Decreases seen in credit-card portfolio revenues have caused increased competition in the credit-card lending sector, sources say, as issuers attempt to offer attractive pricing points to those that are credit-worthy.
But the bigger picture here, said market observers, is what could potentially happen to profit margins and the effect that it may have on the securitization of credit card portfolios.
"We've seen an increase in principal payment rates and that will affect the amount of yield that is generated on revolving balances," explained Latonia Dukes, a vice president at Moody's Investor Services. "Typically what we see in securitized credit card pools is one indication of profit margins in a measure we call excess spread."
One phenomenal aspect that is occurring with the decline in the yield curve stems from competition among different credit-card lenders. Issuers are going to face the challenge of being able to retain customers by offering those credit-worthy borrowers attractive pricing points while also appropriately pricing the riskier components or riskier borrowers within the portfolio.
"It is an issue of being able to proactively manage the risks of a portfolio and being able to appropriately price for that risk," said Dukes.
These issues, among others, have been leading many issuers over the last few years to turn toward consolidation in an effort to increase their credit card coverage.
"What we saw was issuers exiting the credit card business. We also saw sales of portions of portfolios," said Dukes. "For example, we saw issuers sell off portions of their portfolios that were outside what we call a "footprint", or their area of expertise or lending to a specific type of borrower. To the extent that competition remains fierce, we may see a little more consolidation in the industry."