20 pages and 9 exhibits.
Companies and other organizations mentioned in this research report include: American Express, Barclaycard, BMO, Capital One, Chase, Citi, Discover, Equifax, Experian, Scotiabank, TD, TransUnion, U.S. Bank, and Wells Fargo
