Speech

For Release on Delivery Thursday ,September 7, 1972 12 noori (E.D.T,) TRENDS AND DEVELOPMENTS IN CREDIT CARD BANKING A Paper By Andrew F. Brimmer Member Board of Governors of the Federal Reserve System Before the National Economist Club Washington, D.C. September 7, 1972 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TRENDS AND DEVELOPMENTS IN CREDIT CARD BANKING By •k Andrew F* Brimmer After several years of vigorous growth, bank lending to consumers under credit card plans has settled down to a more tranquil pace of expansion. To some extent, the moderation undoubtedly reflects the adverse impact of the 1970-71 recession. But the slower rate of growth also partly reflects the approaching maturity of credit card plans in those sections of the country where the banking structure is most conducive to this form of credit extension. However, on the whole, credit cards are continuing to widen their reach in the banking system. The number of commercial banks with credit card plans is still rising, and the proportion of consumer credit obtained from banks through the use of credit cards is also rising. Moreover, bank credit cards are continuing to claim a growing share of the market for short-term consumer credit. In response, suppliers of competing forms of such credit have found it necessary to revamp their plans to slow the erosion of their own market shares. These modifications have also benefited consumers by expanding the range of financial services available to them. From the point of view of card- issuing banks, the profitability of credit card operations has improved considerably in the last year or so. * Member, Board of Governors of the Federal Reserve System. I am grateful to Messrs* David Seiders and Steven Schacht of the Board's staff for assistance in the preparation of this paper. However, the views expressed here are my own and should not be attributed to the Board's staff nor to my colleagues on the Board. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 2 - These are the major conclusions which emerge from an examination of trends and developments in credit card banking in the last five years. The results of the analysis are presented below, but the highlights can be summarized here. —At the end of June this year* $4.5 billion of consumer credit was outstanding under bank credit cards. This was $568 million above the level a year earlier. However, it also represented the smallest annual rate of growth recorded in the 4-1/2 years covered by the statistics. —Part of the slower growth can be traced to the adverse effects of the 1970-71 recession. Yet, the evidence also suggests that bank lending under credit card plans is approaching maturity in several regions (especially where branch banking provides a ready made framework for the operation of credit card plans). Nevertheless, the scope for future expansion appears to be considerable. --An increasing proportion of commercial bank lending to consumers is being done under credit card plans. At the end of 1967, credit card outstandings represented 2.5 per cent of total instalment credit on the books of commercial banks. At the end of 1971, the proportion was 8.6 per cent. And despite a seasonal slackening in growth during the first half of 1972, credit cards were 8.1 per cent of the total at the end of last June. —Bank credit cards on June 30 accounted for slightly less than one-third of the amount outstanding under several major types of consumer credit arrangements. At the end of 1967, the credit card share in this group was only 10 per cent. —The business of credit card banking remains the province of large banks—although a lessening of concentration has occurred in the last two years. Moreover, mainly through agency arrangements, smaller banks have been able to make credit cards available to their customers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 3 - --The geography of credit card banking has changed substantially in the last five years. Once heavily concentrated in the West (especially in California), the availability and use of bank credit cards have spread to the rest of the country (particularly to the East Coast). In contrast, bank credit cards have achieved only moderate penetration of the consumer credit market in the Mid-West. --The two national credit card systems (BankAmericard and Interbank Card), after a period of rapid growth seem to have entered a new phase. They seem to be streamlining operations and consolidating positions. In fact, during 1971, the number of card-issuing banks declined by 201. All of them had offered the Interbank card, and this decline represented a one- sixth cutback in the number of banks in the Interbank system. Also during 1971, the number of cardholder accounts in the two systems dropped by 7.5 million. Some of the loss was recovered in the first half of this year, but the number of accounts is still well below the previous peak. However, the proportion of outstanding cards actually used has risen steadily— from about one-quarter at the middle of 1969 to nearly three-fifths in June of this year. --The profitability of bank credit card plans has improved in the last year or so. Charge-off rates have declined as card plans have matured. Moreover, the fraudulent use of bank credit cards has not been rising—although the actual incidence of fraud remains high. Each of these main points is amplified below. Growth of Credit Card Banking: 1967-1972 On June 30, 1972, bank loans outstanding under credit cards totaled $4.5 billion. (See Table 1, attached.) Over the previous year, the volume of such credit rose by $568 million—or by 15 per cent. However, this was the smallest annual advance during the 4-1/2 years covered by the statistics collected by the Federal Reserve Board. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis In fact, during the last two years, the rate of growth of bank card credit slowed considerably. Some of this slackening was anticipated following the burst of activity in this field in 1969. Yet, the actual slowing exceeded expectations of many industry observers. At the end of 1967, about $828 million of loans to consumers was outstanding under credit card plans. The level more than tripled during the following two years, and reached $2*6 billion by the end of 1969. Nearly three-quarters of the two-year increase (or $1.3 of the $1.8 billion advance) occurred in 1969 alone. In large measure, the spurt in the amount of credit outstanding under bank credit cards reflected the sharp expansion in the number of banks offering such plans. But the existing plans also shared in the rising volume of bank lending to consumers in this form. At the end of last December, 1,535 commercial banks were offering credit card plans, compared with 390 banks at the end of 1967. (Table 2.) More than half of this gain (697 out of a total increase of 1,145) occurred in 1969. In that year, the number of card-issuing banks rose by more than 100 per cent. In 1970, the rise was substantially less—225 banks, an increase of less than one-fifth. Last year, the gain was even smaller—103 banks and 7 per cent. A considerable number of the banks launching credit card plans in the last three years were 1/ These were card-issuing banks-~i.e., those which carry the receivables on their own banks. "Agency" banks make credit cards available to their customers, but the credits generated under the agency plans are carried by the card-issuing institution. