Despite persistent challenges from the pandemic-induced recession, the credit card market continues to show resilience, according to the American Bankers Association’s latest quarterly Credit Card Market Monitor. Monthly purchase volumes rebounded strongly across risk groups in the third quarter of last year even as the ratio of credit card credit outstanding as a share of national disposable income remained near an all-time low.
The February 2021 Monitor, which reflects credit card data from July through September 2020, found that monthly purchase volumes jumped more than 20% quarter-over-quarter, though credit card purchases remain well below pre-pandemic levels. Meanwhile, credit card credit outstanding as a share of national disposable income* rose slightly by 6 basis points to 4.54% but remains near an all-time low and is nearly 100 basis points below its Q4 2019 level.
The share of cardholders who are Transactors (those who pay their monthly balance in full) rose 1.5 percentage points to an all-time high of 33.7% for the second straight quarter. At the same time, the share of Revolvers (those who carry over a monthly balance) fell another 1.7 percentage points in the third quarter to an all-time low of 40.7%. Meanwhile, the share of Dormant accounts ticked up 0.1 percentage point to 25.6%.
“The record-high share of Transactors illustrates the resilience of U.S. consumers,” said ABA Senior Economist Rob Strand. “Though many people are still unemployed, a combination of restrained spending and continued government support has left many consumers well-positioned to manage credit card payments.”
The effective finance charge yield (which measures interest payments relative to total outstanding credit in the market) decreased 22 basis points in the second quarter to 12.33% due to the declining share of Revolvers and the Fed’s benchmark interest rate remaining near zero. Outstanding credit card credit fell to its lowest level since the second quarter of 2017.
The Credit Card Market Monitor also found that, for the second consecutive quarter, credit lines fell on a quarterly basis for both new and total accounts across all risk tiers. Measured on an annual basis, total credit lines also fell across the board, though the decline in prime account credit lines (-3.4% year-over-year) was notably larger than for subprime and super-prime accounts (both of which fell 0.4% year-over-year).
In the third quarter, the number of new accounts (those opened in the previous 24 months) fell by 8.4% — the largest quarterly decline in a decade — and is down 13.2% since the pandemic began. The reduction has occurred across risk tiers, although it was greater among new subprime account openings (-26% relative to Q1) than for prime (-9.6%) and super-prime accounts (-6.8%).
The slowdown in new account openings caused the total number of credit card accounts to fall 1.4% in the third quarter compared to the prior quarter, with most of the decline occurring in subprime accounts. Among all accounts, those in the subprime tier comprised a record-low 17.9%, while the super-prime tier comprised a record-high 55.2% of accounts.
“Credit card issuers continue to take a cautious but balanced approach toward account activity,” said Strand. “The increase in super-prime accounts also reflects that many cardholders have improved their financial position and credit scores during the pandemic.”
The full report with detailed charts and statistics is available here.
*Seasonally Adjusted
About the Credit Card Market Monitor
The American Bankers Association Credit Card Market Monitor is a quarterly report that provides key statistics on industry trends and relevant economic factors affecting the industry. The credit card data used in the report is taken from a nationally representative sample provided by Verisk Financial | Argus. Credit card data are presented as national averages for all accounts based on actual credit card account information. No individual account holder’s information or specific financial institution’s data can be identified from the data set. Other data used in the report are taken from various public and private sources, including the Department of Commerce’s Bureau of Economic Analysis and the Federal Reserve.
Answers to Frequently Asked Questions and definitions of the data presented in the ABA Credit Card Industry Monitor can be found in an Appendix attached to the monitor.
Results of this and all previous reports can be found at www.aba.com.