Overview
The Federal Reserve reports on the profitability of credit card operations of
depository institutions, as directed by section 8 of the Fair Credit and Charge
Card Disclosure Act of 1988.
1
This is the 34th report. This report analyzes
the profitability over time of credit card operations by examining the perfor-
mance of institutions that specialize in such activities. This report also
reviews trends in credit card pricing, including changes in interest rates. The
analysis in this report is based to a great extent on information from the Con-
solidated Reports of Condition and Income (Call Reports) and the Quarterly
Report of Credit Card Plans.
2
This report contains the following topics:
•
the identification of credit card banks;
•
an overview of credit card bank profitability in 2023;
•
additional background information on the credit card market, including
market structure; and
•
an analysis of trends in credit card pricing.
Identification of Credit Card Banks
Every insured bank files a Call Report each quarter with its federal supervi-
sory agency.
3
While the Call Report provides a comprehensive balance sheet
and income statement for each bank, it does not allocate all expenses or
attribute all revenues to specific product lines, such as credit card accounts.
1
See Fair Credit and Charge Card Disclosure Act, Pub. L. No. 100-583, 102 Stat. 2960 (1988).
The 2000 report covering 1999 data was not prepared as a consequence of the Federal
Reports Elimination and Sunset Act. The report was subsequently reinstated by law.
2
The data used in this report are as of December 31, 2023, and do not reflect economic and
financial conditions since then. The Federal Reserve collects the data from the Quarterly
Report of Credit Card Plans (form FR 2835a).
3
The sample of banks used for this report includes commercial banks, state savings banks,
and thrifts.
Contents
Overview 1
Identification of Credit Card
Banks
1
Credit Card Bank Profitability 2
Market Structure and Additional
Background
5
Recent Trends in Credit Card
Pricing
7
REPORT TO CONGRESS
Profitability of Credit Card
Operations of Depository
Institutions
June 2024
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM www.federalreserve.gov
Thus, the data may be best used to assess the profitability of credit card activities by analyzing
the earnings of only those banks established primarily to issue and service credit card accounts.
These specialized, or monoline, banks are referred to here as “credit card banks.”
For purposes of this report, credit card banks are defined by two criteria: (1) More than 50 percent
of their assets are loans to individuals (consumer lending), and (2) 90 percent or more of their
consumer lending involves credit cards or related plans.
4
Given this definition, it can reasonably
be assumed that the profitability of these banks primarily reflects returns from their credit card
operations.
5
As of December 31, 2023, eight banks met the definition of a credit card bank, and, at the time,
these banks accounted for 28 percent of outstanding credit card balances on all banks’ bal-
ance sheets.
Both the number of monoline credit card banks and the share of total credit card balances held
by credit card banks have declined in recent years. In 1996, 42 credit card banks constituted
77 percent of outstanding credit card balances. However, by 2019, 10 credit card banks in our
sample accounted for less than 40 percent of credit card balances.
6
Despite the declines in the
number and aggregate size of credit card banks, the profitability of this small set of credit card
banks appears to be representative of the profitability of the credit card operations of the banking
industry. For example, during the 2014–19 period, the profitability of credit card banks was very
similar, in both levels and trends, to the profitability of the credit card industry overall, as meas-
ured by a different data set of the credit card portfolios of the largest banks, which represent
80 percent of all outstanding credit card balances reported in the Call Report.
7
Credit Card Bank Profitability
Tracking credit card profitability over time is complicated. The sample of credit card banks can
change somewhat from one year to the next because of changing bank loan portfolios and
4
The first credit card banks were chartered in the early 1980s; few were in operation before the mid-1980s. To provide a
reliable picture of the year-to-year changes in the profitability of the credit card operations of card issuers, previous
reports limited their focus to credit card banks with at least $200 million in assets. Since 2015, all credit card banks
that satisfied the two stated criteria had more than $200 million in assets.
5
One bank (Discover Bank) included in the sample did not exactly meet these criteria. This bank is a major issuer on the
Discover network, and its balance sheet is largely consistent with the credit-card-focused business model.
