2024 Trends & Predictions: Credit Payments

Credit cards are the most common form of unsecured credit in the United States. With more than $1 trillion in revolving debt and $4 trillion in transaction throughput, the credit card industry must prepare for a riskier environment after a pandemic, inflation, and surging interest rates. The sector faces risks with the operating model as collection volumes swell, which will increase credit card charge-offs and require deeper investments in technology and human capital. This will cause an increase in non-interest expenses to service incremental collection volumes and, based on the degree of the downturn, will raise allowances for loan losses, which directly affect net revenue.

Applied technologies will help relieve some of the operational risk; however, in an industry that Javelin Strategy & Research estimates employs 80,000 people, there will be staffing demands on the collection function, which requires a production staff of 24,000 (about the seating capacity of Madison Square Garden). Rising collection volumes indicate that consumers’ budgets are stressed. As high interest rates and inflation persist, the industry must brace for increased operational costs and more considerable credit risk. At the same time, it must contend with legislators who now attempt to threaten the business with interchange price controls. Risks and costs are surging, and the business model faces headwinds. Each of these issues can potentially reduce net income, but in combination, they create the perfect storm that will affect the industry in years to come. In the 2024 Javelin Credit Trends report, we focus on three areas credit card lenders must manage and propose our view for appropriate action. These areas include bracing for an economic downshift, the expectation of higher charge-offs and delinquency for the next two years, and the attack underway against the credit card rewards model.