Lately I have been really geeking out on the Federal Reserve website, which has lots of great data.  Today I was looking at Report to the Congress on the Profitability of Credit Card Operations of Depository Institutions, a deep analysis of the profitability of credit card issuers.  To do this analysis the fed takes advantage of the fact that there are many banks whose primary business is issuing cards and that those banks need to report their profitability and return on assets to the Fed, FDIC and other regulators.  Here is what I learned:

• Issuing credit cards is a good business with return on assets between 2% and 4% depending on the year.  Compare this to the overall profitability of banks from another Fed Bulletin entitled Profits and Balance Sheet Developments at U.S. Commercial Banks in 2007 which shows overall bank return on assets varying between 0.2% and 1.6% over the same time period.  Clearly credit card issuing has historically been more profitable then most other banking products.

  Credit Card Issuer Return on Assets

• At the end of 2007 there were $917 billion in consumer credit card balances outstanding, I wonder how that has changed since then.
• There were about 600 million Visa and Mastercard credit cards at the end of 2007 and another 100 million Discover and American Express.
• There were 5.2billion credit card offers mailed out in 2007 – around 17 per person in the US, or around 52 per household.  The response rate was around 0.5%.
• The average credit card interest rate was around 14%.

Credit card issuers make money in two ways, first by charging merchants credit card processingfees for each transaction (for visa and mastercard those fees are called Interchange) which is collected by the credit card processor and passed along to the bank that issued the credit card (about 30% of their revenue), and second by charging fees and interest rates to the consumer for any balances that are carried (about 70% of their revenue) which are billed directly to the consumer.