6
The decline in the share of credit card balances held by credit card banks has been driven in large part by reorganiza-
tions. Many of the largest banks had standalone subsidiaries for their credit card operations, separate from their main
banking operations. In recent years, some of these banks have combined all their operations into a single subsidiary
that files a single Call Report each quarter and, often, does not meet the criteria for a credit card bank.
7
The profitability of credit card banks was slightly lower than that of the credit card portfolios of the largest banks in
2020 and 2021. For a discussion of the comparison of the two data sets, see Robert Adams, Vitaly M. Bord, and
Bradley Katcher (2022), “Credit Card Profitability,” FEDS Notes (Washington: Board of Governors of the Federal Reserve
System, September 9), https://doi.org/10.17016/2380-7172.3100.
2 Profitability of Credit Card Operations of Depository Institutions
reorganizations. Thus, overall changes in profit rates can reflect both changes in activity and
changes in the sample composition. That said, there were no changes in the sample of included
credit card banks from 2022 to 2023.
Another difficulty that arises in assessing the
profitability of credit card activities over time
is due to changes in accounting rules. For
example, accounting rule changes imple-
mented in 2010 required banking institutions
to consolidate on their Call Reports some pre-
viously off-balance-sheet items (such as
credit-card-backed securities). To the extent
that previously off-balance-sheet assets have
a different rate of return than on-balance-
sheet assets, profitability measures based on
Call Report data in 2010 and after are not
necessarily comparable with those
before 2010.
Similarly, large credit card banks that file with
the Securities and Exchange Commission
began using the current expected credit
losses (CECL) methodology to estimate provi-
sions for loan losses on January 1, 2020.
CECL replaced the previously used incurred
loss methodology and incorporates some
forward-looking information in estimating
expected credit losses.
8
Because of this
change in methodology, starting in 2020, loan
loss provisions are not necessarily compa-
rable with those before 2020.
In 2023, credit card banks reported net earn-
ings, before taxes and extraordinary items, of
3.33 percent of average quarterly assets,
down from 4.70 percent in 2022 (table 1).
9
8
For more information on CECL, see https://www.federalreserve.gov/supervisionreg/topics/faq-new-accounting-
standards-on-financial-instruments-credit-losses.htm.
9
The 2022 estimate of the return on assets was revised from 4.71 to 4.70, reflecting revisions to the Call Report data.
Table 1. Annualized return on assets, large
U.S. credit card banks, 2001–23
Percent
Year Return
2001 4.83
2002 6.06
2003 6.73
2004 6.30
2005 4.40
2006 7.65
2007 5.08
2008 2.60
2009 –5.33
2010 2.41
2011 5.37
2012 4.80
2013 5.20
2014 4.94
2015 4.36
2016 4.04
2017 3.37
2018 3.79
2019 4.14
2020 2.40
2021 6.93
2022 4.70
2023 3.33
Note: Credit card banks are banks with a minimum 50 percent
of assets in consumer lending and 90 percent of consumer
lending in the form of revolving credit. Profitability of credit card
banks is measured as net pretax income as a percentage of
average quarterly assets.
Source: Federal Financial Institutions Examination Council, Con-
solidated Reports of Condition and Income (Call Reports),
https://www.ffiec.gov.
Credit Card Bank Profitability 3
The decline in profitability in 2023 mainly reflected a continued increase in provisioning for loan
losses (table 2). As discussed in the 2021 report, banks shrank their provisioning to a historically
low rate in 2021, as losses expected during the COVID-19 pandemic did not materialize. Starting
in 2022, banks began to increase their loan loss provisions, and in 2023 provisioning rose to
3.92 percent of average quarterly assets, closer to its historical average yearly rate for the
2001–19 period of 4.12 percent of assets.
Other changes in individual income and expense items did not contribute meaningfully to the
change in profitability. Net interest income at credit card banks inched up in 2023, as interest
income expanded slightly faster than interest expenses amid rising interest rates. Net noninterest
income stayed approximately flat, as a slight decrease in noninterest income was offset by a
similar decrease in noninterest expenses.
