Consumers have seen their credit card habits significantly altered since the onset of the recent recession, but now some predict that the habits they abandoned may slowly start to come back over the next few years.
Between 2007 and 2012, a number of economic factors came together to create tough conditions for the credit card issuing industry, including higher unemployment, declining home prices and tightening credit conditions in general, according to a new report from industry research firm IBISWorld. During that time, the revenues for the credit card issuing industry fell commensurately, by about 4 percent annually to a projected value of $50.8 billion by the end of the year.
This was driven largely by significant drops between 2007 and 2010 - the generally agreed-upon period for the recession - but many linger to this day, the report said. Currently, issues like delinquency and decreased reliance on revolving credit are absorbing as much as 26.3 percent of revenues issuers might have had, though that rate is down slightly from the high observed in 2009.
"Increasing unemployment, high consumer debt, falling property prices and in some cases, negative equity, have driven the rise in charge-offs and delinquencies," said IBISWorld industry analyst Eben Jose.
But over the next five years, through to the end of 2017, that trend is expected to reverse, the report said. Already, revenues increased 3.9 percent in 2011, and will likely rise an additional 3.8 percent by the end of this year. And as the economy continues to improve in the coming months, so too will lenders' prospects. Falling unemployment rates, for example, means more discretionary income, which could in turn lead to increased spending among consumers who are feeling more comfortable with the state of their personal finances.
What could really drive the increase in credit card issuers' revenues and profits, however, is the rise of both online and mobile purchasing, the report said. As consumers begin to rely on these technologies more often to make the purchases they need in their daily life, rather than only doing so occasionally, they will continually see their use of cash fall, meaning that issuers are going to deal with more transactions in general. Further, improving borrowing conditions will likely lead to a decrease in delinquencies and defaults which will allow lenders to set fewer funds aside for losses.
And over the next five years, it's likely that the nation's top six credit card lenders - JPMorgan Chase, Bank of America, Citi, American Express, Capital One and Discover - will increase their share of the market, as they have been for the past five years, the report said.
In recent months, consumers have been far more conscientious about paying all their credit card bills on time and keeping their balances low, but have increased the amount of transactions they complete, indicating a greater feeling of trust in their own abilities to deal with credit card balances.
