A Look At The Country’s Largest Card Lenders: Credit Card Payment Volumes

November 25th, 2014 by Trefis Team
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Card lenders have seen a notable improvement in their transaction-based fee revenues over recent years, as improved economic conditions have allowed cardholders to be more liberal with their discretionary spending. Although the Credit CARD Act of 2009, and the implementation of several Federal Reserve rules which cap interest rates and fees on cards, have reduced the profitability of this lucrative business since the economic downturn, card revenues remain one of the biggest sources of value for banking giants. With the size of outstanding card balances and card payment volumes rising in tandem since 2012, the country’s largest card lenders have capitalized on this to boost their top-line figures even as the low interest-rate environment applies pressure on retail banking revenues.

In this article, which is a part of our ongoing series detailing the country’s largest card lenders – JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), U.S. Bancorp (NYSE:USB), American Express (NYSE:AXP), Discover (NYSE:DFS) and Capital One (NYSE:COF) – we detail the growth in their card payments over the last eleven quarters and also hint at the trends one can expect from card fees in the near future.

See the full Trefis analysis for Capital One | JPMorgan | U.S. Bancorp | Bank of America| Citigroup | American Express | Discover

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Card issuers earn a fee equal to a percentage of the transaction value each time a customer swipes his or her card, and the only avenue of growth in card fees for banks following the regulatory clampdown is growth in purchase volumes. Each of the lenders has reported notable improvement in card purchase volumes over the last three years. The table below summarizes the U.S. credit card purchase volumes for the lenders in each of the last eleven quarters. The data has been compiled using figures reported by individual institutions as a part of their quarterly announcements.

(in $ billion) Q1’12 Q2’12 Q3’12 Q4’12 Q1’13 Q2’13 Q3’13 Q4’13 Q1’14 Q2’14 Q3’14
American Express 107.7 116.0 115.3 123.3 116.7 125.6 124.6 134.1 124.3 136.5 136.2
JPMorgan 86.9 96.0 96.6 101.6 94.7 105.2 107.0 112.6 104.5 118.0 119.5
Bank of America 44.8 48.9 48.2 51.6 46.6 51.9 52.8 54.5 48.9 53.6 53.8
Capital One 31.4 41.8 44.6 48.9 41.8 47.3 47.4 50.4 44.1 52.7 53.7
Citigroup 38.2 40.8 40.3 41.6 38.2 41.9 41.7 43.4 39.6 43.9 43.3
Discover 27.4 28.1 29.8 31.1 26.9 29.7 30.3 31.8 28.1 31.7 32.1
U.S. Bancorp 24.6 26.6 27.0 27.1 24.9 27.1 28.8 27.9 26.9 29.6 30.8
Total 361.0 398.3 401.7 425.3 389.9 428.7 432.6 454.6 416.4 465.9 469.4

These seven card issuers reported almost $470 billion in total payments made by customers using their credit cards in Q3 2014 – making this the best quarter in this regard since the economic downturn. The dominance of these financial institutions in the card industry is demonstrated by the fact that cards issued by them account for roughly 75% of all credit card purchases made in the U.S. [1] American Express has the largest market share thanks to its strategy of targeting affluent customers who are likely to use their credit cards for transactions of considerably high values. On the other hand, JPMorgan comes in second because of the sheer size of its credit card customer base, which makes it the largest card lender in the country. Notably, the diversified banking group has also turned its attention to affluent customers over recent years by following marketing practices similar to those employed by American Express. These two card issuers account for almost 40% of the total credit card spends in the U.S.

While Bank of America’s payment volumes shrunk in early 2012 compared to 2011 as a result of the bank’s decision to refocus its card business, Capital One saw a sizable jump in card usage over the same period thanks to its acquisition of HSBC’s U.S. card business. Despite having the largest global credit card portfolio among these card lenders, Citigroup figures fifth in the list as a large portion of its card operations are outside the U.S. – specifically in developing nations.

The seasonal nature of card purchase volumes is also evident from the table above, which shows that Q1 is the slowest while Q4 is the strongest period for any given year. The primary reason for the fourth quarter’s strength is that the holiday season sees the highest amount of customer spending, followed by a lull in the first quarter. The chart below makes it easier to notice this trend, while also giving a clearer picture of how these card issuers fare with respect to each other.

The increase in spending levels over this period is key to higher revenues for the lenders over coming years. The chart shows how card payment volumes have grown between 6% and 7% year-on-year in each of the quarters since Q1 2011. We believe that this 6-7% annual increase in purchase volumes will continue over the coming years. But a faster-than-expected improvement in economic conditions could boost card usage at a faster rate. In such a scenario, the impact on the share value of U.S. Bancorp can be understood by making changes below.

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Notes:
  1. US Quarterly Credit and Charge Card Payment Volumes, PaymentsSource [↩]