Credit card earnings have almost always been higher than returns on all bank activities, and earn-
ings patterns for 2023 were consistent with historical experience.
10
The average return on all
assets, before taxes and extraordinary items, was 1.35 percent for all banks, compared with
3.33 percent for the sample of credit card banks (as shown in table 2). Delinquency and
charge-off rates for credit card loans across all banks rose in 2023. Both delinquency and
10
This report focuses on the profitability of large credit card banks, although many other banks engage in credit card
lending without specializing in this activity. The cost structures, pricing behavior, cardholder profiles, and, consequently,
profitability of these diversified institutions may differ from that of the large, specialized card issuers considered in this
report. That said, the profitability of credit card banks was representative of the profitability of the credit card portfolios
of the large, diversified banks during the 2014–19 period. See Adams, Bord, and Katcher, “Credit Card Profitability,”
in note 7.
Table 2. Income and expenses for U.S. banks in 2022 and 2023
Percent of average quarterly assets
Credit card banks in 2023 Credit card banks in 2022 All banks in 2023
Total interest income 13.30 11.10 4.92
Total interest expenses 3.38 1.44 1.92
Net interest income 9.92 9.66 3.00
Total noninterest income 6.29 6.77 1.29
Total noninterest expenses 8.96 9.41 2.52
Net noninterest income –2.67 –2.64 –1.23
Provisions for loan losses 3.92 2.32 .37
Return 3.33 4.70 1.35
Note: Credit card banks are banks with a minimum 50 percent of assets in consumer lending and 90 percent of consumer lending in the form
of revolving credit.
Source:
Federal Financial Institutions Examination Council, Consolidated Reports of Condition and Income (Call Reports), https://www.ffiec.gov
.
4 Profitability of Credit Card Operations of Depository Institutions
charge-off rates are now the highest they have been since 2012.
11
That said, delinquency and
charge-off rates remain just below their longer-run pre-pandemic averages, excluding the Great
Recession period.
12
Market Structure and Additional Background
Bank cards are widely held and extensively used by consumers. According to the Federal
Reserve’s Survey of Consumer Finances (SCF), 80 percent of families had at least one credit card
in 2022, the most recent year for which survey results are available.
13
Consumers use credit cards for a source of credit and as a convenient payment device. As a
source of credit, credit card users can borrow up to the credit limit on their account and revolve
the balance by paying less than the full amount due.
14
As a payment device, approximately
one-fourth of the outstanding balances reflect primarily “convenience use”—that is, balances con-
sumers intend to repay by their statement due date, within the standard interest-free grace period
offered by card issuers. In fact, consumer surveys, such as the SCF, typically find that more than
60 percent of cardholders report they nearly always repay their outstanding balance in full before
incurring interest each month.
15
That said, the 20 percent of credit card accounts that revolved a
balance on their credit cards in each of the previous 12 months account for about two-thirds of all
credit card revolving balances.
16
The general-purpose bank credit card market in the U.S. is dominated by cards issued on the
Visa and Mastercard networks, which, combined, accounted for 726.6 million cards, or about
85 percent of general-purpose credit cards, in 2023.
17
In addition, the American Express and Dis-
cover networks accounted for another 132.4 million general-purpose cards in 2023. The combined
total number of charges and cash advances using credit cards rose 8.1 percent to 60.8 billion
transactions in 2023. Last year, the dollar volume of these transactions rose 6.8 percent to more
than $5.9 trillion, after rising almost 20 percent in 2022.
11
See Board of Governors of the Federal Reserve System (2024), Statistical Release, “Charge-Off and Delinquency Rates
on Loans and Leases at Commercial Banks” (February 23), www.federalreserve.gov/releases/chargeoff.
12
Long-run averages were calculated over the 2000:Q1–2019:Q4 period, excluding the 2007:Q4–2010:Q4 period.
13
This statistic reflects access to general-purpose credit cards and does not include retail cards or charge cards.
14
Credit card borrowers must pay at least the minimum amount due each month to remain in good standing.
