topic Re: Of Interest- Recent Fed article on cc profits in SmorgasBoard

Of Interest- Recent Fed article on cc profits

NoMoreE46 — Fri, 04 Nov 2022 02:44:40 GMT

This is a recent release by the Fed on the components of cc profitability. It is a high level but concentrated read.

https://www.federalreserve.gov/econres/notes/feds-notes/credit-card-profitability-20220909.html

I attempted to summarize some of it and feel free to comment/point out any errors I made overlooked.

Component breakdown of cc profit:

Interest fee = 80%

Interchange fee and Annual fees = - 4%

Late fees and other = 16%

BT Fees, prepayments and other = 8%

Here is the percentage who paid interest and by customer type:

72.18% = Heavy revolvers (Balance every of the past 12 months)
20.81% = Light revolvers (Balance in 1 to 11 months)
0.07% = Transactors (No revolving balance)
6.31% = Other (New, inactive, etc.)

Table 1 presents summary statistics by the different types of accounts during the 2014–19 period

Re: Of Interest- Recent Fed article on cc profits

Who_wuda_thought — Fri, 04 Nov 2022 04:31:22 GMT

If I'm reading the table correctly, what stands out to me is Transactors in Purchase Volume. Share - 39%!

Looks like PIF is definitely the practice of a good number of folks using cc's.

Re: Of Interest- Recent Fed article on cc profits

NoMoreE46 — Fri, 04 Nov 2022 21:24:46 GMT

Right. 39% PIF which is surprisingly high to me.

Re: Of Interest- Recent Fed article on cc profits

NoMoreE46 — Fri, 04 Nov 2022 21:40:09 GMT

Also while Heavy revolvers represent only 20% of the population, they also paid 48% of the late fees.

Re: Of Interest- Recent Fed article on cc profits

ptatohed — Fri, 04 Nov 2022 22:02:23 GMT

Good stuff, thanks NME46!

Re: Of Interest- Recent Fed article on cc profits

Anonymous — Mon, 07 Nov 2022 04:17:19 GMT

@NoMoreE46 wrote:
Right. 39% PIF which is surprisingly high to me.

That's the % of purchase volume. The chart suggests that 21% are transactors, just buying more than the others!

Re: Of Interest- Recent Fed article on cc profits

NoMoreE46 — Mon, 07 Nov 2022 13:03:46 GMT

Oops I was wrong.

Thanks @Anonymous.

So even though Transactors represent about 39 % of the purchase volume, they pay less than one percent of the interest.

Re: Of Interest- Recent Fed article on cc profits

Anonymous — Mon, 07 Nov 2022 15:39:27 GMT

@NoMoreE46 wrote:
Oops I was wrong.

Thanks @Anonymous.
So even though Transactors represent about 39 % of the purchase volume, they pay less than one percent of the interest.

Right, but that is what you would expect from the definition of transactors! I guess with a stricter definition (NEVER carry a balance or do BTs) it should be 0%