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From the February 2004 Issue of CardTrak® |
Credit card profits in the last three months of 2003, topped $7.0 billion and may have exceeded $30 billion for the year. Among the nation's largest issuers, profits grew 17% on average in the fourth quarter. MBNA led the pack with a 30% surge in profits, followed by Chase with a 25% increase in card operating income. Citigroup posted its first billion dollar profit quarter in 4Q/03 thanks to its acquisition of the Sears card portfolio in November. The nation's top three issuers, ranked by card loans, raked in $2.2 billion in fourth quarter profits, while seven top issuers collectively produced $3.6 billion in 4Q/03 profits. On the other end of the scale, Bank of America's card profits were up 3%, and Bank One produced an 8% gain in net income. In the middle, but below the group average, is Capital One with an 11% increase, and American Express with a 10% gain over 4Q/02.
PROFIT SNAPSHOT
ISSUER 4Q/03 CHNG
Citigroup $1140 +22%
MBNA $704 +30%
AmEx $606 +10%
Bank One $347 + 8%
BofA $323 + 3%
Cap One $266 +11%
Chase $171 +25%
TOTAL: $3557 +17%
$millions Source: CardData
According to R.K. Hammer Investment Bakers, credit card profits hit their highest level in fifteen years during 2003, driven primarily by lower cost-of-funds. The average pre-tax, return-on-assets for credit card portfolios last year is projected to reach 4.4%, compared 4.2% for 2002, and 4.5% for 1988. Hammer says its data show that charge-offs continued to increase during 2003, but the impact has been reduced by the lower cost-of-funds. Hammer says total income yield for 2003 will come in at 17.6%, the lowest since 1998. Operating expense edged up from 4.9% in 2002 to 5.0% last year, as charge-offs jumped from 5.4% in 2002 to 5.8% for 2003.
U.S. Bank Credit Card
Profitability Historical
(VISA, MasterCard, and Discover)
YEAR ROA
1989 4.1%
1990 3.7%
1991 3.4%
1992 3.1%
1993 3.3%
1994 3.9%
1995 3.6%
1996 3.3%
1997 2.6%
1998 2.5%
1999 3.1%
2000 3.6%
2001 4.0%
2002 4.2%
2003 4.4%
ROA-net pre-tax return-on-assets
Source: R.K. Hammer Investment Bankers
The U.S. general purpose payment card market expanded by 56 million cards last year, a 7% gain over the previous year. VISA led the charge with an 11% increase in cards-in-force thanks to new payroll, gift, and business cards as well as strong expansion in debit cards. During 2003, VISA contributed nearly 43 million new cards to the U.S. market while MasterCard added 12 million. American Express picked up 1.3 million net, new cardholders last year. Discover, which does not report exact card numbers, estimates its portfolio has been steady at 50 million. However, during 2003, Discover's gross number of accounts declined by 400,000. At year-end 2003, there were 841.2 million general purpose payment cards in-force in the USA compared to 785.3 million at the end of 2002.
U.S. Payment Cards-in-Force (in millions)
TOTAL
1Q/03: 796.3
2Q/03: 812.3
3Q/03: 828.0
4Q/03: 841.2
Growth in off-line debit card volume continued to downshift slightly last year as Americans used VISA- and MasterCard-branded debit cards for more than $576 billion in purchases and cash advances, a 16% increase over the previous year. Since 1998, consumers have racked up more than $2 trillion in signature debit card transactions. However, the signature debit card market is growing less than half the annual rate of the 1999 to 2001 period, when gross dollar volume increased 37% or more. VISA continues to dominate the off-line debit market with its "Check Card." VISA's signature debit card volume last year of $454 billion, represented nearly 79% of the market. In 2003, debit represented 41% of VISA volume, and 59% of total VISA transactions.
OFF-LINE DEBIT HISTORY
GDV CNHG
1999: $218.8 billion +37.0%
2000: $301.8 billion +37.9%
2001: $420.7 billion +39.4%
2002: $496.4 billion +18.0%
2003: $576.3 billion +16.1%
Source: CardData
In terms of organic growth, Bank of America, Capital One, and American Express led the U.S. credit card industry with double digit gains in receivables and profits last year. The nation's top ten bank credit card issuers grew an average of 6.5% during 2003, holding aggregate card loans of $538.9 billion, approximately 77% of the total U.S. market. Citigroup, the nation's #1 ranked issuer would have slipped to second place had it not been for the acquisition of the Sears MasterCard portfolio in November. Citigroup card loans increased $7.4 billion during 2003 as it added $13 billion in Sears MasterCard card loans during the fourth quarter. Indeed, Citigroup's organic growth was negative in every quarter of 2003. Bank of America led the top issuers with a 24% gain in outstandings. BofA also led with a 25% in card profits, according to CardData. Discover was the only issuer to post a portfolio contraction. However, Discover data does not reflect the impact of the December holiday season.
