The recession and the enactment of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (the CARD Act) were a one-two punch. Taking the bank card industry from years of profitability to a loss in 2009 and also threatening long-term profitability. To return to profitability, credit card issuers have changed course — limiting their new credit card offers to the most credit worthy consumers, reducing operating expenses and redesigning their credit card products.
To appeal to the most credit worthy consumers, new credit card designs reward consumers with lower pricing and bonus incentives for responsible use of credit. The new card designs reduce card issuer revenue from interest and fees but lower operating expenses and credit losses offset this lost revenue.
The new card designs respond to current consumer preferences to deleverage debt and moderate their spending. Examples of new credit card product designs include Chase Slate, Citi Forward Card, Discover Motiva and the recent Duo card, offered by Fifth Third. The Duo card combines the features and benefits of a credit and debit card.
Despite the weak economy, the change in credit card business strategy has improved credit card industry results. The FDIC reported significant improvement in first and second quarter return on assets, a key measure of bank card profitability.
Access our research to understand how companies are successfully navigating the changing economics of credit cards:
- In Search of Credit Card Profitability: Strategies for Finding and Retaining the Most Valuable Bank Card Customers (ExecutiveBoard.com Users — TowerGroup.com Users)
- The Postrecession Economy, Credit Card Acquisition Strategies and Product Innovations (ExecutiveBoard.com Users — TowerGroup.com Users)