(March 3, 2014) -- In their series of weekly year-end card industry trend reports R.K. Hammer now discusses how fee income continues to perform in terms of top line revenue contribution. For decades, interest income on prime/super prime cards had always contributed the largest portion of the card industry’s revenue streams; just the exact opposite for subprime cards, though, where fees have always been the higher piece of total income.
As reported earlier, the line between interest income and fee income for prime/super prime accounts has been narrowing substantially in recent years; with lower revenue in many cases coming from interest and an increasingly higher portion derived from fees. That trend continued again in 2013.
“The R.K. Hammer card revenue model estimates that 55% of the card industry’s total revenue last year came from fees, with 45% from interest; rarely has the card fees trend line intersected the revenue line from interest – except for 2011 and 2012. A combination of declining outstanding card loans these past four years which in turn reduced interest earned, plus legislation on how rates may not be changed and cautious consumers caused the amount of interest income to decline. Interest was falling, while fees were rising, a growing trend written about often in the past.”
“As expected, issuer attention in 2013 had in response been directed to fees, of all types, including fees on services that had no fees earlier. In the year earlier period, 2012, card fees also earned 55% in our model, while interest income came in at 45% of total revenue that year.”
PRIME/SUPERPRIME CARD FEE INCOME, % OF TOTAL REVENUE – SIX YEAR TREND
2013 55%
2012 55%
2011 52%
2010 48%
2009 47%
2008 40%
R.K. Hammer – Card Knowledge Factory® 2014
“If one were to compare subprime card metrics to prime/super prime, it would naturally show far greater fee income % (often as high as 80% or more of total revenue for the subprime segment). That, due to sign up fees, activation fees, processing fees, and monthly maintenance fees commonly charged in subprime portfolios, for the unbanked and under-banked populations with thin or no prior bureaus.
The majority of R.K. Hammer’s models are for prime/super prime portfolios, though, unless otherwise noted in any given report.”
For more information on how banks and cards compare in terms of fee income percentages, go to:
rkhammer.com or cardknowledgefactory.com for available research reports.
More about R.K. HAMMER
Since 1990, R.K. Hammer has been a leading supplier of card based advisory services, including best practices management consulting, interim outsourcing card portfolio management, brokering of card loans, due diligence to buy/sell transactions, and expert witness services. In addition to serving most major card issuers here and abroad, R.K. Hammer also provides research and analysis to many government agencies: including FDIC, Federal Reserve, OCC, GAO, OTS, USDOJ, and both the U.S. Senate and House of Representatives financial institution subcommittees. R.K. Hammer/Card Knowledge Factory® publications reports and opinions have been published over 720 times since 1990 in the major financial/payments space media.