Credit Card Profitability: Latin America
Credit Card Profitability:
include: Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay,
Peru, Puerto Rico, Uruguay and Venezuela.
In a global downturn that is having
large-scale implications on credit card profitability around the world, Latin
America represents one of the brightest spots and a major success story of
recent years. What’s more, growing economic prosperity, increasing consumption,
and improved banking infrastructure and access means that the future is set to
become even brighter.
The credit card offers potentially
the single most profitable product in all of retail banking. And, as the worst
effects of the financial crisis begin to recede, so credit card profits are
beginning to rebound. Meanwhile, vast areas of the world are still
significantly underpenetrated and promise rich rewards for well executed credit
card business ventures.
· But what are the
dynamics behind credit card profitability?
· How and why are credit
card revenue streams changing?
· What are the effects of
– and trends in – credit losses?
· And what can be learned
by comparing credit card markets at different stages of maturity?
These are among the significant
questions addressed by Credit Card Profitability, a new series of Lafferty Group
research reports that look at the credit card revenue mix in four distinct
categories: net interest revenues, revenues generated by merchant service
charges, card fee revenues and other non-interest income.
In many markets, net interest income
is the dominant source, often accounting for up to half of all revenues. But
the financial crisis has resulted in significant deleveraging from consumers
who have responded to adversity by paying down expensive debt and exhibiting a
reduced appetite for credit, particularly revolving credit.
On the positive side, issuers have
enjoyed historically low funding costs due principally to prevailing low
interest rates, coupled with the effect of various stimulus packages in the
wake of the financial crisis.
Merchant fees make up the next
biggest element but downward pressure on billed volume is having a negative
effect in more mature markets. Similar pressure, often driven by regulatory
bodies, is being exerted on merchant service charges.
In response, many issuers have
turned towards new or increased card fees that have the effect of increasing
revenues and, more appropriately, reflect the risk associated with credit card
issuance. They have also sought to boost other non-interest charges yet, once
again, efforts in this area are being stymied in many countries by regulatory
intervention and organised consumer action.
Meanwhile, the worst may be over in
terms of net credit losses, which doubled between 2006 and 2009 on a global
basis, peaking at 7.7 percent in 2010, and were the main cause for the halving
of over global credit cards profits between 2008 and 2010.
As net credit losses stabilise and
begin to reverse, the outlook for the global credit card market is set to
brighten considerably and give issuers much cause for optimism in 2013 and
About the author
Andrew Neeson is head of World Cards Intelligence and consumer
finance research at Lafferty Group. Andrew joined Lafferty Group in 2007
and, with over ten years’ research experience, has an excellent track-record in
payment cards and consumer finance research as well as conducting bespoke
Release date: January 2013
About Lafferty Group
Group is a major provider of advanced knowledge services for the financial
industry worldwide, with particular specialisations in the fields of retail
banking, cards & payments and central banking.