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Credit Card Profitability: Latin America

Credit Card Profitability: Latin America

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 Credit Card Profitability: Latin America

Countries covered 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 beyond.

 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 client-based research.

Pages: 86

Release date: January 2013

About Lafferty Group

Lafferty 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.


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