In Search of a Profit: Tighter Margins and Higher Risk Will Impact Credit Card Revenue Through 2025

The Fair Credit and Charge Card Disclosure Act of 1988 mandates the Federal Reserve to report to Congress annually on the profitability of credit cards for depository institutions. The report draws information from the Consolidated Reports of Condition and Income data, also known as “Call Reports,” submitted to the Federal Financial Institutions Examination Council (FFIEC). Another data source is the Quarterly Report of Credit Card Plans, which issuers submit to the Federal Reserve. 

In the Federal Reserve’s 2024 report to Congress on the Profitability of Credit Card Operations of Depository Institutions, the return on asset (ROA) ratio fell from 4.70% in 2022 to 3.33% in 2023. Downward revenue pressure on net and non-net interest revenue will continue with increased delinquencies, charge-offs, late fees, and interchange, which will likely continue to reduce operating margins and credit card profitability through at least 2026. 

The report's objective is to illustrate credit card profitability at insured financial institutions. It is often hard to deliver concise industry data because of the wide range of card issuers that span from small credit unions to global banks, but by using data from issuers with concentrated card portfolios, a viable baseline is possible. 

Credit card performance will frequently get muted since the issuing entity may account for their volumes as part of the general retail bank; in other cases, a specific credit card bank may drive the card operation. Also, particularly with small issuers, the institution may use a white-label partner and not carry the credit card asset on its balance sheet. (For more information on the off-balance sheet and white-label credit card issuance, see Credit Card Issuance by Small Issuers: Strategies, Risks, and Options.) 

This Impact Note discusses the current environment in the Federal Reserve’s July 2024 report, explains how revenue lines will be impacted in the coming months, and presents a view on the overall profitability of credit cards in the United States.