Credit Card Industry: Overview
Third-party aggregator sites such as Credit Karma and The Points Guy are driving digital credit card marketing. With 73% of card applications being received digitally, and through third-party sites, major credit card issuers are seeking to conduct large scale marketing of their products and product offerings using such channels.
HISTORY OF CREDIT CARDS
- The history of credit cards in the US dates back to the westward expansion of America in the 1800s. Merchants extended credit to local farmers and ranchers using credit coins and charge plates as forms of credit. Such transactions allowed them to skip monetary payments until after harvesting their crops or selling their cattle.
- A century later, this method of transaction evolved when a few department stores and oil companies issued out their proprietary cards, which led to modern-day store cards. Such cards, however, did not serve the purpose of convenience more than it did to promote customer loyalty and improve service. Also, they were peculiar to the issuing merchants and could only be used there.
- Later on, in 1946, the launch of the Charg-It card heralded the era of bank-issued charge cards.
- However, the development of the Diners Club Card in 1950 bears the title of the first credit card in widespread use. The card was mainly used for entertainment and travel. Technically, the Diners Club Card was still a charge card, as the bill on the card had to be fully settled at the end of the month.
- The American Express card was the next major debut in the history of US credit cards. It launched in 1958 and introduced the first plastic card in 1959, replacing cardboard and celluloid cards.
- Major banks such as the Bank of America soon followed suit with BankAmericard credit cards, followed by the MasterCard, launched by a group of banks in California in 1966, under the Interbank Card Association (ICA).
- As the credit card industry grew, so did the legislation to address consumer complaints.
- Technological innovations and reform later led to the development of keychain cards and interactive cards, among other things, which have played a role in the appearance and functionalities of credit cards today.
CREDIT CARD INDUSTRY BACKGROUND
- Reports regarding the US credit card industry show that the total outstanding credit card balances are still increasing and, at the end of 2018, were nominally above pre-recession levels. Delinquency and charge-off rates have increased in the past two years, despite being significantly low in the years following the Great Recession.
- Also, "late payment rates have increased for new originations of general-purpose and private label cards, both overall and within different credit tiers."
- Revolving accounts have experienced an increase in the total cost of credit (TCC) within the past two years and stood at 18.7% in 2018.
- Credit scores, in general, were the same or decreased slightly since 2017. However, consumer demand for credit cards peaked in 2016 based on application volume. The rates of approval of credit cards also reduced slightly since 2016.
- Consumers are driving the cost to industry to fund rewards cards based on cardholders' increasing use of such products.
- Credit card companies and issuers have reduced the daily limit range on debt collection calls placed over delinquent credit card accounts.
- Finally, new and emerging technologies are promoting consumer interaction with, as well as control over their credit cards. Consumers are using and servicing their cards via digital portals such as mobile devices. On the other hand, credit card providers are more equipped to manage risk and provide customer service using technologies such as artificial intelligence (AI) and machine learning (ML).
INSIGHTS REGARDING THE IMPACT OF AGGREGATORS ON THE US CREDIT CARD INDUSTRY
- Third-party aggregator websites launched in the 2000s and gained significant recognition and relevance in the credit card industry in subsequent decades.
- Their entrance into the industry was marked by the period of recession recovery, for which they used and provided innovative marketing and branding techniques.
- By 2014, consumers reported that they carried out 8% of their most recent credit card applications via these sites.
- The industry is, however, beginning to show signs of maturity as the largest aggregator sites are embedding their brands in "consumer and media consciousness, increasingly concentrating consumer traffic and issuer compensation in a few sites."
REDUCTION IN DEBT COLLECTION REVENUE
- Many creditors are increasingly employing the services of third parties to collect and sell debts on their behalf, from consumers to debt collectors. The debt collectors themselves also receive debts through third parties, thus leading to industry consolidation. As such, the revenue generated by the industry for debt collection has reduced recently from $13.5 billion to $11.5 billion, between 2013 and 2018.
- This development also led to about 10,000 job losses in the past three years, as the number of debt collection firms is declining.
INCREASE IN DIGITAL CREDIT CARD MARKETING
- Third-party aggregators are driving the trend of digital in the credit card industry. The increased usage of their services by consumers is driving digital credit card applications.
- Currently, digital offers constitute almost half of all credit card offerings, and 73% of all card applications are digitally executed and received.
- Sites such as Credit Karma and The Points Guy provide comparison statistics with which they rank different card offers and opportunities, thus assisting consumers in assessing and choosing the card that best suits their needs.
- With significant increases in the traffic to these sites, major credit card issuers such as Chase, BOA, and Wells Fargo, among others, have begun to employ their services to conduct large scale advertising.