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Credit card issuers should be working now to redesign their underwriting strategies for the post-recession era, contends Brian Riley, director of bankcards at TowerGroup, an independent research firm owned by MasterCard Advisors. "Credit line deployment will be much more conservative," Riley tells CardLine, "and margins are going to be much slimmer." In a report released this week, Riley predicts punitive fees, such as late and overlimit charges, will represent only 20% to 30% of issuers' credit card revenue during the immediate post-recession period, which could run from 2010 through at least 2012. That would compare with 40% to 50% of revenues such fees represented before the recession. Interest fees will represent 65% to 80% of credit card revenues after the recession, up from 50% to 60% of revenues. Issuer caution will lead to only 4% to 6% growth in new-account acquisitions post-recession, Riley projects, compared with 6% to 8% growth before the recession and a 4% to 10% contraction in accounts this year. Card issuers will be less likely after the recession to issue and maintain credit for consumers who revolve balances, use a high percentage of available credit and have low credit scores or blemished payment histories, Riley says. And consumers with thin credit files will have more difficulty getting their first cards. But issuers still should offer a variety of appropriate financial products to consumers with varying credit profiles, Riley says. For example, issuers that decline applicants for a credit card should direct them to debit and prepaid card products, which would generate transaction revenue while beginning or maintaining broader financial relationships with a variety of consumer segments, Riley says. Credit scores, while useful, should not be the only measure issuers use to determine the likely risk and reward of offering a credit card to a particular consumer, according to Riley. "Issuers must take a more holistic view of their customers, looking not only at their credit scores but also their past payment history, credit-line management, debt burden, cross-sale potential and the duration of the customer relationship," Riley writes in the report.
