Credit Card Profitability: Western Europe
Countries covered: Austria, Belgium, Denmark,
Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland, United Kingdom
Europe has long been one of the strongest and most profitable credit cards
regions in the world. A mixture of economic prosperity, an affluent mass
market, a developed banking infrastructure and a progressive regulatory
environment has meant the market for credit cards penetrates far and wide.
global financial crisis effectively changed that. Losses among credit card
borrowers piled up and per-card profitability plunged. Across Western Europe,
high profile casualties occurred among some of the region’s most iconic banks
with many bailed out by public purses, forced to merge, or broken up and sold
occurred suddenly three years ago appears to be reversing again almost as
quickly. Credit Card Profitability: Western Europe shows that a rebound
in the region's credit card sector appears to be underway.
· 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?
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.
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
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.
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.
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.
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
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.
Release date: August 2012
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.