Lots of interesting thoughts there, OP. Many thanks.
A lot of people believe that credit card companies earn a lot more money from revolvers than they do from transactors. You are not alone in thinking that. The two crucial questions ultimately are these:
(a) How expensive for the issuer is the higher frequency of default is amongst revolvers?
(b) Do transactors typically spend more annually than revolvers? Perhaps much more?
As far as (a) goes, it's probably REALLY hard to overestimate the extent of the cost of default. It's not just the money the issuer loses on the last balance, but the whole apparatus of customer service and legal teams and so forth fighting with an R over time. There are a lot of costs involved in a default, compared to a person who just provides a steady stream of swipe fees (which average about 2%).
As far as (b) goes, the pattern for many revolvers may be to buy a fair amount early on, but as they get closer to the credit card limit, and a substantial chunk of the payment is interest, their spending goes down (or they default). So the scenarios you describe, in which the revolver buys just as much as the transactor, may be not be fully realistic.
Here's an interesting case study in how much CCCs like safe customers: Bank of America's Better Balance Rewards card. They like safe customers so much that they are willing to pay you $120 in cash for always paying on time and always more than the minimum balance, including customers who PIF and who generate very low annual spending. Honestly I wouldn't have guessed that an issuer would like safety THAT much, but apparently they do. I set up my Netflix on my BBR card and BofA pays a big chunk of my bill. I used to pay for it on my Citi Double Cash and all I got back was 2% of the bill.
Two final thoughts:
You raise an interesting question, which is this: If the FICO scores of revolvers went down (due to a change in the algorithm) could that cause them to become transactors? In a few cases yes, but I am going to hazard a guess and say largely no. If paying huge levels of interest isn't enough to cause them to want to PIF, then having a lower credit score sure ain't gonna do it. As this forum attests to daily, many rank and file Americans have never seen their credit report or credit score, and when they do it is 20 days before they decide (for no particularly good reason) that they have GOT to buy a house. The interest they pay, by way of contrast, is something they are reminded of every month, apparently to no effect.
As a follow up to that (very interesting!) question, you wonder whether FICO would not make such a change if it would hurt credit card companies. My thinking here is that it depends on what the CCCs are hiring FICO to do. Basically they (and other lenders) are hiring FICO to provide them with a number that predicts risk of default. That's what the score has been up till now, I see no reason, however, why they might not purchase richer products that might not give them more information than that, now that the CRAs are collecting it I can easily imagine a CCC wanting to know a profitability score. Such a score would take into account the risk of default but would also take into account the extent to which a consumer has a long history of carrying large amounts of CC debt without being late (or generating huge amounts of swipe fees). FICO already makes a "Bankcard Enhanced" product: I can imagine that the BE product 5 years from now will mine the report for info that predicts how much money an issuer might make from the consumer.
