While the onset of the COVID-19 pandemic initially disrupted various aspects of our lives, one unexpected consequence emerged in the realm of personal finance—revolving credit card debt balances experienced a surprising dip. In the face of economic uncertainty, lockdowns, and widespread financial strain, consumers exhibited a cautious approach to their spending, leading to a temporary decline in the reliance on credit cards. However, as the dust settles and the world navigates the path to recovery, a noteworthy shift is occurring.
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Data for today’s episode is provided by Javelin Strategy & Research’s Report: The State of the U.S. Credit Card Industry
Average Revolving Debt by Account
- Q1 2019 – $1,756.78
- Q1 2020 – $1,746.15
- Q1 2021 – 1,522.73
- Q1 2022 – 1,565.79
- Q1 2023 – $1,721.16
Source: FRED Federal Reserve Bank of St. Louis, Javelin Strategy & Research, 2023
About Report
This Javelin Strategy & Research report provides a view of the U.S. credit card payment system. It provides a perspective on the ecosystem’s profitability, consumer demand, issuer stability, credit quality, and external factors. We illustrate how market performance varies among the 12 top issuers driving the market and the remaining 3,000 smaller issuers. We suggest that mandated stress tests from Dodd-Frank, or a down-market surrogate, help ensure stability throughout the network.
Overall, the industry is sound, though downstream economic issues can disrupt the norm, particularly at the lower end of the market, where charge-offs seize bank profits and create marginal returns for smaller players.
Consumer demand is high, as evidenced by growing revolving debt and cardholder growth, which outpace population growth by eight times. A significant regulatory bill, the Credit Card Competition Act, was introduced to the Senate in June 2023 but has a long way to go before it is enacted. If the action does take effect, expect lenders to protect their margins by reducing weaker customer segments.
In short, issuer profits are substantial, demand is high, and general risk is under control. However, if there is a severe economic downshift, expect credit to tighten and operating expenses to rise.