Credit reward costs across 6 largest credit-card issuers, annually is $68 billion. That is up 43% since 2019. That is about 4% faster than the growth in credit card purchase volume over the same period. That cannot go on forever.
Marketing costs for issuers have jumped also.
In 2015 rewards expenses among the largest banks was 3.5% of purchase volume. It now nearing 4.5%.
Rewards have enticed some consumers to borrow as well.That borrowing via cards made up 80% of credit card profitability from 2014 to 2021.
Now banks are in a faster raising interest rate environment. Not good for profits.
So banks are paying out more in rewards but ain’t gitting as much of a boost in spending & lending growth.
So can banks cut costs?
I’ve noticed that banks have raised interest rates on their credit cards in tandem with Fed increases. That makes no difference to me as I pay off my cards every month.
Will they raise swipe fees on merchants?
Will they scale back rewards?