This editor's letter is a modified version of the one that appears in the May 2009 issue of Cards&Payments.
Throughout this year we have published various articles noting rising card charge-offs and delinquencies and a slowdown in consumer card spending caused by the global economic downturn. These trends began to surge late in 2008, but for the year as a whole MasterCard and Visa credit card issuers still managed to turn a sizable profit, though not as much as the previous year.
As this month's cover story, our exclusive Bankcard Profitability Study and Annual Report, shows, issuers earned a combined $27.26 billion pretax profit/return on investment last year, down 3% from $28.07 billion in 2007.
Issuers were able to maintain profitability, in part, by tightening their card-underwriting standards, securing more penalty fees and touting higher-margin premium rewards cards. They also benefited by a lower federal funds rate.
This year, we made a few modifications in how we determine some of the key data points used to derive our bankcard-profitability findings.
In years past, when many of the leading issuers were privately held companies (all are public entities now), either MasterCard or Visa would supply their year-end receivables totals for their member issuers, or we estimated them based on input from analysts and other industry observers. This year, we pulled together from federal filings the total bankcard receivables on managed credit card outstanding balances at the end of 2008 and 2007 for the nation's top 12 Visa and MasterCard issuers, which combined represent more than 90% of total U.S. bankcard outstandings.
The issuers filed this data, compiled by our PaymentsSource.com data team, either with the Federal Deposit Insurance Corp. or the Federal Reserve Bank.
How we determine average outstandings for the year also changed. Previously, we derived that data point by taking the average receivables from the previous year plus 60% of the difference between the year-end total receivables for both years. We based this on the idea that spending is weighted toward the end of the year. This year, we simply took the straight average of the total quarterly managed credit card outstanding balances for the top dozen issuers.
We firmly believe these changes reflect more-accurately the financial state of the bankcard industry.
I also should note that, because Visa Inc. had not yet reported its year-end card activity for 2008 at our deadline, we estimated Visa transaction volumes for the year. We will update our charts and cover story using the actual data in the version published on PaymentsSource.com.