The Credit Card Industry Is Losing Revenue

Across the country, many consumers have found themselves struggling financially over the past year. They are not alone - the seemingly invincible credit card industry suffered close to a 6% loss in revenue in 2011, earning just $154.9 billion for the year as compared to the $163.9 of the year before.

According to Michael Germanovsky, Credit-Land.com`s chief finance expert, the reason for this is partially because "People are becoming more cautious of their spending on credit as a direct result of rising interest rates. The average rate rose to 15.7% in December. There is also a higher awareness of debt among consumers."

Germanovsky went on to point out that increasing APR’s to stem revenue losses is a trick that has been employed by credit card companies in the past.

"We`ve seen this before. In 2009, when Moody`s predicted losses for the credit card industry above 12%, many credit card companies turned to raising interest rates to make up for losses," he stated.

These desperate times might just call for more desperate measure on the part of lenders. Card issuers may have to outsource or automate more operations tasks as well as card-risk management jobs in the interest of laying off staff in order to cut expenses.

Robert Hammer, chairman and CEO of California-based credit card advisory firm, R.K. Hammer, told Collections & Credit Risk "We`re forecasting about 160,000 bankers will lose their jobs this year as banks cut costs, and a good number of those will be in the credit card area."

In the efforts to incite a resurgence of borrowing amongst consumers, many credit card issuers have been extending tremendous offers throughout the past year, including sign on bonuses, generous rewards program increases and enticing zero interest balance transfer offers. Lenders hope to coax more shoppers to spend with a credit card as opposed to a debit card because of the interchange fee cap that was mandated by the Federal Government upon debit card transactions back in October.

"Higher interest rates and higher spending rewards are going to be a game changer in 2012. We may see rising interest rates, but more generous rewards that inspire higher credit card spending," predicts Credit-Land’s Germanovsky.

Hammer believes that, "as the economy improves, we may see modest improvements in consumer spending and card use," according to Collections & Credit Risk.

Doug Nicholas

Doug Nicholas, a financial consultant by profession with a Masters degree in International Business from Brown University, is also an ardent writer. Though he has a full time job at one of the companies listed on Wall Street, he does manage to squeeze in time to follow his passion. He puts his ideas to words in his articles related to finance and business.