Even as credit card use increased in the fourth quarter of 2019, a record share of consumers paid off their bill in full each month, according to the American Bankers Association’s latest quarterly Credit Card Market Monitor. Seasonally adjusted monthly purchase volumes rose compared to the previous quarter, particularly among super-prime (+4.0%) and prime (+2.9%) accounts, reflecting moderate consumer spending during that period. On a year-over-year basis, purchase volumes grew moderately among prime (+5.8%) and super-prime (+5.7%) accounts and rose modestly for subprime accounts (+2.0%).
At the same time, the share of Transactors (those who pay their monthly balance in full each month) rose to an all-time high of 31.9%, while the share of Revolvers (those who carry a monthly balance) inched up 0.2 percentage point to 44.1%, little changed over the last 3.5 years. Meanwhile, the share of Dormant accounts fell 1.0 percentage point to 24.0%, the lowest level on record.
“This report demonstrates that consumers were generally in a solid financial position before the current downturn,” said ABA Senior Economist Rob Strand. “Banks will continue to actively work with their customers based on their financial needs to help ensure they can continue to manage their finances during and after the public health crisis.”
The effective finance charge yield (which measures interest payments relative to total outstanding credit in the market) dropped 33 basis points to 12.9%. This movement suggests that the effects of the Fed cutting its benchmark rate in the second half of 2019 was partially offset by the increase in revolving accounts. Meanwhile, credit card credit as a share of disposable income (seasonally adjusted) increased 19 basis points to 5.50%, but remains 2–3 percentage points below levels seen prior to the last recession.
The May 2020 Monitor, which consists of credit card data from October through December 2019, also found that the number of total credit card accounts pulled back slightly compared to the third quarter, marking the second consecutive quarterly decline. This quarter’s decrease was driven by easing in total prime (-1.2%) and super-prime (-0.6%) accounts. Meanwhile, new account volume (accounts opened in the previous 24 months) in the fourth quarter also declined compared to the previous quarter for the eighth consecutive period, led by a 1.6% and 1.1% decrease in new super-prime and prime accounts, respectively. New subprime accounts increased a modest 0.6% compared to a year ago.
“Over the last several years, banks have been slowly bringing individuals who lost access to the credit card market in the aftermath of the last recession back into the fold with lower credit lines that could rise over time with good payment behavior,” said Strand. “While the COVID-19 pandemic has changed underlying economic conditions and increased uncertainty, greater access to short-term financing provided by credit cards can help some consumers who face temporary income disruptions.”
Average credit lines grew across risk tiers for both new and total accounts in the fourth quarter. Growth was led by prime credit lines, which increased 1.6% among all accounts and 1.2% among new accounts. Although credit lines for new subprime accounts increased 1.1% on a quarterly basis, they remain roughly 31% below their peak (inflation-adjusted) in the first quarter of 2009.
The full report with detailed charts and statistics is available here.
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 Argus Information Services LLC. 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.