During the greater part of 2009, the service fee levied by Bank of America on its credit as well as debit cards, was relatively stable. Strong revenues were also generated thanks to higher interchange fees and card fees in the US. Since then the fees have declined sharply along with a decline in the revenues generated from the card. This has led to lower cash advances and a lower interchange or currency conversion fee. This has to do with the recession as well as the change in the consumption patterns of the customers.
There is competition in getting more and more customers between Bank of America and other card issuers like Citigroup, Wells Fargo and JPMorgan Chase. The credit card reforms proposed during 2009 intended to benefit customers to a great extent. However, the act which was eventually passed places a lot of restrictions on the card issuers, including the way card fees can be levied on customers and the extent to which customers could be charged. The lowering of card fees as a result of the regulations means that Bank of America could lose as much as 2 billion dollars every year.
The revenue from the fee that the card issuer generates currently is expected to stabilize at 1.7% moving forward. A slightly higher level of around 2.2% is expected from a few others, leading to an upside for the BAC stock. The market for credit card securitization accounts for about 20 – 50 % of the total number of card accounts for major card issuers. This also allows card issuers to charge lower APR or waive the annual fee. As the asset backed securities weaken within the market, there will also be a great impact on the service fees that is being collected by the banks.
Another thing to look at is the recession, which seems to have impacted the consumer spending thereby reducing the revenues generated from fees. On the other hand, once the economy is on the road to recovery, the consumption and therefore, the card fees are all likely to go up as well. One of the things that the CARD Act has done is to prevent banks from levying inactivity fees for those card users who haven’t used their card. Credit card issuers will also be prevented from charging a penalty that is higher than the legal amount.