Agent member credit card programs gained steam again last year and are poised for a good 2015. However, 60% of those in the agent programs last year achieved a medium performance level, offering some sales training and average rewards, but lackluster results.
The payments cards industry profitability has been in the dumper since 2009, but is slowing crawling its way out over the past six years. Payment investment banker and guru R.K. Hammer says this year credit card ROA’s could top 4%.
Regulation and legislation have again effected every portfolio revenue variable: including total revenue, interest income/fee income split, thus seeing issuers respond by assessing new fees and repricing existing fees, where permissible. However, R.K. Hammer’s annual state-of-the-industry report notes the CFPB still has yet to fully catch its stride, so even more regulation will likely be…
Credit card portfolio valuations are set to decline and the value reductions will appear in earnest by 2017. Driving the change are both changes in card business models as well as regulatory and accounting rule changes.
Internationally-known payments industry advisor, R.K. Hammer, has reached its quarter century mark, providing value-added card solutions to financial institutions in the U.S. and in 50 countries abroad. Company Founder and CEO, Bob Hammer, noted, “To have provided essential card advisory solutions to so many successful organizations along the way is very gratifying and humbling to us. Equally important is to have worked for decades with such talented global card executives and their teams on best practices helping them achieve higher levels of card member satisfaction and financial performance.”
One of the best ways for card issuing credit unions and other financial institutions to augment their organic/branch card sales growth is to offer agent member card programs to other, usually smaller, financial institutions. The sponsoring organization provides the card expertise and management and all card member services (“3 C’s”) while the agent institution generates new applicant/card accounts. Agents are often selected and offered varying rewards based upon size, number of member households served, number of branches, geographic territory served, and card sales technology they have available at their branches, and thus resources for new card growth potential. The greater potential for growth, the greater fee income that is usually offered.
In this year-end card industry trend report, R.K. Hammer cites the current card industry Pre-tax ROA, compared to prior periods. Company Founder and Chairman Bob Hammer notes, “It has been a difficult past five years since 2008, when average ROA was calculated at 4.25% pre-tax. Since then changes have occurred, from the dramatic drop to 1.50% ROA in 2009 (the lowest card ROA return in over three decades), then up to 2.10% ROA in 2010, to 3.00% in 2011, 3.30% for 2012, and now 3.50% for 2013.”
JPMorgan Chase & Co reported net income for the 4th Quarter 2013 at $5.3 billion. This was a slight increase from 4th Q 2012 which was reported at $5.2 billion. Revenue for the quarter was down 1% to $24 billion compared to the same period in 2012. Legal costs associated with a number of issues was noted as a reason for the drop in profits. Adjusted for the significant items disclosed in our earnings press releases this quarter and in the fourth quarter of 2012, EPS would have been $1.40 this year compared with $1.35 in the prior year and ROTCE would have been 15% this year, flat compared with the prior year.
During the past five years CU and Bank card issuers have dealt with new regulations which curtailed their business models, impacting their interest and fee income strategies. Partly as a result, the 2013 top line revenue for the card industry in the R.K. Hammer card issuer model was reported at $145.5 Billion, down again, $4.1 Billion from the previous year. Indeed, some credit unions and banks showed revenue improvements last year, but those exceptions were primarily due to bulk acquisitions, as opposed to “organic” growth: exceptions to the rule.
“In addition to rising card portfolio deal prices, the most interesting thing about card market now,” notes R.K. Hammer, “is that the rising deal flow has for the second year in a row cut favorably across all card segments: prime/super prime deals, subprime, private label, and prepaid card portfolios – all stand to benefit again…
Credit card advisory firm R.K. Hammer has released their findings for card industry attrition and recent trends in this important metric. The R.K. Hammer model shows an average 12% “gross” attrition rate for prime card issuers for 2012, down from 14% for 2011. Gross attrition is defined as the percentage of issuers’ total number of…
SmartStream Technologies launched their latest reconciliations solution developed in response to continued customer demand to cut operational costs and duplication of feeds – with the long term view of having a single platform for back office operations. This allows for better control over each entity and the ability to confidently report to all business lines. The new SmartStream offering avoids the need for multiple systems, multiple licences and the training of employees on different systems. Regulations arising from Dodd-Frank and EMIR, place new demands for regular and in some cases, daily reconciliations of these complex instruments. SmartStream’s customers can now roll-out an industry standard model for OTC Derivatives in the fastest time available today.