Financial Year 2023 Concludes with Boost for Credit Cards; Danger Levels Anticipated in 2024
The world of credit cards is evolving, with a focus on careful growth amidst a high-interest environment. Regulatory scrutiny, rising costs, and economic uncertainties are shaping the landscape for both consumers and issuers.
Continued regulatory pressure on late fees, often viewed as "junk fees," could put further pressure on card issuers' margins. This pressure, combined with rising costs and higher interest rates, is driving more Americans to carry balances from month to month, a sign of budgetary pressure.
Javelin predicts that revolving credit card debt will continue to grow due to consumer distress, not successful marketing. Charge-offs, or the percentage of loans that issuers write off as uncollectable, increased to 3.79%, indicating more consumers are failing to repay their debts.
Despite historically high interest rates—average purchase APR near 24.62%, up from 20.14% during the pandemic—credit card performance has improved slightly in early 2025, with delinquencies and net charge-offs declining year-over-year.
For 2024 and into 2025, credit card growth is moderate with some nuanced trends. Although the number of credit cards in use in the U.S. is forecasted to increase steadily from 2024 through 2029, credit card loan balances saw a year-over-year drop for the first time since 2021.
Key developments include elevated prime rates and increased lender margins pushing borrowing costs higher, making carrying debt more expensive for consumers. Tighter underwriting standards have reduced total credit card accounts and balances, contributing to improved credit quality even though delinquency rates remain above pre-pandemic levels. Consumer sentiment and spending face pressure from economic uncertainties and regulatory changes, prompting issuers to adjust reward programs and strategies to attract and retain customers.
For consumers, higher interest rates increase the cost of carrying credit card debt, potentially straining household finances. Lower overall balances and improved credit underwriting may protect consumers from escalating debt burdens. Changes in rewards and benefits may impact consumer spending behavior and credit usage patterns.
For credit card issuers, while credit quality shows improvement, elevated delinquency and charge-off rates still pose risk. Regulatory and economic challenges require adaptable risk management and product strategies to sustain growth. Growing card counts offer expansion opportunity but with a cautious approach to underwriting and portfolio management.
In summary, the outlook for 2024 and early 2025 is one of careful growth amid a high-interest environment, with issuers balancing risk management and competitive product offerings, and consumers facing higher borrowing costs but somewhat improved credit conditions overall. The message for consumers and businesses is to spend less and save more.
Notable performances in Q3 include Wells Fargo posting a 15% increase in credit card spending, Citigroup's credit card loans increasing by 11%, and JPMorgan Chase seeing a 9% increase in credit card spending. However, the total delinquency rate reached 2.98%, marking the seventh consecutive quarterly increase.
Issuers may need to reassess their risk models and revenue structures to maintain stability during economic uncertainty. Losses are expected to rise significantly, with the charge-off rate potentially climbing from 3.49% to 6% in 2024.
Consumers are increasingly using credit cards and buy now, pay later (BNPL) loans to maintain their lifestyles, as personal savings dwindle. This trend, coupled with the economic uncertainties, presents challenges for both consumers and issuers.
[1] Federal Reserve Bank of New York, Consumer Credit Panel/Equifax National Consumer Credit Database. [2] Javelin Strategy & Research, 2023 Credit Card Industry Insight Report. [3] TransUnion, Industry Insights Report: Q3 2023 U.S. Consumer Credit Index. [4] Consumer Financial Protection Bureau, Annual Report on the Fair Credit Reporting Act. [5] Federal Reserve, G.19 Consumer Credit.
In the context of the given text, here are two sentences that contain the words 'finance', 'investing', and 'personal-finance':
- For consumers, the high-interest environment requires careful management of personal-finance, with a focus on reducing borrowing costs and curbing credit card spending.
- Tighter underwriting standards and increased lender margins, as mentioned in the text, could potentially influence the investing landscape, as issuers adjust their risk management strategies and product offerings.