15
See Aditya Aladangady, Jesse Bricker, Andrew C. Chang, Sarena Goodman, Jacob Krimmel, Kevin B. Moore, Sarah Reber,
Alice Henriques Volz, and Richard A. Windle (2023), Changes in U.S. Family Finances from 2019 to 2022: Evidence from
the Survey of Consumer Finances (Washington: Board of Governors of the Federal Reserve System, October), https://
doi.org/10.17016/8799.
16
See Adams, Bord, and Katcher, “Credit Card Profitability,” in note 7.
17
Figures cited in this paragraph are from the Nilson Report. See HSN Consultants, Inc. (2024), Nilson Report, no. 1258
(Carpinteria, Calif.: The Nilson Report, February).
Market Structure and Additional Background 5
A relatively small group of card issuers holds most of the outstanding credit card balances, with
the top 10 holding 81 percent.
18
Several thousand other financial institutions offer credit cards to
consumers but hold a small share of outstanding credit card balances. In the aggregate, the Fed-
eral Reserve Statistical Release G.19, “Consumer Credit,” indicates that consumers carried
$1.3 trillion in outstanding balances on their revolving accounts as of the end of 2023, about
$102 billion (8.4 percent) higher than the level at the end of 2022.
Despite this strong growth in balances, data from consumers’ credit records indicate that aggre-
gate balances owed remained a small share of the total amount of available credit under out-
standing credit card lines as of the end of 2023.
19
Apart from a one-year decline in 2020, the
total dollar amount available (credit card account limits) has risen each year since 2010 and
approached $4.8 trillion at the end of 2023.
In soliciting new accounts and managing existing account relationships, issuers segment their
cardholder bases along several dimensions. For example, issuers offer more attractive rates to
customers who have good payment records while charging relatively high interest rates and fees
on higher-risk or late-paying cardholders. Card issuers also closely monitor payment behavior,
charge volume, and account profitability, and they adjust credit limits accordingly both to allow
increased borrowing capacity as warranted and to manage credit risk.
Various channels are used for new account acquisition and account retention.
20
The most impor-
tant channel in recent years is generally referred to as the digital channel, which includes email
solicitations, website advertisements, and social media advertisements. These solicitations could
stem directly from the bank or from third-party firms. At the end of 2023, more than half of
applied-for offers were received digitally. Branches, kiosks, and automated teller machines, or
ATMs, are other significant channels for account acquisition as banks take advantage of cross-
selling opportunities. Finally, direct mailings continue to be an important channel, with about
3.6 billion offers mailed in 2023, accounting for almost 19 percent of applied-for offers.
In recent years, several new trends related to credit card usage have emerged. First, some bor-
rowers have turned to personal loans for debt consolidation, including the refinancing of credit
card debt. Such loans are offered by traditional banks and finance companies as well as by finan-
cial technology lenders, often in partnership with banks. Second, the buy-now-pay-later (BNPL)
market has grown significantly over the past several years as an alternative payment method for
consumers at point of sale, particularly for online purchases. BNPL providers, many of which are
18
Four of the top 10 card issuers are in the sample of credit card banks used in this report. The other six issuers do not
meet the requirements for inclusion in the sample.
19
See Federal Reserve Bank of New York (2024), Quarterly Report on Household Debt and Credit: 2023:Q4 (New York:
FRBNY, February), https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/hhdc_2023q4.pdf.
20
Information and acquisition channels data in this paragraph are based on proprietary data from Mintel Comperemedia.
6 Profitability of Credit Card Operations of Depository Institutions
financial technology providers, allow consumers to pay for a purchase through an installment plan,
often with very low or zero interest. Additionally, several credit card lenders have recently intro-
duced services that allow their credit card borrowers to convert eligible credit card transactions
into installment plans post-transaction.
Recent Trends in Credit Card Pricing
The topic of credit card pricing and how it has changed in recent years has been a focus of public
attention and is, consequently, reviewed in this report. The analysis of the trends in credit card
pricing here focuses on credit card interest rates because they are the most important component
of the pricing of credit card services. Credit card pricing, however, involves other elements,
including annual fees, fees for cash advances and balance transfers, rebates, minimum finance
charges, over-the-limit fees, and late payment charges.
