Credit Companies In Trouble, Credit Card Issuers Flying High

The credit card industry is in quite a state these days. Credit card companies are having a hard time, what with credit card defaults and charge-offs continuing to rise. Consumers are also having troubles of their own. The economic slow down coupled with the increase in unemployment is putting a strain on every American consumer. Credit cards are also adding to their burdens. In trouble because of unpaid debts and worried about the credit card bill, credit card companies are raising interest rates and lowering available credit to protect themselves from further exposure. This, in turn has led to even more credit card holders defaulting on their payments.

It seems that everyone involved in the credit industry is getting hit hard. Everyone except credit card issuers, it seems. While, according to experts, the credit industry is poised to lose around $70 billion this year, credit card issuers MasterCard and Visa just recently announced huge earning jumps this year. That’s quite impressive considering that everyone else is losing money nowadays.

According to recent figures, quarterly profits for MasterCard went up to 26% compared with figures from last year. For Visa, the increase was higher at 70%.

Financial experts are not surprised by these huge jumps in profits of Visa and Mastercard. Credit card issuers have a very different business model compared to credit card companies. Basically, credit card issuers do not issue loans themselves. It is the member banks who issue the loans to credit card holders. These two companies are only responsible for issuing those credit cards to card holders. Therefore, even as credit card holders keep on borrowing while not paying off their debts in a timely manner, MasterCard and Visa remain unhurt.

MasterCard and Visa act more like middlemen between the credit card companies and credit card holders. Instead of issuing out loans, MasterCard and Visa issue credit cards. Credit card companies pay them in order to issue credit cards in the credit card companies’ names. Additionally, whenever a credit card holder uses a credit card for transactions, MasterCard and Visa get a certain percentage of your spending.

The relative isolation of MasterCard and Visa from the loan-centric portions of the credit industry protect them from credit card debt problems leading them to post earnings even while credit card companies are struggling. It is also notable that MasterCard and Visa have also increased their processing fees which is sure to have had an impact in their increased profits. Also, while credit cards are becoming less and less common owing to their high costs, debit cards are on the rise further fuelling Visa and MasterCard’s profits.