Card Revenue Engineering

Bob Hammer

That credit card revenue streams have dramatically gravitated toward fee income is undeniable.   The resulting split between what was the greatest source of income for card issuers during the past decade – interest income – and rising fee income is widening, toward fee income as the dominant income stream.

For 2011, R.K. Hammer’s latest forecast indicates that they expect to see card fee income for the industry as a whole surpass interest income as the largest income component (at 52.7% of total revenue in the latest Hammer card income model), the first time that has happened in history. 

Company Founder and CEO, Bob Hammer, states, “Card revenue is being engineered, toward rising fee income.  Recently Bank of America reported a plan to begin assessing a $5 monthly fee on debit card purchases, when minimum total balances on deposit are not met.  Similar strategies have been planned by most other major institutions as well, and these will continue to gain steam.”

“The unintended consequences of Durbin (debit card transaction fee income legislation) were actually very predictable a year ago during the discovery phase.  As the largest debit card issuer, Bank of America of course has much at stake.  While some reports have them making over $3 billion a year from the new debit use pricing, our calculations see that as overstated.  Nevertheless, R.K. Hammer models show that about half of what Durbin may cost B of A in lost revenue will probably be made up by the $5 monthly fee, absent other coming changes.  Other major players are following suit.”

Card Revenue Engineering” is the term R.K. Hammer has coined, using it to describe what is taking place by design in the industry today – with management making what are necessary changes to pricing structures in order to offset (partially) the economic and financial model shifts brought on by such new regulation/legislation.  That some failed to see this coming has been really astonishing; it was inevitable to industry observers.”

8-Year Historic Trend in Revenue Split from the R.K. Hammer Model(s)

Year       Interest Income%             Fee Income%

2011              47.3%                                  52.7%

2007             61.0%                                   39.0%

2003           67.0%                                     33.0%              

Hammer concludes, “Every economic action is followed by a reaction, predictable or otherwise.  Legislation/regulation is enacted…financial institutions respond by necessarily adjusting their pricing models…and impacted consumers then react by doing what is in their best interests, by consolidating balances to avoid such fees, changing their purchase behavior, or switching banks.  It’s really no more complicated than that.”

For more information on the R.K. Hammer report, go to:

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