Credit Card Industry – USA – Complete Overview

In the year 2020, the total debt owed by american public was about 14 trillion dollars and credit card debt was the fourth largest debt bucket at about 6% of the total debt. The total credit credit card debt was about 0.8 trillion dollars and was the fourth largest debt bucket after mortgage loan, student loan and auto loan. However it is important to understand that mortgage and auto loan are secured loan which means they are backed by a physical asset whereas credit card is an unsecured loan, which means there is no collateral against this debt. Now let us look at the transaction data for credit card industry.

In 2020, there were about 45 billion credit card transaction resulting in a total transaction amount of about 4 trillion dollars. Even though the total credit card debt was 0.8 trillion dollars, the total transaction amount was higher because credit card debt is a revolving debt, which means the consumers can use the credit line and then pay back partially or completely.
If we divide the total transaction data by the total number of credit cards, we see that there were roughly 65 transactions per credit card per year resulting in total 5,500 dollars of transaction.

So what are the total number of credit cards in the US ?
As of 2020, there were about 700 million credit cards. However an average person held about 4 credit cards in the US and utilized only 25% of the total available credit line. At this utilization level, the average credit card balance carried by an individual person was about 6000 dollars.

Looking at the averages, we can say that an average person owes roughly 18% of their annual income in credit card debt. However averages do not tell the complete story, as the distribution of this debt might be skewed. Hence let us look at the distribution of the debt by income, credit score, age and education.


Even though the average credit card balance of the industry is about 6000 dollars, about half of the customers carry less than 2500 balance on their credit card. As we go higher up the credit card balance buckets, the percentage of credit card holders decreases. This distribution aligns with the distribution of income in the economy. There are fewer people with higher incomes and these high income people are more likely to have higher credit line and hence higher credit balance.

Now let us understand who are the key players in the credit card industry and how do they generate their revenues.
There are two types of companies in credit card industry. The network companies are companies that provide the technology backbone to facilitate the transaction. These companies generate revenue by charging a fixed fees on every credit card transaction. Visa & Mastercard are the oldest and two largest network companies. American Express and Discover are more recent entrants in the market.
The issuer companies are banking companies that finance the transaction. These companies actually provide the loan for the credit card debt. American Express, Chase, Citi, Bank of America & Capital One are 5 major banks that finance the credit card debt in the US.
So let us look at how these finance companies generate their revenue.

In 2016, the credit card financing companies generated 163 billion dollars of revenue. There are 6 sources of revenue for the credit card issuers. First and most important is the Interest income. Interest income is generated by charging the customer an interest on their credit card balance. Second most important source of revenue is interchange fees. This is a fixed percentage of the transaction amount that the issuer companies collect from the merchant. The interchange fees usually range from 2 to 3% of the transaction amount.
Thereafter the largest fee revenue is generated through cash advance fees, which is a form of fees charged to the customer for withdrawal of cash using the credit card. Finally there are other host of services and fees that the credit card companies levies on the customer to generate additional revenues.

Finally, let us calculate how much interest income do the credit card companies make off of one customer on an annual basis. Taking the average credit card balance of 6000 dollars and average annual interest rate of 17%, we see that the credit card issuers generate roughly a 1000 dollars per customer per year through interest income. Similarly , we can estimate per customer per year revenues of credit card companies using the available data.

Last but the most critical metric that decides the fate of any credit card financing company is the charge off rate or in simple terms default rate. Charge off rate tells what percentage of customers default on their credit card debt. Historically on an average about 3 to 4% of credit card customers default on their loan. However in times of recession, the default percentages can shoot up and cause a huge financial trouble to the credit card issuer if the risks are not well managed.