January 31 – The credit card market continued to gain steam in last year’s third quarter as the economy strengthened, according to the American Bankers Association’s latest Credit Card Market Monitor. On an annual basis, monthly purchase volumes rose between 6 and 9 percent across risk tiers (subprime, prime, and super-prime), consistent with a tightening labor market and rising consumption levels.
The January 2017 Monitor, which reflects credit card data from July through September 2016, also found that the number of new credit card accounts (those opened in the previous 24 months) rose 10.7 percent year-over-year to 87.3 million, with subprime account openings growing the fastest with 27 million new accounts. Subprime accounts remain well below pre-recession levels, comprising 20 percent of total accounts – roughly equal to 2012 – while prime and super-prime accounts make up 29 percent and 50 percent of the credit card market respectively.
“The U.S. economy is gaining strength, labor markets continue to firm and wages are up nearly 3 percent from a year ago,” noted Jess Sharp, executive director of ABA’s Card Policy Council. “Consumers were the primary driver of economic growth in 2016, and growth in new credit card accounts and purchase volumes is in line with broader economic trends.”
Steady Increase in Credit Card Use, Stable Ability to Pay
The ABA report also found that consumers are increasingly using credit cards as a short-term financing vehicle. The share of account holders who carry a monthly balance (“Revolvers”) rose 0.8 percentage points to 43.3 percent of all accounts, near a four-year high but still well below levels from 2009 – 2012. Coupled with tightening U.S. monetary policy, the increase in Revolvers translated to a modest rise in the effective finance charge yield from 11.30 percent to 11.39 percent — although this metric (which measures the amount of interest issuers are collecting relative to the total amount of outstanding credit) has been mostly flat for the last five years. The share of Transactor accounts (account holders who pay off their balances in full each month) fell 0.3 percentage points to 29.2 percent of all accounts, but remained near a post-recession high. The remain accounts (27.5 percent) were dormant.
Although credit card use is increasing, the data suggest that U.S. consumers are prudently managing their credit card debt. Credit card credit outstanding as a share of disposable income — a measure of credit card debt relative to account holders’ financial means — remains near post-recession lows and has not climbed above 5.45 percent or fallen below 5.15 percent in nearly five years.
“The financial health of consumers has improved, consumer confidence is high and credit card debt is stable relative to income,” Sharp said.
About the Credit Card Market Monitor
The American Bankers Association Credit Card Market Monitor is a quarterly report that provides key statistics on industry trends and relevant economic factors affecting the industry. The credit card data used in the report is taken from a nationally representative sample provided by Argus Information Services LLC. Credit card data are presented as national averages for all accounts based on actual credit card account information. No individual account holder’s information or specific financial institution’s data can be identified from the data set. Other data used in the report are taken from various public and private sources, including the Department of Commerce’s Bureau of Economic Analysis and the Federal Reserve.