We’ll set aside the obvious jokes about the 2016 Presidential Election that this article’s title invites.
According to industry sources, the number of U.S. credit card accounts is starting to approach pre-recession highs.
“Now, the number of credit-card accounts in the U.S. is rising quickly. And, based on current growth rates, the total number will soon be back to pre-recession levels.
It peaked at just over 496 million in the second quarter of 2008, and fell sharply during the global financial crisis by 24 percent to about 379 million in the third quarter of 2010, according to data from the Federal Reserve Bank of New York. The number of cards in circulation has been rising steadily since, and now stands at more than 435 million.
If the trend continues, the number of cards is expected to hit the previous peak by the second quarter of 2018, according to Michelle Hutchison, a money expert at the personal finance site Finder.com.”
Given that credit cards have been one of the primary drivers of bank profitability since the recession, it’s not surprising that issuers have been focused on growing their account bases. This focus on acquisition is reflected in the growing volume of direct mail offers.
“Last year, lenders sent out just over 4 billion card offers in the mail, according to research from Mintel Comperemedia. Offers peaked at 6 billion in 2005 and hit a post-recession low of 1.8 billion in 2009.”
As well as the credit card rewards arms race that is currently underway.
“A lot of the growth in credit-card accounts is simply because there’s never been a better time for consumers for credit-card rewards,” said CreditCards.com senior analyst Matt Schulz.
Some worthwhile contenders include the “Discover it” card, which will double your cash back at the end of the first year, or Citi Double Cash, which gives you 2 percent cash back on everything with no annual fees, or Chase Freedom, which offers a $150 bonus if you spend $500 in the first three months, Schulz said.”
The concern is that the increasing attractiveness of credit cards may tempt some consumers to bite off more than they can safely chew.
“That could be happening already. In addition to the rising number of card accounts, credit-card balances are also steadily creeping higher. Total balances for cards reached nearly $644 billion in the first quarter of 2016, an increase of 6.4 percent and the highest year-over-year growth in more than six years, according to TransUnion.
Although credit-card delinquency rates of 90 or more days remain low, they increased to 1.47 percent in the first quarter of 2016, the first increase since 2013.”
Indeed, recent reports from Synchrony and other large issuers suggests that the unusually long period of low deliquency rates may be coming to an end. Many issuers are responding to these rising deliquency rates by increasing loss reserves, but it is unlikely that they will also tighten their underwriting standards or pare back their generous rewards offers (at least in the near term). Like consumers, banks are opening credit card accounts like there’s no tomorrow.
Overview by Alex Johnson, Director, Credit Advisory Service at Mercator Advisory Group
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