Believe it or not, the endless supply of credit card customers are drying up. Credit card companies are now turning to new ways to generate an income from their customers, with companies like Discover going so far to create new divisions for student loans and mortgages.
As part of a new promotional offer, credit card company Discover has launched a deal which would give customers a 5% discount on a loan-appraisal service though its cashback rewards cards. The offer would allow customers to save $50-100 on a mortgage loan application, and give Discover a way to profit on its current batch of users.
Credit card companies are finding that customers aren't as profitable as they once were. Since the financial crisis, new regulations combined with more conservative consumers lead to falling balances and declining fee revenue. Discover reports that it had a record low delinquency rate of 1.86% in the last quarter, a level never before seen. Historically, delinquencies on credit cards run as high as 5-6% as consumers rack up large and expensive balances that have to be charged off. These high delinquencies are the reason why credit cards carry such high interest rates.
Discover's entry into mortgages may be part of a new trend in consumer finance. Other credit card companies like American Express have alternative forms of credit that allow their customers to borrow for personal expenditures or automobile purchases. Discover's entry could bring credit card companies to look more like banks and less like quasi-banking institutions.