Card-issuing banks that provide payment advice to their customers may profit from lower delinquencies and improved long-term customer retention.
Data show that consumers are increasingly using credit cards to make payments — perhaps unsurprisingly, given that nearly two-thirds of consumers continue to live paycheck to paycheck — and earnings reports from across the industry suggest that a sizable portion of these cardholders may be biting off debt that they cannot chew.
Consumers’ Increased Credit Appetite
According to American Express’ earnings report for the fourth quarter of 2022, credit cards remain a favourite payment method across age demographics. Amex customers pay 15% more than a year earlier, and their loan-past-due and write-off rates are also rising, albeit they remain significantly below pre-pandemic levels.
In 2022, Wells Fargo experienced a 31% increase in new card accounts and a 17% increase in credit card point of sale (POS) transactions. However, the bank’s card loans that were more than 30 days late increased during the same time period, as did consumer net loan charge-offs.
This means that customers are using their credit cards more frequently, but are also having more difficulty repaying their bills. Capital One had comparable growth, however the bank’s allowance for credit losses increased $1.4 billion year over year, from $384 million the prior year.