Plastic Love Affair
From the August 1995 Issue of CardTrak
American consumers have been piling on bank credit card debt at record levels despite a substantial rise in interest rates.

At mid-year the amount consumers owe on VISA, MasterCard, Discover and the American Express Optima cards crossed the $300 billion mark for a total indebtedness of approximately $315 billion, representing a whooping 26% increase over the past twelve months. Consumers have been adding more than $5 billion per month or about $173 million per day !

The sharp increase flies in the face of higher interest rates and softer consumer spending. Most card executives were projecting an annual growth rate of 11% to 12% for 1995. What a surprise!

Bank credit card interest rates have risen from 17.34% to 18.28% in the past twelve months. Indeed average weighted card interest rates have increased by 10% from the March 1994 historical low of 16.65%.

The substantial gains made by the banking industry come at a time when the distribution of card interest rates have changed significantly. The latest edition of the RAM Research/GAO table reveals a 56% shrinkage of cards with less than a 16.5% A.P.R..

 
                INTEREST RATE DISTRIBUTION

Interest Rate Group
--------------------------------------------
Under 16.5%
-for 1993~    $99.5 Billion (42.6%)
-for 1994~    $53.5 Billion (18.7%)
--------------------------------------------
16.5%-18.0%                 
-for 1993~    $55.5 Billion (23.8%)
-for 1994~   $130.3 Billion (45.4%)
--------------------------------------------
Above 18.0%
-for 1993~    $78.3 Billion (33.6%)
-for 1994~    $103.0 Billion (35.9%)
--------------------------------------------
note: excludes promo rates effective for 6 months or less
 
Enjoying the ride are many of the nation's top issuers with twelve month growth rates of 50% or more. Take a look at the latest numbers for the core of the bank credit card industry: the top 25 players with a collective market share of 77%.

 
              MID-YEAR OUTSTANDINGS TOP CARD ISSUERS
         Growth
         ISSUER            $billions     6 mo         12 mo       

        1.Citibank          $40.6       +10.0%       +19.7%
        2.Discover          $27.1       +21.5%       +26.6%
        3.MBNA              $21.5       +22.3%       +63.9%
        4.First USA         $13.3       +20.3%       +76.7%
        5.Frst Chic         $13.1       + 8.1%       +24.6%
        6.AT&T Univ         $12.3       - 1.6%       +21.8%
        7.Household         $11.1       + 3.2%       +16.9%
        8.Chase Man         $10.9       + 5.0%       +12.7%
        9.Chemical          $ 9.8       +10.1%       +32.4%
        10.Cap One          $ 8.9       +16.1%       +35.5%
        11.Bnk Amer         $ 8.3       + 3.2%        +5.1%
        12.Banc One         $ 7.9       + 9.4%       +34.1%
        13.Colonial         $ 7.6       +16.7%       +69.5%
        14.Bank NY          $ 7.6       + 1.8%       +16.0%
        15.Optima           $ 7.2       + 1.8%       +11.3%
        16.NationsBnk       $ 6.3*      +11.0%       +23.5%
        17.Frst Union       $ 4.5       +13.8%       +59.7%
        18.Wells Far        $ 4.2       +34.7%       +55.7%
        19.Wachovia         $ 4.1       + 1.5%       +26.7%
        20.Providian        $ 3.8       +22.6%       +45.6%
        21.Associates       $ 3.7       + 6.7%       +17.1%
        22.Frst Bnk         $ 3.7*      +11.0%       +19.4%
        23.USAA FSB         $ 3.0       + 0.2%       +10.1%
        24.GE Cap           $ 3.0*      +15.0%       +36.4%
        25.Mellon           $ 2.8       +15.8%       +65.0%
        TOTAL:              $246.3      +11.9%       +29.0%

        *preliminary data
      Source: Bankcard Update & Bankcard Barometer, Aug 1995
 


           Why have consumers been so promiscuous ?
 

           Since early 1992 bank credit card competition has produced an abundance of incentives to use
plastic. Discounts, rebates, and air miles provide a powerful incentive to charge as much as possible. The
growing acceptance of plastic in grocery stores, among health care providers and even into fast food chains has
had a dramatic impact. Low ball promotional interest rates coupled with balance transfer options have
enticed cardholders to consolidate other debts onto plastic. The reality is: Consumers love the
convenience and the incentives even though it has a price.



		



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