American Express will be the first major credit card issuer to raise its late payment fees under the Consumer Financial Protection Bureau’s updated allowable limit, according to the Wall Street Journal.
At the start of 2017, Amex will begin charging a fee of up to $38 to customers with more than one late payment in a six month period. That's $1 more than what was previously charged by the card issuer, but could give the firm a solid revenue boost.
Late fees could prove to be very lucrative in the current card market.
- As credit card usage increases, it's likely the number of delinquent accounts will also grow. Credit card accounts and usage are close to pre-recession numbers once again, according to Forbes. That's leading to a big rise in usage — US credit card debt is on track to hit $1 trillion this year, according to the Wall Street Journal. That could help explain the rise in delinquent accounts — since 2013, the percentage of accounts at least 90 days delinquent six months after origination has increased, according to Forbes.
- Late fees could be a vital revenue source. Nearly one in five active credit-card accounts incur a late fee, according to CFPB data used by the Wall Street Journal. This is significant, considering credit card companies were able to collect roughly $10.8 billion in fees during 2015 from these late payments.
And for Amex, that revenue could be critical as the issuer grapples with the loss of Costco.Based on 2015 numbers, if Amex is able to capture just 1% of the late fee market, that's roughly $100 million in revenue — a figure that could grow as the market expands following the updated allowable limit. Although this revenue could boost any card network, it could be particularly beneficial to Amex in light of the firm's sale of its Costco cobrand portfolio to Citigroup earlier this year.
Costco had 11.6 million cardholders and accounted for 8% of the firm's $1 trillion global billed business in 2015. As the firm realizes the impact of the Costco sale, it is looking for additional sources of revenue. Finding a way to capitalize on growing card spend and delinquencies could be one such way among a variety of strategies.
The CFPB's new guidelines could have a significant effect on the payments ecosystem, which has grown in the last several years to include merchants, issuers, acquirers, processors, and more.
BI Intelligence, Business Insider's premium research service, has compiled a detailed report on the payments ecosystem that drills into the industry to explain how a broad range of transactions are processed, including prepaid and store cards, as well as revealing which types of companies are in the best and worst position to capitalize on the latest industry trends.
Here are some key takeaways from the report:
- 2016 will be a watershed year for the payments industry. Payments companies are improving security, expanding their mobile offerings, and building commerce capabilities that will give consumers a more compelling reason to make purchases using digital devices.
- Payments is an extremely complex industry. To understand the next big digital opportunity lies, it's critical to understand how the traditional credit- and debit-processing chain works and what roles acquirers, processors, issuing banks, card networks, independent sales organizations, gateways, and software and hardware providers play.
- Alternative technologies could disrupt the processing ecosystem. Devices ranging from refrigerators to smartwatches now feature payment capabilities, which will spur changes in consumer payment behaviors. Likewise, blockchain technology, the protocol that underlies Bitcoin, could one day change how consumer card payments are verified.
In full, the report:
- Uncovers the key themes and trends affecting the payments industry in 2016 and beyond.
- Gives a detailed description of the stakeholders involved in a payment transaction, along with hardware and software providers.
- Offers diagrams and infographics explaining how card transactions are processed and which players are involved in each step.
- Provides charts on our latest forecasts, key company growth, survey results, and more.
- Analyzes the alternative technologies, including blockchain, which could further disrupt the ecosystem.
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