Credit card fee income rose an estimated 6% in 2016, and is expected to increase 6.5% in 2017 driven by a rebounding economy.
According R.K. Hammer interchange income increased from $40.0 billion in 2015 to $42.4 billion last year, as cash advance fee income rose 2.7% year-on-year (YOY) to $26.6 billion. Meanwhile, annual member fees rose 8.7% YOY to $12.5 billion, driven by high annual fee rewards cards.
Other components of fee income include: card member penalty fees of $12.0 billion and card enhancement fees of $6.5 billion, flat and up 8.3% YOY, respectively.
R.K. Hammer says for many years interest income on card loans was the greatest revenue stream. Since the last recession, though, as consumer were cut back on their lines of credit by uncertain issuers, and as cautious consumers cut back on their own spending and revolving, interest income fell precipitously. As a result fee income matched and ultimately beat interest as the greatest revenue stream component of income on many issuer income statements.
For 2017, interchange is expected to remain strong. Penalty fees and cash advance fees will vary, but in an economic downturn which some are seeing in the near future, those would increase. Cash advance fees (and higher APR’s as well) used for cash transactions – not for balance transfers – necessarily reflect the higher credit default risk for those card members.
R.K. Hammer notes depending upon the level of investment issuers devote to expanding the popular and highly profitable rewards card business line, annual membership fee top line revenues will continue to climb. Enhancement income has enormous potential for fee revenue growth, as the industry has hardly tapped into its theoretical full potential for other products and services to loyal card members; it will double in revenue stream importance over the next several years, we predict, and already has at some issuers.
Banking and card have been prime targets for new regulations in recent years. There may be a positive change somewhat going forward, at least if the new Administration’s stated point of view is to be believed and effective at draining the burden of much of the regulatory swamp.
R.K. Hammer is a privately held bank card advisory firm, with bank card clients in 50 countries on 6 continents and the top 20 bank credit card issuers in the U.S.; based in the Los Angeles area.