Declining Credit Card Growth 2008: A (Leaking) Glass Half Full

Abstract

NEW RESEARCH REPORT BY MERCATOR ADVISORY GROUP

This report provides a state-of-the-industry commentary based on the critical economic events unfolding in 2008. Mercator' s last review of this topic in 2006 characterized the credit card environment as "A Glass Half Full", thanks to an array of growth opportunities still available to issuers, as well as generally stable economic conditions. This report updates broad industry indicators and discusses potential outcomes within today' s tumultuous economic environment. Topics explored include:

• Credit card issuers remained profitable through 2007, but card receivables and volume growth continued their general slowing.
• Card receivables growth has continued even into Q3/08, although a flattening of growth is apparent.
• Q4/08 could be an inflection point in consumer card borrowing; the U.K. offers one example where consumers led the decline.
• Issuers are deploying their recessionary credit management tools. The big unknown is how issuers will deal with a new external challenge: the loan funding crunch.
• Two extreme scenarios are suggested for 2009: one where the Fed' s TALF facility helps issuers maintain funding, and an alternative where a perfect storm of converging events re-shapes the card industry.

Table of Contents

TABLE OF FIGURES

Introduction

I. Half Full

• Still Positive After All These Years

II. Half Full (and Leaking)

• An Inflection Point?
• You Could Almost Forget About Credit Quality. Almost
• Less Competition, Or Less Opportunity?
• Issuer Funding: Pick This To Worry About
• The Economy' s Getting Cold; Throw Another Acronym On The Fire

III. What' s An Issuer (or Cardholder) To Do?

• Keeping Control And Cutting Back
• Two Difficult Scenarios

TABLE OF FIGURES

• Figure 1: Credit Card Annual Growth: Some Hope As Of ' 07
• Figure 2: Credit Card Volume Is Expected To Remain #1
• Figure 3: Bank Card Revenues and Profitability Generally Remain(ed) On The Right Track
• Figure 4: Credit Card Receivables Growth Is A Positive Story
• Figure 5: Home Equity and Installment Loans Continues To Provide Consumer Credit Alternatives
• Figure 6: Revolving Credit Growth: Flattening Or Falling?
• Figure 7: Bank Credit Card Payment Volume: The U.K. Turned The Corner Over Three Years Ago
• Figure 8: Growth In Year End Bank Credit Card Receivables: Will The U.S. Follow?
• Figure 9: Issuers Did Well Controlling Charge-Offs Through 2007
• Figure 10: Unemployment As A Leading Indicator Of Charge-Offs
• Figure 11: Bankruptcies As A Leading Indicator Of Charge-Offs
• Figure 12: Competition For Credit Card Customers Reaches New Heights (or Depths)
• Figure 13: Time To Change The Loan Mix?
• Figure 14: Credit Card Lending Has Declined In Importance At Smaller Banks