21
In addition, the length of the interest-free
grace period, if any, can have an important influence on the amount of interest consumers pay on
revolving credit card balances. It is also important to note that interest rates charged vary consid-
erably across credit card plans and borrowers, reflecting the various features of the plans and the
risk profile of the cardholders served.
Over time, pricing practices in the credit card market have changed. Today, card issuers offer a
broad range of plans with differing fees and rates depending on credit risk, consumer usage pat-
terns, and specific benefit packages. Following the economic downturn in 2009, new credit card
rules spurred changes in interest rate pricing in 2009 and 2010.
22
In most plans, an issuer estab-
lishes a rate of interest for customers of a given risk profile; if the consumer borrows and pays
within the terms of the plan, that rate applies. If the borrower fails to meet the plan requirements—
for example, the borrower pays late or goes over their credit limit—the issuer may reprice the
account to reflect the higher credit risk revealed by the new behavior. Regulations that became
effective in February 2010 limit the ability of card issuers to reprice outstanding balances for card-
holders who have not fallen more than 60 days behind on the payments on their accounts. Issuers
may, however, reprice outstanding balances if they were extended under a variable-rate plan and
21
The vast majority of credit card profitability arises from interest rates and late fees. Moreover, credit card account
holders who revolved a balance on their accounts either consistently or sporadically over the previous 12 months
account for almost all interest charges and the majority of all fees paid on credit card accounts. See Adams, Bord, and
Katcher, “Credit Card Profitability,” in note 7.
Additional assessments of the rates and fees charged by credit card issuers are provided in U.S. Government Account-
ability Office (2006), Credit Cards: Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures
to Consumers, report to the ranking minority member, Permanent Subcommittee on Investigations, Committee on Home-
land Security and Governmental Affairs, U.S.Senate, GAO-06-929 (Washington: GAO, September), www.gao.gov/
new.items/d06929.pdf; and Bureau of Consumer Financial Protection (2021), The Consumer Credit Card Market (Wash-
ington: BCFP, September), https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-
report_2021.pdf.
22
New rules include the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 and amendments to
Regulations Z and AA passed in 2010.
Recent Trends in Credit Card Pricing 7
the underlying index used to establish the rate of interest (such as the prime rate) changes.
23
These rules do not explicitly restrict initial pricing of new accounts.
The credit card pricing information used in this report is obtained from the Quarterly Report of
Credit Card Plans (form FR 2835a). This survey collects quarterly information from a sample of
credit card issuers on (1) the average nominal interest rate and (2) the average computed interest
rate. The former is the simple average interest rate posted across all accounts; the latter is the
average interest rate paid by only those accounts that incur finance charges. These two measures
can differ because some cardholders are convenience users who pay off their balances during the
interest-free grace period and therefore do not incur finance charges. Together, these two interest
rate series provide a measure of credit card pricing. The data are made available to the public
each quarter in the Federal Reserve Statistical Release G.19, “Consumer Credit.”
Form FR 2835a data indicate that the average credit card interest rate across all accounts
increased from 19 percent at the end of 2022 to 21.5 percent by the end of 2023. At the same
time, the yield on two-year nominal Treasury securities—a measure of the benchmark, or “risk
free,” rate—inched down in the beginning of 2023 but rose to close out the year at approximately
4.8 percent (figure 1). The average interest rate on accounts that incurred interest was reported to
be higher, increasing to 22.8 percent at the end of 2023.
23
According to the Mintel Comperemedia data, 94 percent of credit card mail offerings in 2023 were for variable-rate
cards. Other data sources on credit card accounts confirm this observation.
Figure 1. Average interest rates on credit card accounts
0
5
10
15
20
25
2-year Treasury rate
Interest rate, card accounts assessed interest
Interest rate, all card accounts
202320212019201720152013201120092007200520032001199919971995
Percent
Quarterly
Q4
Source: Federal Reserve Board, form FR 2835a, Quarterly Report of Credit Card Plans.
8 Profitability of Credit Card Operations of Depository Institutions
www.federalreserve.gov
0624
