Card Issuers Live on Swipe Fees as Loans Stagnate: Interactive Graphic

In the endless war over swipe fees, banks appear to be winning on at least one front.

Growth in credit card interchange revenue, supported by increases in transaction volume, has helped issuers gain ground even while the size of loan portfolios has stagnated. (The graphic below shows revenue and volume data for the six largest domestic card lenders. Interactive controls are described in the caption. Text continues below.)

Large banking companies took it on the chin when the Durbin amendment slashed debit swipe fees in half, but interchange has become an ever more important foundation for their credit card businesses.

Discover Financial (DFS), Bank of America (BAC) and Capital One Financial (COF) have posted big jumps in interchange revenue as a percentage of receivables since late 2008, while revenue yields from finance charges were flat to down. (Trends for each lender also exhibit at least a small hump in finance charge yields in late 2009, likely reflecting efforts to roll out price increases ahead of restrictions that went into effect the next year under the CARD Act.)

Retail sales have flattened out this year, and it shows in interchange data for securitized receivables among lenders that report it. (Merchants pay issuers interchange assessments at a rate of roughly 1% to 2% of sales.)

At Discover, annualized interchange revenue as a percentage of outstanding balances fell 2 basis points from the three months through August 2011 to 4.32% during the three months through August this year. (August is the most recent data available, and year-over-year comparisons avoid distortions from strong seasonal forces in spending.)

Bank of America was also about flat with an increase of 4 basis points to 3.23% over the same period. Capital One experienced a strong increase of 45 basis points to 5.34%.

The interchange figures are mirrored in ratios of annualized transactions to outstanding balances. American Express (AXP), Citigroup (NYSE:C) and JPMorgan Chase (JPM), which do not provide separate interchange figures for securitized receivables, all posted year-over-year gains under this measure in the second quarter. (The data for transaction volumes includes accounts that do not back bonds.)

Over the full period considered here, American Express has accomplished the most impressive advance in terms of transaction volume. Its affluent clientele spent at a rate equal to roughly 9 times the amount they had borrowed in the second quarter, well ahead of the multiple of 3.1 times at JPMorgan Chase, the runner up. (The multiple for Capital One fell sharply from the first quarter to 2.1 times in the second quarter, likely reflecting the acquisition of about $30 billion of mostly retail-branded receivables from HSBC Holdings in May.)