“Total” vs. “risk-adjusted” card industry revenue

THOUSAND OAKS, CA (May 31, 2016) — Lots of journalists talk about all the revenue earned by the card industry. It’s not a small number, $164.7 Billion (before expenses), in the R.K. Hammer model. Most often, “Total” Revenue (all interest and fees) is not the more important metric, “Risk-Adjusted” Revenue is. Pre-tax net income after all expenses (charge offs, operating expense and cost of funds) falls to $121.0 Billion. Here is why that is so important to credit unions and other financial institutions.

(as a % of outstanding card loans)

Screen Shot 2016-05-31 at 8.30.56 AM

As you can see from the accompanying chart, there can be a large difference between these two metrics. Risk-Adjusted” is just that, the default risk (net charge offs) of carrying these unsecured lines of credit to earn the top line revenue number.   What is important is the financial risk an issuer of cards has been willing to take, in order to achieve the higher total income stream.

Moreover, you can also clearly see the financial impact on the card industry during the Great Recession, when loan losses escalated to near historic highs, thus lowers the Risk-Adjusted revenue. We had some clients whose marginal loan loss rates earlier were in the moderate 3-4% range, then went as high as an unsustainable 13-15% during the epic downturn. The long slow slog coming back from the depths of that downturn can also be viewed, between 2009 and 2015.

Only now are things moving back into the more normal column. Will there be another recession? Count on it. But it is anyone’s guess just when that will commence.


Robert Hammer is Founder and CEO of international card advisor, R.K. Hammer and their research and analysis subsidiary, Card Knowledge Factory.®

About Card Knowledge Factory

Card Knowledge Factory® is a premier provider of card industry data metrics and trend reports, from the Research and Analysis division of R.K. Hammer.  Their opinions, white papers and card research findings have been published in the financial press 715 times in the U.S. and abroad, and are designed to provide card executives with timely insights into events and trends occurring in the business.   Founder and CEO Bob Hammer serves as expert witness for issuers in litigation, conducts interim management for issuers in transition, and values and brokers card deals.  He has personally trained over 1,000 card managers from 50 countries in best practices card management and card portfolio valuations.  R.K. Hammer has a menu of reports and historic data metrics available at


Robert Hammer
R.K. Hammer
(805) 444-5725

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