During the past several years card issuers have dealt with new regulations which curtailed their business models, impacting their interest and fee income strategies. As a result, in 2012 top line revenue for the card industry in the RK Hammer card issuer model was reported at $149.6 Billion, down $5.3 Billion from the previous year. Some banks showed marked revenue improvements last year, but those exceptions were primarily due to key acquisitions, as opposed to “organic” year-over-year growth.
Company Chairman and CEO Bob Hammer reported that “Regulation and legislation have affected every portfolio revenue variable: including total revenue, interest income/fee income split, thus seeing issuers respond by assessing new fees and repricing existing fees, where permissible. Card regulation and legislation have been top of mind not just for credit card, but debit card, too, with the interchange transaction fee cap. The CFPB has yet to catch its stride, so even more regulation will be on the horizon.
“The silver lining for credit card is that the previously troublesome levels of consumer bankruptcy and charge offs have now normalized to more manageable levels,” Hammer notes. He adds that “some clients have charge offs returning to the 4% range, while others are still hovering well above 7%.” There is clearly no unanimity in how the card business has fared after four years of very difficult economic times and sweeping new legislation. While the year may have ended at around 5% gross charge offs for some, the full year “blended” for the industry is still higher in our model, closer to 6%.”
“With all the changes on the revenue side, as with last year many issuers are still looking at opportunities on the expense side, not the least of which is operating expense, with the highest expense item being staff and benefits. We find that few of the major issuers have added net new staff; indeed, many have recently off-loaded some key positions to Singapore, Brazil, and India, where outsourcing is still going strong.” Again the focus remains, “If we’re getting nailed on our top line revenue, we will necessarily have to focus more on what we can still have some internal control: operating expense/staffing. To illustrate, banks have forecast upcoming job cuts of over 160,000”.
For a more complete run down on the revenue and expense streams for the card business in the last twelve to twenty four months, go to: www.cardknowledgefactory.com, the research and analysis division at RK Hammer, for a listing of updated research reports available to issuers and investors on this and other subjects in their 2013 edition.
More about Card Knowledge Factory(TM) at RK Hammer
A leader for over two decades in virtually all phases of credit card portfolio management, RK Hammer expanded their research and analysis division with the implementation of the Card Knowledge Factory(TM) last year. It offers instant access to timely reports and insightful analysis, much more efficiently and effectively than internal issuer research alone. Hammer also serves as an expert witness for issuers in litigation, brokers card portfolio deals, and conducts valuations for Boards, as well as interim card portfolio management.