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The New Dynamic in U.S. Credit Cards

By Theodore Iacobuzio

After years of reigning as the most profitable retail banking product, U.S. credit card returns last year were slightly below zero and will be marginal in 2010.¹

U.S. issuers must learn to survive and prosper in a new environment largely driven by radical changes in consumer attitudes and behaviors. They need to create new value propositions that will resonate with today’s customers. Portfolio segmentation is key to understanding what customers value as well as which segments are most profitable.

Issuers’ new business models must also reflect the disappearance of asset-backed securities as a funding tool, the growth of debit cards, and the return of deposits as an essential element in the bank profitability equation.

Once issuers have internalized the lessons of the new dynamic, their approach to measuring profitability will likely shift from looking at credit cards as discrete products with their own P&Ls to measuring the profitability of holistic customer relationships, with products designed to maximize total return.

1. TowerGroup, Trends Shaping the Future of Bank Cards, January 2010.

Smaller banks are well positioned to use their 55 percent of U.S. deposits to gain credit card share

Source: Federal Reserve Bank of Atlanta, SIFMA, 2010. Source: Federal Reserve, Deposits as of June 30, 2009.