US cards market recovers

Recovering market

After taking a hammering in the aftermath of the financial crisis, the US cards market has come roaring back, according to a new report by the Lafferty Group.

 US credit card pre-tax profits in 2012 were above the 2007 pre-crisis peak, as the industry spectacularly returned to form following several difficult years that had transformed it from a very lucrative business to a loss-making business as delinquencies and net charge-offs increased and profits plummeted in 2009 and 2010.  Indeed, in 2009 and 2010, Brazil became the number one market in terms of credit card profitability, but that has all changed now.

“Reports that the party is over for the US credit cards market seem way off the mark as credit card profits soar to levels that exceed the pre-crisis boom. The big change has come from issuer efforts to bring net credit losses under control which acts as an enormous drag on profitability. And boy has this worked, there were USD49bn fewer losses for the credit cards industry in 2012 compared to 2010,” says Andrew Neeson, Head of Group Research at Lafferty Group.

Credit card issuers responded to the crisis by aggressively reviewing interest rates and credit limits and reducing limits on millions of accounts, particularly accounts that were inactive or badly managed by cardholders, which posed considerable risk of loss while offering little potential for profit. These aggressive moves have paid off, with pre-tax profits reaching an impressive USD38bn in 2012.

The report reveals that there were 383 million credit card accounts in the US at the end of 2012, an increase of 1 million on Q3 2012.  Total credit card billed volume and number of transactions in 2012 increased by 7.7% and 8.6% respectively.

In addition to the rebounding of the credit card market, the report highlights the fact that the debit cards industry continued to thrive in the United States. The rate of debit card billed volume and total transactions growth was 5.3% and 3.6% respectively in 2012 – a fifth year of continuous growth.

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