The State of the Credit Card Industry, Post-Reform

Whether credit card issuers like it or not, the credit card reform act is here, and it’s going to hurt. The question is, will the plans to offset the impact of the CARD act be enough? So far, it’s not looking that way.

And just how much money is at risk? Now that the reform’s fine print has been cross-checked against the big banks’ fee revenue, the estimates have turned into educated guesses. It’s not chump change.

Crunching the numbers: The nation’s biggest lender, Bank of America (BAC), collected $800 million in card fees last year – about 0.7% of the $116 billion in revenue the company generated last year. No, it’s not a lot, but for a company with income (in a normal year) in the high teens and low twenty’s of billions of dollars, that can really eat into profits.

Citigroup (C) expects to lose around $500 million in revenue as a result of the CARD act. That’s 1% of its total revenue for the last twelve months, and more than 2% of its normal (pre-recession) income. JPMorgan Chase (JPM) says it will lose between $500 million and $750 million in annual revenue as well…about 0.5% of total revenue, but about 2% of normal annual income.

Easy to lose, hard to find: OK, so it’s not as earth-shattering as the banks’ whining makes it out to be, but it’s still nothing investors want to see given away. What are banks doing to win it back?

The bulk of the tactic has been the creation of other fees - overdraft fees, to be specific. The catch? Most of the services that generate a fee also require the customer to ‘opt in’. And, almost needless to say, the average customer has been less than enthusiastic about setting themselves up to make it easier for their bank to excessively punish them.

Bottom line… the era of the fee-driven easy money is gone. Good thing it’s a tiny portion of bank revenue and earnings. Consumers win, and banks don’t actually lose.

Either way….: While the reshaping of credit card usage is still underway, which puts any issuer in question, it’s important to not toss out the wrong companies. While Visa (V) and MasterCard (MA) are smack-dab in the middle of the credit card industry, they’re supported by card transactions – not credit quality. In fact, both companies showed signs of increased transactions (between debit and credit) and rising per-ticket charges last quarter.