THOUSAND OAKS, CA (January 17, 2014) -- Anyone near the credit card business knows credit unions and banks have had their interest income business models attacked since 2008 – prompted by a “perfect-storm trilogy” of a depression-like recession, an improving yet still painful economic recovery with card members becoming more cautious in their spending habits, and legislative changes which altered forever what cards can and cannot do.
So is it any surprise that attention has been turned instead to fee income models? We think not.
R.K. Hammer, in this 3rd of their annual series of year-end card industry reports, indicates that the card business saw a fee income decrease of $2.6 billion in 2013, compared to 2012; $79.9 billion vs. $82.5 billion a year earlier. New regulations and legislation continues to have an impact. Post-recession card fees have been fairly flat for the past five years, according to R.K. Hammer, as shown below.
All Credit Card Fees in Year
2013 $79.9 Billion
2012 $82.5 Billion
2011 $81.2 Billion
2010 $78.4 Billion
2009 $78.9 Billion
Source: R.K. Hammer/Card Knowledge Factory® 2014
The major components of fee income that R.K. Hammer calculates each year are Interchange Income, Penalty Fees, Cash Advance Fees, Annual Fees, and Enhancement Fee Income (i.e., ancillary services, insurance products), in that descending order. There are other far smaller fees, but those are not estimated in the R.K. Hammer financial model(s), off our radar screen.
Looking ahead, card issuers who recalibrate their business models more effectively will show higher fee income growth than others in their peer group. How they do so, however, will determine who the leaders and who the laggards will become. How changes are communicated to card members is key.
Savvy issuers will have a constant bead on what their card members want/and will pay for, by consistently measuring their pulse with online polls, surveys and focus groups. Those who do not invest in such information-rich technology tools will find themselves at a distinct disadvantage to their peers in 2014 and beyond. As an industry, we’ve moved way beyond “Risk-based” pricing and “Cost- based” pricing into what we now term “Value-based” pricing, enhancing the value proposition of the product line (importantly, in the card members eyes).
For a more complete series of 2013 Fee Income metrics, go to the link on cardknowledgefactory.com
More about R.K. Hammer and their Card Knowledge Factory
R.K. Hammer’s Research and Analysis division, also now known as the Card Knowledge Factory®, has been providing actionable best practices information to credit card issuers throughout the U.S. and in 50 countries abroad for over two decades. They have advised most of the top issuers in the U.S., served as expert witnesses for many card issuers in litigation, provided interim card management to banks and credit unions, and general card consulting for card companies who have a defined need for more effective/efficient card marketing. Contact R.K. Hammer at rkhammer01@roadrunner.com