A Standard & Poor's Corp. study has concluded that credit card companies' profitability has less to do with size or efficiency than with their capacity to generate revenue.

The New York-based ratings firm analyzed 1993 and 1994 financial data from 13 of the largest card companies, most with receivables exceeding $4 billion, to establish the close correlation between revenues and bottom- line profits.

The study questioned the usefulness of a widely followed efficiency indicator - the ratio of expenses to receivables. It also pointed to competitive and economic factors that are lowering profit margins, though "credit cards overall remain a highly profitable business."

And in common with many academic studies that have found limited economies of scale in the banking business, Standard & Poor's failed to come up with a "statistically significant relationship" between card profitability and size.

"Companies among the more profitable were a broad range of sizes, as were companies among the least profitable," said the Standard & Poor's report. The superior revenues that drive up profitability tend to be associated with revolving accounts, as opposed to those that pay off their outstanding balances. The greater revenues on rollover accounts can more than offset their higher expenses, the study said.

An issuer's ability to generate revenue relates to the maturity of accounts and their transaction volumes, said Standard & Poor's analyst Tanya Azarchs.

"That, we think, will change because basically the ones who have a high revenue component are those who still have a huge slug of the 19% loans," Ms. Azarchs said. "The direction of the industry is to cut prices and offer the better clients lower rates. Over time, that has been eroding the yield on the cards."

Introductory "teaser" pricing and higher funding and marketing costs are taking a toll on the card industry's robust profitability of recent years, Standard & Poor's said.

Three-quarters of the companies in the study saw their profit ratios before credit costs drop from 1993 to 1994. Those declines, as a percentage of receivables, ranged from 4 to 191 basis points.

The measures of gross profits to receivables ranged from 5.97% to 12.94%.

Of the card issuers in the study, 80% saw declines in net interest income and fees in 1994. And most of them suffered a drop in net interest income as a percentage of receivables.

Despite the widespread elimination of annual fees, only 60% said fee income as a percentage of receivables fell from 1993 to 1994. Nearly all said their expense-to-receivables ratios fell in that period.

Most issuers required about $54 to service an account, the study said. But there was a big gap between the most efficient ($36) and least efficient ($185), which Ms. Azarchs said indicated considerable room for improvement.

Standard & Poor's expects efficiency to become a bigger factor in profitability.

"The ability to operate efficiently provides a company with the flexibility to handle a variety of potential operating difficulties, such as lower rates and fees induced by competition, higher funding costs, or increased credit-related expenses," the agency said.

Meanwhile, Standard & Poor's found a wide range of efficiency measures. Some issuers had expense-to-receivables ratios below 2.5%; they were more commonly around 4%.

The company found little relation between size and operating economies. Some operations with larger account sizes have higher unit costs than smaller ones.

At the $4 billion receivables mark and higher, the top-20 cohort that was the focus of the Standard & Poor's study, "size didn't matter all that much," Ms. Azarchs said. "The only way it did matter was to say there is a positive correlation between the proportion of revolving accounts in the business and higher expenses.

"Once you control for that, there is a little benefit you get from incremental size - a greater flow of dollars of transactions per account."

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