Credit Card Issuer Profitability In a Difficult Economy: Issuers Must Focus on Interest Income While Balancing Against Increased Default Risk

Credit card issuers face increased pressure to maintain profitability in this difficult economic environment, with cardholder spending curtailed and rising default risk among a larger percentage of consumers. Losses in lines of business other than credit card issuance have affected institution-wide approach to risk - particularly risk of default among credit cardholders - and therefore the approach that card issuers can take in acquisition and ongoing management of cardholder lines of credit.

This Javelin report uses robust consumer data and executive survey data to provide understanding of consumer and issuer reaction to economic difficulties, and prescriptive plans of action to create opportunities for card issuers, leveraging economic difficulties for competitive advantage.

• What are consumer behavior changes vis-a-vis their credit card usage as a result of the economic downturn?
• How are credit card issuers reacting to changes in cardholder behavior and in the economy?
• What is the best way for credit card issuers to maintain a balance between profitability and risk against default?
• Which segments of the consumer population pose a higher risk of credit card default?
• How should issuers alter policy with regards to more risky cardholders?

The consumer data in this report is based on data collected online from a random-sample panel of 1,500 respondents in April 2008. The survey targeted respondents based on representative proportions of gender, age and income as compared to the overall U.S. online population. Overall margin of sampling error is ±2.53 percentage points at the 95% confidence level.

Executive data is based on an online survey collected from a sample of 13 credit card industry executives at top-tier credit card issuers in May 2008. Among issuers surveyed, 54% have issued more than 5 million cards, 8% have issued between 1 and 5 million cards, and 38% have issued less than 1 million cards.

Credit Card issuers, specifically portfolio managers, product development and product marketing managers; Card networks

• Fair Isaac
• Experian
• Equifax
• TransUnion