Credit cards have evolved far beyond simple plastic payment cards, adapting successfully to rapidly shifting technologies. However, despite their growing popularity, credit card issuers face three key obstacles this year: a disrupted business model, deteriorating credit quality, and the shifting definition of what a credit card is.
The industry landscape was examined in 2025 Credit Payments Trends, a report from Brian Riley, Director of Credit and Co-Head of Payments, and Ben Danner, Senior Credit and Commercial Analyst at Javelin Strategy & Research. It outlines how issuers can map out a path to stability, increase net revenue, and leverage artificial intelligence to their advantage.
The Importance of Stability
Persistent inflation and high interest rates weren’t new headlines last year, but they continued to strain consumers. Total U.S. credit card debt reached $1.14 trillion in Q3 2024, according to the Federal Reserve—the highest level in over 25 years of tracking this statistic.
More consumers are now making only the minimum payment on their credit card bills, leading to a corresponding rise in credit card delinquencies.
“The write-off rate is just around 5%,” Riley said. “The sweet spot in the card business is typically 3.5%, so we’re north of that. It has doubled in the last two years, so that’s a concern. The most important thing the industry needs to do is to stabilize—it is normally in a growth mode, so tempering that a little is important.”
Uncertainty remains in the market. While some consumer segments are faring well, middle-income households continue to face financial stress.
Beyond economic factors, the credit card industry has been in flux due to a multitude of regulatory efforts. The Consumer Financial Protection Bureau (CFPB) has spearheaded several initiatives, including a rule to cap credit card late fees at $8.
According to Riley, the good news for issuers is that the CFPB will likely not succeed on the delinquency fee issue in the current political environment. However, card issuers must pay attention to the economy’s fragility and the fact that some businesses are entering uncharted waters.
The CFPB was also the driving force behind the Credit Card Competition Act, designed to reduce the dominance of the Visa and Mastercard networks. The bill would require issuers to offer retailers and organizations an alternative rail to those operated by the credit card giants.
The bill has faced numerous roadblocks. Critics argue that the legislation would prompt major credit card companies to shift funds from consumer rewards programs to merchant incentives and force financial institutions to support networks they don’t wish to offer. Practically speaking, Riley expects the Card Competition Act to fizzle out.
Though these efforts may not prevail, other proposals could dramatically impact the industry—such as the recent push to cap credit card interest rates at 10%. The lingering uncertainty surrounding regulatory changes makes it paramount for credit card issuers to focus on controlled growth, liquidity, and conservative lending practices.
“We have little expectation that 10% credit cards are on the horizon,” Riley said. “Issuers do not even cover their margins. Consumers with great FICO Scores—such as those between 810 and 850—do not even get priced at 10%, so how could riskier segments get that rate?”
“Lending is an art and a science, but it is also a business,” he said. “The model has to work or there is no reason to lend. First you need to cover the funding costs, then cover operational expenses like people and rewards. Then, you need to carry the cost of charge-offs. Before you know it, the model is upside down.”
Seeking Profitable Growth
Stability allows card issuers to regain balance. It also provides issuers with the opportunity to study how consumers are adapting to higher prices and environmental changes. Once stability is achieved, issuers should shift their focus to revenue—not just increasing gross dollars, but concentrating on net revenue.
The loans that credit card issuers offer are largely based on a risk-adjusted pricing model, with the expectation that the consumer will repay the loan. If circumstances change, however, the issuer is locked into the rate established during underwriting, which may no longer align with the account’s risk.
“This static pricing model came out of Dodd-Frank, and it does not allow the issuer to recalibrate their risk-based pricing as things change, so it has to be right the first time,” Riley said.
This deterioration in credit quality has had widespread impacts on the industry.
“The profitability of the card business has been on the downswing,” Riley said. “It typically runs in the 4% of assets level. General banking runs more like 1.5%, so cards can be almost three times as profitable. However, after COVID, profitability dropped significantly because people were expecting credit losses. It was in the 3% range for 2023 and we expect that to dip further—probably into the high two level when the final numbers are in for 2024.”
These credit quality issues mean that card issuers must anticipate potential swings before booking the account, continuously monitor the account throughout the relationship, and have a strategy in place for when the account approaches charge-off.
“The story for this year will be that growth is good, but profitable growth is what is most important,” Riley said. “It’s not about getting credit cards out there. There are 220 million people and 600 million cards in the U.S., so quick and dirty math says there’s already around three cards per household. Focusing on the importance of net revenue—not just new accounts—is what’s big.”
Walk, Not Run
For all the recent buzz around artificial intelligence, it’s not entirely new to the credit card industry. Machine learning has been deployed by credit card firms since its inception, especially for fraud detection and credit management. However, there are still plenty of future use cases, such as application approval.
“With those 600 million cards in the U.S., and probably a 15% turn between customers, it means there are a good 150 million customers a year that go through the underwriting process,” Riley said. “A third of the number survive the process, and the other two-thirds don’t, so artificial intelligence can do some work there to improve that.”
AI can also play a role in identifying struggling accounts. Many of the larger financial institutions, such as Citi or Chase, can process roughly one million delinquent accounts a day. They need tools to help them sort through the data and queue accounts to collectors.
In addition, AI could be applied to credit scoring. FICO scores are important gauges for both consumers and lenders, and artificial intelligence could be deployed throughout the cycle to ensure these scores stay accurate.
All in all, AI holds an array of possibilities for issuers, from booking new accounts to workflow management and expanded fraud management solutions. However, the risks associated with this emerging technology mean that issuers should take a measured approach to AI.
“We think that card issuers need to walk on this, not run toward it,” Riley said. “Whatever’s slick and shiny is going to be in place first at the top issuers, but the middle market should not focus on it. Their platform service providers like Fiserv will level the field over time and make sure that they have the competencies they need.”
Instead, small- to mid-market institutions should focus on the fundamentals of solid underwriting, effective credit management, and the operational bottom line this year.
