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Understanding the Credit Card Industry

Introduction


The credit card issuing industry is made up of companies who actually issue the credit card to the consumer rather than companies that process the transactions such as Visa and MasterCard.


The primary sources of revenue in this industry come from 1) Cardholder fees, which are fees that consumers pay in order to have a certain level of credit card such as the platinum card American Express offers which costs $550 per year. The second way credit card companies make money is through processing fees, which are fees charged to merchants in which the credit card issue gets a small percentage of the total transaction when a consumer uses their card. The third primary way they make money is through interest income which is charged to a cardholder if they don’t pay off their credit balance at the end of the month. As an aggregate of all the sources of revenue of each company, the credit card issuing industry brought in total revenue of $107 billion 2019, $24 billion of which was profit, giving the industry an aggregate profit margin of 22.4%.


Top Companies


While the credit card issuing industry is made up of hundreds of companies, there are four top players that make up the majority of the market: American Express, with 23.1% of the market, Synchrony Financial with 17.1%, Capital One with 15.1%, and Discover Financial Services with 9.1%.


As a whole the industry is expected to increase over the coming years as the number of consumers who one credit cards continues to go up.


Demographics


IBIS World estimates that 18.3% of the market is made up of 19 to 29 year olds, 55.8% of the market is made up of 30 to 65 year olds, and 22.1% is made up of senior citizens 65 years or older.


To entice people into signing up for premium cards, 70% of credit cards now come with some sort of rewards, with companies such as American Express partnering with Airlines to offer cardholders frequent flyer miles and other such benefits.


With the top 4 companies making up 64% of the market and the top 20 companies making up 99%of the market, they will most likely maintain their competitive position given the intense regulation on credit card and other financial services companies, most likely growing roughly 4% annually over the coming years.


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