Accessible Version
Credit Card Profitability, Accessible Data
Figure 1. Return on Credit Card Assets
Line chart, by percent, 2014 to 2021:Q4. There are 3 series, “Y-14c”, “Call Report Credit Cards Banks” and “Call Report All Other Banks”. Chart shows return on assets using Y14 portfolio dataset and for monoline credit card banks using Call Report data. The figure also includes another line for all other banks. We find annual average ROA using Y14 data was about 4.41 percent during the 2014-2019 before the pandemic, while annual average ROA using Call Report data was 4.14 percent. ROA for all other banks excluding monoline credit card banks was well below these levels.
Note: Return on assets for Y-14 is calculated as the sum of interest income and noninterest income minus interest expense, noninterest expense and loan loss provisions, divided by average credit card balances. Y-14 reflects a constant sample of banks. Return on assets for Call Report is calculated as quarterly income divided by average quarterly assets. Prior to 2010, some credit card banks held large portfolios of credit-card-backed securities off-balance-sheet. Therefore, average quarterly assets prior to 2010 include on-balance sheet credit card securitizations.
Source: Call Report and Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Figure 2a. Net Credit Margin
Line chart, by Net Credit Margin (%), 2014 to 2021:Q4. Data are Quarterly. There are 2 series, “Net Credit Margin excluding Loan Loss Provisions” and “Net Credit Margin including Loan Loss provisions”. Chart shows net credit net credit margin with and without loan loss provisions. Net credit margin without loan loss provisions is stable throughout the entire sample period with a slight upward trend. Net credit margin including loan loss provisions fell sharply at the onset of the pandemic, as banks increased provisioning in expectation of higher credit losses. Subsequently, net credit margin rose to above pre-pandemic levels, as provisioning changed.
Note: Net credit margin is interest income minus collections expense and the share of interest expense and other non-interest expense attributable to revolving balances divided by revolving balances.
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Figure 2b. Share Balances Revolving
Line chart, by Percent, 2014 to 2021:Q4. Data are Quarterly. Chart shows the share of revolving balances. The share of revolving balances is highly seasonal, but with a decreasing share. At the onset of the pandemic, share of revolving balances rose sharply, but has subsequently declined to levels well below pre-pandemic levels.
Share balances revolving are revolving balances as a share of balances.
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Figure 3a. Net Transaction Margin
Line chart, by Percent, 2014 to 2021:Q4. Data are Quarterly. There are 2 series, “Net transaction margin” and “Share purchases”. Chart shows net transaction margin and share of purchases. Apart from a rebound in late 2020, net transaction margin has declined significantly over the previous years, dropping from 0.6 to less than negative 0.6 in five years. Share of purchases increased from about 22 percent before 2015 to its current level of over 40 percent. There was an initial decline in purchase at the onset of the pandemic as revolving balances increased but share of purchases increased as revolving balances declined.
Note: Net transaction margin is interchange income and annual fees minus interchange expense, rewards expense, fraud expense, and the share of interest expense and other non-interest expense attributable to purchase volume divided by purchase volume. Share purchases is purchase volume as a share of balances.
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Figure 3b. Rewards Expense
Line chart, by Percent, 2014 to 2021:Q4. Data are Quarterly. There are 2 series, “Rewards expense” and “Net transaction margin excluding rewards expense”. Chart shows rewards expenses and net transaction margin excluding rewards. Rewards rose from a quarterly average of 3.5 percent of purchases to more than 4.25 percent in 2020. Net transaction margin excluding rewards expenses decreased from about 4.5 percent in 2016 to about 3.5 percent in 2019, and subsequently rose to over 4 percent in 2020.
Note: Net transaction margin excluding rewards expense is interchange income and annual fees minus interchange expense, fraud expense, and the share of interest expense and other non-interest expense attributable to purchase volume divided by purchase volume.
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Figure 3c. Purchase Volume by Rewards Status
Line chart, by Index, 2014 to 2021. Data are Quarterly. There are 4 series, “Miles”, “Other”, “Cash” and “None”. Chart shows aggregate level of purchase volume based on the type of rewards. Aggregate purchase volume is scaled to 2014:Q1. The graph shows aggregate purchase volume for cards with miles, cash, and other rewards and also cards without rewards. This figure shows that between 2015-2019, average purchase volume increased the most for miles and other types of rewards. Purchase volume on card with no rewards grew the least during the period.
Note: Values are indexed such that Q1 2014 equals 100. Other includes bank points, hotel points, and other non-cash rewards.
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Figure 4. Other Components of Profitability
Line chart, by Percent, 2014 to 2021. Data are Quarterly. Chart plots the share of late and other fees as a fraction of balances as well as the miscellaneous other component of profitability. Before the pandemic, the share of late and other fees was around 0.25 percent of balances with a seasonal component. At the onset, the share fell to about 0.18 percent. Since then, it increased to about 0.2 percent of balances. The miscellaneous component increased steadily from about 0.06 percent in 2014 to its current level of 0.19 percent.
Note: Late and other fees includes late fees, over-limit fees, cash advance fees, non-sufficient funds fees and other fees divided by balances. Other includes miscellaneous remaining components of profitability, including the role of prepayments and balance transfers.
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Figure A. Net Transaction Margin
Figure A shows net transaction margin and share of purchases at a monthly level. Apart from a rebound in late 2020, net transaction margin has declined significantly over the previous years, dropping from 0.2 to less than about 0.2 in five years. Share of purchases increased from about 22 percent before 2015 to its current level of over 40 percent. There was an initial decline in purchase at the onset of the pandemic as revolving balances increased, but share of purchases increased as revolving balances declined.
Note: Net transaction margin is interchange income and annual fees minus interchange expense, rewards expense, fraud expense, and the share of interest expense and other non-interest expense attributable to purchase volume divided by purchase volume. Share purchases is purchase volume as a share of balances. Because purchase volume is a flow, both NTM and the share purchases are calculated using averages of the variables' monthly values.
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Figure B. Rewards Expense
Figure B shows rewards expenses and net transaction margin excluding rewards at a monthly level. Rewards rose from a quarterly average of 1.15 percent of purchases to almost 1.5 percent in 2020. Net transaction margin excluding rewards expenses decreased from about 1.4 percent in 2016 to about 3.2 percent in 2019, and subsequently rose to back to 4 percent in 2020.
Note: Net transaction margin excluding rewards expense is interchange income and annual fees minus interchange expense, fraud expense, and the share of interest expense and other non-interest expense attributable to purchase volume divided by purchase volume. Because purchase volume is a flow, both NTM and the rewards expense are calculated using averages of the variables' monthly values.
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.