As the housing market continues to recover and interest rates increase slowly but surely, more and more banks have considered what this means for their bottom line. In the wake of the recession, credit card usage plummeted and left many banks and financial institutions with an increasing amount of delinquent debt and fewer ways in which to generate revenue. Unfortunately, credit card use had to be restricted in many cases in order to avoid more of the same.
As mortgage rates hit historic lows, financial institutions found a new cash cow – but this is rapidly ending. Several entities, including Wells Fargo, will be making concerted pushes for new customers to apply for credit cards this fall as a recovering economy signals a healthier demand for products and services.
Other institutions have also considered what credit card usage can do for them in terms of revenue, but not through the traditional spectrum of credit card issuance. Several entities like US Bank have developed sophisticated and advanced infrastructures that accommodate mobile payments. This segment of the market has grown by double digits each year for the past three years and some institutions are now deriving double digit percentages of their total revenues through these services.
Most industry analysts have expected such a move for quite some time, but were contingent upon the economy recovering to a certain point where credit card issuance delivered more benefits to issuers than liabilities. As the mortgage refinancing boom tapers off, Americans now face a stronger economy and will feel more inclined to pull out their credit cards for certain situations. Financial institutions' most profitable venture on average is credit card issuance and use, so it comes as no surprise that banks now want to begin flooding the market with new lines of credit for those who have previously been without options.
With the largest credit players in the game now eyeing new options for consumers who wish to finance or use credit, this is a good signal for economists and businesses who have been weary of the economy's slow recovery. As banks and lenders begin to relinquish the tight reigns that have existed on credit cards for many years, we can expect a short-term recovery in the economy as more spending becomes more prevalent.