The status quo undoubtably leaves credit card issuers with few options. Although issuers will attempt to offset costs by increasing annual fees and interest rates, such measures will only make up for an estimated twenty-five percent in lost revenue. Issuers will have to except shrinking profits and a smaller American consumer base for the time being. However, all hope may not be lost. As Citigroup's recent expansion within China's proves, the international community maintains a potentially strong, untapped consumer base with few regulations. Credit card issuers should look to the nations that host a growing middle class (i.e. China, India, Brazil) in the years ahead. This may prove to be the best way to recover lost profits and stay afloat.
WSJ article: Credit-Card Issuers Scramble for Profits
http://online.wsj.com/article/SB10001424052748704913704575453572340768654.html
I agree that expanding business to an international level is probably the best way for these banks to increase their profits. However, what happens if consumers in other countries don't buy into the credit market? That could be a dangerous situation for banks who have already spread their waning resources thin.
ReplyDeleteVery interesting article. What do you think the effects of increasing credit card interest rates will be on the already strained consumer spending? Additionally, how should banks adapt to credit markets different from the US? For example, in China, there isn't a system to measure a person's credit, like the Fico Credit Score system. How should banks assess a consumer's trustworthiness in such a market?
ReplyDeleteThe assessment of consumer trustworthiness is one of the challenges that banks will have to face for many years to come. The stricter regulations mean that banks will want to be sure that consumers will be reliable. This is a new territory that banks will have to explore.
ReplyDeleteBy increasing credit card interest rates, credit card issuers are shooting themselves in the foot. The article notes that customers are growing increasingly unsatisfied with their credit card issuers and having a harder time affording the luxury of credit. Companies should be keeping fees low in order to keep customers.
ReplyDeleteIn response to how issuers should go abut evaluating consumer trustworthiness within different markets, I think that past financial records (regarding taxes, loans, mortgages, etc.) will be the best way to determine trustworthiness. I acknowledge that there is a huge risk involved when venturing into new markets, but there is clear potential.