Top 10 U.S. Issuers by Card Loans 1. Citigroup $119.8b + 6.6% 2. MBNA $ 85.8b + 7.9% 3. Bank One $ 76.3b + 3.1% 4. JPM Chase $ 52.3b + 2.3% 5. Discover* $ 48.4b - 5.3% 6. Capital One $ 46.3b +13.2% 7. AmEx $ 38.5b +12.2% 8. BofA $ 36.6b +24.1% 9. Household $ 17.9b + 5.3% 10. Fleet $ 17.0b + 4.9% TOTAL $538.9b + 6.5% Source: CardData |
| DEBIT COSTS |
A new study suggests that Americans saved more than $4.3 billion in debit fees last year when compared to the system utilized in Canada. The research by Dove Consulting for PULSE found that every major bank in Canada charges its customers a per-transaction fee every time they use their debit card. Canadian consumers pay a fee of C$0.50 to $0.60 for each electronic payment transaction, whether making a purchase or getting cash from an ATM. Canada has only eight major national banks, which control 93% of banking assets. By contrast, the U.S. has more than 17,000 banks and credit unions, and the eight largest banks control only 41% of banking assets. Canada has only one electronic payments system and consumers have access to only PIN-based debit. Furthermore, Canadian merchants pay no interchange fees for a debit transaction, whereas U.S. financial institutions receive revenue for use of their databases and for guaranteeing payment for every transaction. The study concludes
the Canadian model is unlikely to be embraced in this country anytime soon.
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| FEES NOT TAXES |
U.S. Congressman Chaka Fattah (D-PA) is sponsoring a bill requiring a study on reforming the Federal tax code through elimination of all Federal taxes on individuals and corporations and replacing the Federal tax code with a transaction fee-based system. The "Transform America Transaction Act of 2004" would eliminate all federal taxes including payroll, capital gains, corporate profits and income tax by charging a small fee on the trillions of cash and electronic transactions conducted by consumers. Fattah says analysts at the Congressional Research Service conclude monies generated from the transaction fee would exceed revenues currently generated from federal taxes. He says the additional funds would serve to eliminate the current $7 trillion national debt.
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| EASY ONLINE APPS |
Bank One, Juniper, and Providian ranked as the top three credit card Web sites with the easiest online application process. The ranking, by NY-based Change Sciences Group, compared the filling out of personal and financial information, the checking of card terms and conditions, and making balance transfers. The most common barriers to ease of use were awkward attempts at cross-selling, forcing customers to navigate complex legalese and banking jargon, adding extra steps, and too much data entry. Change Sciences says over nine million customers have applied for credit cards online last year. The nation's top issuers ranked poorly in the survey. Citibank was ranked #14, MBNA ranked #12, American Express #11, and Chase #13.
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| DEBT BEATS |
The FTC has charged two California-based debt negotiation companies and their principals with violating federal law for making false claims. The FTC says defendants Innovative Systems Technology, Inc. (doing business as Briggs & Baker), Debt Resolution Specialists, Inc., Todd A. Baker, and Jack Briggs (aka John Briggs) claimed they could "drastically" reduce consumers' debt by negotiating directly with creditors. The FTC charges that the defendants' radio advertisements and Internet Web sites were false and misleading and that the defendants were unable to negotiate substantial reductions in the amount consumers owed.
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| SNAPFISH CARD |
Online photography specialist, Snapfish, has launched a prepaid card via 7-Eleven stores nationwide which employs AT&T's "PrePaid Web Cents" technology. The Snapfish prepaid card will sell for $9.99 and provide consumers with 40 professionally developed, 4-by-6-inch prints from their digital camera. The card includes a credit for free shipping and handling. Also, first-time Snapfish users will receive an additional 10 prints for free, reducing the price per print to as low as 20 cents.
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| PEOPLES - RBS |
Connecticut-based People's Bank is selling its $2.3 billion credit card business to The Royal Bank of Scotland Group for a 15.5% premium. People's has been rebuilding its card business over the past four years, and posted two consecutive, profitable quarters in the second half of 2003. The portfolio peaked in 4Q/99 with $3.9 billion in card outstandings, and dipped to $1.94 billion in 1Q/03, according to CardData. RBS says it will maintain People's credit card business employment base in Bridgeport. People's says it wants to focus on its core retail and commercial banking businesses. The transaction is expected to close this quarter.
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