Mercator Advisory Group’s 2020 Credit Card Outlook expects a strong year with profitability back in the credit card business, steady lending, and issuers searching for new ways to qualify credit cards. You can see the Credit Card Outlook here.
Projected trends by TransUnion, the credit reporting agency, support our view. In a review of the credit bureau’s data, winter holidays will bring substantial credit card transactions according to a news update by Yahoo Finance.
- These dynamics include a reversal in private label card originations to the positive side – spurred by lower-risk borrowers
- The ability of consumers in recent years to pay down more of their holiday credit card debt.
- This is all occurring against the backdrop of a consumer credit market that continues to perform within expectations.
The report suggests lenders are targeting sub-prime, prime and super-prime credit cardholders.
- TransUnion found that private label card originations increased 2.4% to 12.4 million in Q2 2019 (latest data available), marking the first such year-over-year increase in 11 quarters.
- Origination growth is being driven by prime and above consumers, with their share of new accounts growing faster than non-prime borrowers.
- The number of new bank-issued credit cards also rose in Q2 2019, increasing 5.2% to 16.6 million, the fifth straight quarter of yearly growth.
Delinquents are at reasonable levels.
- “As the credit card market continues to grow, delinquencies remained largely in check and came in under forecast at 1.81% 90+ DPD, compared to the projected 1.86% for bankcards.
- On the private label side we have also seen a recent expansion across the market. The origination trend reversal combined with balance growth is an indicator of continued consumer confidence in their current and future financial standing heading into the holiday shopping season.”
And it is not just credit cards. Small loan growth is robust.
- Total unsecured balances in Q3 2019 increased to a record high of $156 billion. The average balance per consumer also continued to rise, growing 7.9% year-over-year to reach $8,998 in Q3 2019.
- While balances continue to grow, performance remains solid as delinquencies (60+DPD) declined to 3.28% in Q3 2019 from 3.41% over the same period last year.
- While growth has remained robust, originations for unsecured personal loans slowed to a YOY growth rate of 8.2% in Q2 2019, compared to 23.0% over the same period last year. T
- he majority of YOY origination growth occurred in the super-prime (17.2%) and prime plus (12.0%) risk tiers.
Winter holidays kick off in less than a month. It looks like credit cards, private label cards, and installment loans are ready for a flurry. According to National Retail Federal estimates, shown at USA Today, a 4.2% overall increase is anticipated. That is a good $700 billion in sales.
Retailers, brace yourself.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group