Credit Cards
Description
Companies in this industry issue credit cards used by consumers and businesses to purchase goods and services in return for payment in full or in installments. Major companies include American Express, Bread Financial, Capital One Financial, and Discover Financial (all based in the US), as well as Credit Saison and Mitsubishi UFJ NICOS (both of Japan), and UnionPay (China). Major retailers, banks, and oil and gas companies also issue credit cards.
The number of credit cards in circulation worldwide is expected to reach about 30 billion by 2028, according to Statista. Global payments revenues are likely to rise at a compound annual growth rate (CAGR) of about 5% to $2.3 trillion by 2028, according to Boston Consulting Group (BCG).
The US credit card industry includes about 660 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $130 billion.
Financial transaction processors, such as MasterCard and Visa, provide transaction services for companies that issue credit cards and to merchants that accept credit card payments. That industry is discussed in a separate profile. Many card issuers use the MasterCard and Visa brands.
COMPETITIVE LANDSCAPE
New payment technologies, including contactless, digital, and mobile payments, are disrupting the lucrative global payments industry and forcing credit card issuers to innovate and form partnerships. Changing consumer preferences and attitudes toward debt present additional challenges to the credit card industry. Hyper-connected, debt-averse millennials -- the largest customer base -- are tending to shun credit cards. Baby boomers and Generation X carried an average of 4 to 5 credit cards, while millenials and the Generation Z carried 2-3 credit cards, according to Creditcards.com. Younger people are turning instead to companies such as Apple, Amazon, Google, and PayPal, and social platforms that have entered the digital and mobile payment landscapes with products like mobile wallets and wearable devices for making payments at the point-of-sale (POS). The emergence of these potentially competitive networks has primarily been via the online channel with a focus on e-commerce or mobile technologies. PayPal and China's AliPay and WeChat are examples of companies that compete with card issuers in some cases but may also be significant partners and customers.
Demand is driven by consumer spending, business investment activity, and interest rates. The profitability of individual companies depends on their ability to collect fees and interest in addition to balancing credit risk and attracting new customers. Large companies have advantages in economies of scale by securing access to capital, and they can offer a variety of products to a broad customer base. Smaller companies can compete by offering specialized products or through technological advances such as web-based payment platforms. The US industry is highly concentrated: the eight largest firms account for about 90% of revenue.
PRODUCTS, OPERATIONS & TECHNOLOGY
Major services include credit card services for cardholders and consumers which account for more than 95% of the industry revenue, followed by other products supporting financial services. Other sources of revenue include residential mortgage loans and home equity loans. Some credit card companies offer student loans, home loans, travelers cheques, and travel services. Some credit card companies are bank holding companies. Consumer credit cards include general purpose cards (American Express, Discover, MasterCard, or Visa) that can be used to purchase goods and services at a wide variety of merchants. Private-label cards (aka store cards or retail cards) can be used only at a particular merchant or affiliated group of merchants.
Credit cards are used by individuals and business owners who make purchases against lines of credit. Card issuers earn a fee equal to a percentage of the transaction value each time a customer swipes their card. Besides transaction fees, credit card issuers generate revenue from a variety of other charges, ranging from late fees to overlimit fees. Some companies also charge annual fees.
Interest on card balances is another significant source of credit card revenue. Nearly half of all US households have credit card debt. Of those households that carry a balance from month to month, the average credit card debt is $8,000, according to NerdWallet. As interest rates rise, the burden of credit card debt increases.
Companies base underwriting decisions on information about customers, such as payment history, debt burden, income, and credit scores. Credit bureaus, such as FICO and Experian, usually help companies decide if or how much credit to extend. Companies can minimize losses by employing or outsourcing a collections team that contacts and attempts to collect from borrowers who fall behind on payments.
The number of credit cards in circulation worldwide is expected to reach about 30 billion by 2028, according to Statista. Global payments revenues are likely to rise at a compound annual growth rate (CAGR) of about 5% to $2.3 trillion by 2028, according to Boston Consulting Group (BCG).
The US credit card industry includes about 660 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $130 billion.
Financial transaction processors, such as MasterCard and Visa, provide transaction services for companies that issue credit cards and to merchants that accept credit card payments. That industry is discussed in a separate profile. Many card issuers use the MasterCard and Visa brands.
COMPETITIVE LANDSCAPE
New payment technologies, including contactless, digital, and mobile payments, are disrupting the lucrative global payments industry and forcing credit card issuers to innovate and form partnerships. Changing consumer preferences and attitudes toward debt present additional challenges to the credit card industry. Hyper-connected, debt-averse millennials -- the largest customer base -- are tending to shun credit cards. Baby boomers and Generation X carried an average of 4 to 5 credit cards, while millenials and the Generation Z carried 2-3 credit cards, according to Creditcards.com. Younger people are turning instead to companies such as Apple, Amazon, Google, and PayPal, and social platforms that have entered the digital and mobile payment landscapes with products like mobile wallets and wearable devices for making payments at the point-of-sale (POS). The emergence of these potentially competitive networks has primarily been via the online channel with a focus on e-commerce or mobile technologies. PayPal and China's AliPay and WeChat are examples of companies that compete with card issuers in some cases but may also be significant partners and customers.
Demand is driven by consumer spending, business investment activity, and interest rates. The profitability of individual companies depends on their ability to collect fees and interest in addition to balancing credit risk and attracting new customers. Large companies have advantages in economies of scale by securing access to capital, and they can offer a variety of products to a broad customer base. Smaller companies can compete by offering specialized products or through technological advances such as web-based payment platforms. The US industry is highly concentrated: the eight largest firms account for about 90% of revenue.
PRODUCTS, OPERATIONS & TECHNOLOGY
Major services include credit card services for cardholders and consumers which account for more than 95% of the industry revenue, followed by other products supporting financial services. Other sources of revenue include residential mortgage loans and home equity loans. Some credit card companies offer student loans, home loans, travelers cheques, and travel services. Some credit card companies are bank holding companies. Consumer credit cards include general purpose cards (American Express, Discover, MasterCard, or Visa) that can be used to purchase goods and services at a wide variety of merchants. Private-label cards (aka store cards or retail cards) can be used only at a particular merchant or affiliated group of merchants.
Credit cards are used by individuals and business owners who make purchases against lines of credit. Card issuers earn a fee equal to a percentage of the transaction value each time a customer swipes their card. Besides transaction fees, credit card issuers generate revenue from a variety of other charges, ranging from late fees to overlimit fees. Some companies also charge annual fees.
Interest on card balances is another significant source of credit card revenue. Nearly half of all US households have credit card debt. Of those households that carry a balance from month to month, the average credit card debt is $8,000, according to NerdWallet. As interest rates rise, the burden of credit card debt increases.
Companies base underwriting decisions on information about customers, such as payment history, debt burden, income, and credit scores. Credit bureaus, such as FICO and Experian, usually help companies decide if or how much credit to extend. Companies can minimize losses by employing or outsourcing a collections team that contacts and attempts to collect from borrowers who fall behind on payments.
Table of Contents
- Industry Overview
- Quarterly Industry Update
- Business Challenges
- Business Trends
- Industry Opportunities
- Call Preparation Questions
- Financial Information
- Industry Forecast
- Web Links and Acronyms
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