The credit card lending model today is under immense pressure at all levels of consumer credit quality. Government regulations and CFPB oversight, which have eliminated fees and curtailed lucrative marketing practices, are hampering issuers’ ability to achieve profitability, especially with low- to mid-quality credit consumers. And an epic rewards arms race has not only led issuers to fight over the consumers with the best credit, it has also bled into the mass market where much of the earned interchange is being given away. Furthermore, as interest rates begin to rise, the cost of capital needed to carry transactional balances is becoming more expensive, depleting future issuer profitability. Finally, for consumers needing to revolve balances, teaser offers abound in the industry, virtually guaranteeing that the consumers with the best credit might pay little to nothing on a revolving balance. This report examines the business model of card issuers, specifically the difference between the prime/super-prime and subprime businesses, and how they are coming under an increasing level of pressure. It also reviews why secured and other starter cards have failed to meet the needs of new credit-hungry customers. Finally it provides potential ideas that could be used to reinvent the credit card lending business.

Key questions discussed in this report:

  • How has the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 changed the dynamics of the credit card lending industry?
  • What consumer segments have become underserved as a result of the passage of the 2009 Credit CARD Act?
  • Why do secured cards and credit repair cards fail to meet the needs of consumers, particularly those who have limited credit histories or poor credit?
  • What types of credit do Millennials use when seeking an alternative to credit cards?
  • What is the new standard for credit card rewards and what does it mean to issuers?
  • How do the main credit card lending models differ and what are their keys to success?
  • What can be learned from alternative types of credit for possible application to the credit card lending business?

Companies Mentioned: Affirm, AmBank Islamic, American Express, AT&T, Bank of America, Capital One, Census Bureau, CFPB, Chase, Citibank, Comenity Capital Bank, Discover, Federal Reserve Bank, FICO, Mastercard, PayPal, Transunion, Visa, Wells Fargo, Western Union


The consumer data in this report were primarily collected from the following:

  • A random-sample survey of 3,200 respondents conducted online in October 2016. The overall margin of error is ±1.74 at the 95% confidence level. The margin of error is larger for subsets.
  • A random-sample survey of 3,200 respondents conducted online in October2015. The overall margin of error is ±1.74 at the 95% confidence level. The margin of error is larger for subsets.
  • A random-sample survey of 3,200 respondents conducted online in October 2007. The overall margin of error ±1.74 at the 95% confidence level. The margin of error is larger for subsets.

Industry cards and rewards programs data were derived from industry interviews, with supplementary data from secondary sources such as The Nilson Report and public websites. The CFPB 2013 and 2015 reports were used for lending models and statistics referenced in this report.