US Bankcards Industry Benchmarking Trends: 2023 Q2 Update

Growth persisted in the first half of 2023 as increasing interest rates began to impact the US Real Gross Domestic Product (GDP). While the job market remains more robust than expected, financial stress continues to surround inflation, as it’s proven to be longer-lasting despite rises to the Federal Funds rate. In this blog, I will review the latest economic trends in the US and share new data on credit card payment patterns, and what these say about consumers’ financial health.

Rising interest rates have slowed the demand for credit and loans on purchases of new houses and vehicles, but consumer demand continues to rise on revolving credit cards despite the higher rates. More consumers are using their credit cards and the average balance continues to climb.

The numbers:

• The US Real Gross Domestic Product (GDP) released by the U.S. Bureau of Economic Analysis showed the economy grew at a pace of 2.4% in the second quarter of 2023. Visa’s latest forecast predicts that high interest rates will catch up with GDP in Q3 and Q4 2023, leading to the declaration of a recession.
• The unemployment rate has stayed steady around 3.6% over the past several months. Prior expectations from the Federal Reserve were that the unemployment rate would rise to 4.3-4.9% by the end of 2023; however, the job market has remained strong and now forecasters believe unemployment will continue below 4% until mid-2024.
• The National Association of Realtors reported that sales of previously owned homes declined 3.3% in June (compared with May) and are down 18.9% when compared to June 2022. Overall, housing prices are expected to hold their ground in 2023 while inventories return to more normal levels than in previous years.
• U.S. Census Bureau reports advanced estimates that retail sales were up 0.2% from May 2023 to June 2023.
• Inflation (the year-over-year comparison of the Consumer Price Index) continued to slow in June to 3.1%; prices rose 0.1%-0.3% each month in the second quarter.
• Based on June data, the Federal Funds Effective Rate was raised to 5.25%-5.5% during the Federal Reserve’s July meeting – the highest rate in 22 years.

The following card performance metrics help us understand the impact of the macro environment on consumers and the credit card industry at an aggregate level. These figures represent a national sample of approximately 130 million accounts that comprise FICO® Advisors’ Risk Benchmarking solution. The data sample comes from FICO client reports generated by FICO® TRIAD® Customer Manager and Adaptive Control System solutions.

Bankcard Usage & Payments

The average balance on US bankcards has been climbing steadily since March 2022 and is now $2,573, a 6.5% increase from one year ago. The percentage of customers active on their cards each month has been stable at ~51-52% since December 2021, contributing to the increase in balance, while average monthly spend has remained stable over the same time period.

The increase in average balance is also driven by a decreasing payment rate (percentage of previous month’s balance that was paid back). The US bankcard payment rate in June of 27.7% is 7.5% lower year-over-year.

Delinquency Rates

Pressures from rising balances and inflated interest rates are leading to higher past due rates across the US bankcard industry. Customers are entering delinquency at a faster pace over the past two years and rolling these increased levels of debt through collections buckets, leading to increased losses for issuers.

The percentage of accounts that are one cycle past due has grown by 42.6% in the past two years and the percentage of balances that are one cycle past due has grown by 28.3%. June’s rates of 6.7% and 6.8%, respectively, are the highest one-cycle past due rates since September 2017. With customers unable to keep up or catch up, the percentage of accounts and balances that are two cycles past due has more than doubled over the same two-year period. The probability of repayment drops significantly when a customer misses multiple payments in a row.

Overall, the U.S. bankcard data indicates that consumer behavior has been in a downward spiral. Increased card usage and lower payment amounts will need to be monitored closely by risk managers so lending strategies are updated accordingly. Consumers who are struggling can find tools at myFICO.com to help keep track of their credit usage and FICO® Score.

Financial institutions and credit card issuers can reach out to your FICO Solution Success Advisor or FICO Client Partner for a discussion and current state assessment if you need help completing an evaluation of your portfolio.

If you have questions or are interested in discussing these insights in more detail, please leave a comment on this post.

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• See my previous posts on US card performance