U.S. credit card profits rose in 2010, as the total net pretax net income for bankcard and private-label card issuers rose 36%, to $18.5 billion from $13.6 billion in 2009, according to data credit card consulting firm R.K. Hammer released Jan. 3.
Although 2010 charge-offs were higher than during the previous year and revenues declined slightly over the same period, the combination of a lower cost of funds for issuers and lower overall expenses drove higher industry profits last year, Robert Hammer, the firm’s CEO, said in a press release. PaymentsSource could not immediately reach Hammer for an interview.
Assuming all industry revolving consumer credit card loans, from banks as well as stores and gasoline retailers, totaled $878 billion, revenues declined 1.9% last year, to $163.3 billion from $166.5 billion in 2009, according to Hammer’s proprietary data.
Interest income, comprising 52% of total revenue according to Hammer’s model, fell 3.1%, to $84.9 billion from $87.6 billion. Fee income, representing 48% of revenue, declined 0.6%, to $78.4 billion from $78.9 billion.
Total card-industry expenses declined 5.3%, to $144.8 billion from $152.9 billion, Hammer said.
Industry operating expense, comprising 31.5% of total expenses, fell 1.7%, to $45.6 billion from 46.4 billion. Charge-offs, representing 60% of expenses, rose 46.8%, to $86.9 billion from $59.2 billion. The blended cost of funds to issuers, comprising 8.5% of total expenses, fell 28.9%, to $12.3 billion from $17.3 billion.
“While a lot of attention is commonly paid by outside observers to the top-line total revenue number, ... what is often overlooked by many is that credit card enterprise expenses are also large,” Hammer noted in the release. The industry’s resulting profit increase in 2010 was largely due to lower cost of funds and “better operating expense,” he said.
“As with last year,” issuers in 2011 will be required to come up with “a very complicated and successful set of financial and marketing mechanics” to “mitigate what we see as an all-out attack on credit card industry profits” from regulators and a tough economy, Hammer added.
“We do look forward to some improvements later in 2011, which should also well serve the broader market and banking in particular,” he noted.
PaymentsSource data show that bankcard issuers, excluding American Express Co., Discover Financial Services and private-label card issuers, in 2009 posted an after-tax loss of $820 million, or minus 0.12% of average outstanding receivables (
PaymentsSource will publish its next Bankcard Profitability Study and Annual Report this spring, after card issuers and card payment networks report year-end purchase volume and receivables.
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