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 5 - institutions located in the eastern section of the country. For the most part, they were located in metropolitan areas in which check credit had been an accepted instrument of bank lending to consumers for a number of years. However, check credit plans lost considerable ground to bank credit cards in 1969. None of this was recovered in subsequent years--although no further relative loss was recorded. For example, at the end of 1967, a greater number of banks had check credit plans than offered credit card arrangements (732 vs. 390). While some banks (101) offered both types of plans, those employing the check credit instrument were clearly the most numerous. Moreover, the volume of credit outstanding under check credit plans represented 39 per cent of the combined total for these two types of loans to consumers. However, by the end of 1969, the number of banks with check credit plans had been surpassed by the number offering credit cards (1,128 vs. 1,207). The check credit share of credit outstanding had fallen to 29 per cent as of December, 1969. The next year, it dropped further to 26 per cent—and remained at that proportion in December of 1971. At the end of last year, almost 2,922 banks—about 21 per cent of all insured commercial banks in the country—offered some type of revolving credit to consumers. Of these banks, 1,535 (53 per cent) held receivables under card plans, and 1,387 (47 per cent) had check credit plans. However, 474 banks offered both types of plans. Allowing for this duplication, about 2,448 insured commercial banks (18 per cent Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 6 - of the total) were offering revolving credit in some form. At the end of 1967, only 8 per cent of the banks were engaged in this type of consumer lending. Bank Card Credit vs. Total Instalment Credit Consumer credit outstanding under bank credit cards has been growing at a faster rate than other forms of lending to consumers since 1967. However, in the last year, the relative importance of bank card credit changed only moderately. As shown in Table 3, credit outstandings under bank cards at the end of 1971 was 4.0 per cent of total instalment credit and 8.6 per cent of instalment credit at commercial banks. At the end of 1967, the corresponding proportions were 1.0 per cent and 2.5 per cent, respectively. Outstandings under credit card and check credit plans combined were 5.3 per cent of total instalment credit and 11.5 per cent of instalment credit at commercial banks at the end of 1971. The corresponding figures were 1.7 per cent and 4.1 per cent at the end of 1967. To assess the relative importance of credit types from a transaction point of view, extensions (gross volume) rather than outstandings should be the measure employed. (The relative degrees of activity of credit types with different average repayment periods will not be reflected properly by a distribution of the level of credit outstanding.) Bank credit card extensions were 6.6 per cent of total instalment credit extensions and 15.8 per cent of bank instalment credit extensions in the first half of 1972 (Table 4). In the first half of 1968, the corresponding proportions were 1.9 per cent and 5.0 per cent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 7 - Credit card arid check credit extensions combined rose to 20 per cent of total bank instalment credit extensions in 1970, and they have remained at about this level since. Thus, these revolving credit types have clearly become an important component of bank consumer instalment credit volume. Bank Card Credit vs. Other Types of Consumer Credit Over the last 4-1/2 years, credit outstanding under bank credit cards expanded at a much higher rate than other major forms of consumer credit with which bank cards are in competition. These principal types of credit instruments include (besides bank credit cards) bank check credit, travel and entertainment cards, oil 2/ company credit cards, and retail charge accounts." As shown in Table 5, in these categories, about $15.4 billion of credit was outstanding at the end of 1971. These forms of credit experience considerable seasonal variation, and the June level is typically below that recorded at the end of December. Reflecting this pattern, the amount outstanding last June 30 was $14.8 billion. During the 4-year period ending last December, the combined total of the five types of consumer credit rose by $7.2 billion, or by 86 per cent. (Table 6.) Among these types, however, bank credit cards registered a four-fold increase, and check credit rose by nearly 200 per cent. Credit outstanding under travel and entertainment credit If Retail instalment credit was excluded from this analysis. Even after eliminating automobile credit, a substantial part of the remainder is related to the purchase of large-ticket items (such as furniture and appliances) for which bank credit cards are not readily adapted. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 8 - cards and oil company credit cards just about doubled in each case. On the other hand, retail charge account credit increased by about one-quarter. Between June, 1968, and June, 1972, the actual changes in the various types of credit differed somewhat compared with the year-end changes, but the overall pattern was essentially the same. At the end of 1967, bank credit cards represented only 10 per cent of the total outstandings shown in Table 5. But during the next four years, this type of credit accounted for about half of the net increase in the total outstanding. By the end of 1971, its share had risen to 30 per cent. The share of check credit rose from 6 per cent to 11 per cent. Travel and entertainment cards just about held their own modest share (roughly 1.0 per cent) during the 4-year period. The proportion of the total represented by oil company cards rose only slightly—from 11 per cent to 12 per cent. In contrast to all of these trends, the share of retail charge accounts declined substantially—from 72 per cent at the end of 1967 to 49 per cent at the end of last December. A further relative decrease was recorded during the first half of this year, and the charge account share was 46 per cent at the end of June. The significant gain in the share of the market held by bank credit cards (and the relative decline in the share held by retail charge accounts) reflects the wide acceptance of bank card plans among speciality stores, mass merchandisers, and smaller department stores. In fact, bank credit cards have supplanted or are existing side-by-side with credit plans operated by many of these retailers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 9 - Most large department stores, however, have been resistant to bank cards. Many of these businesses operate their own card systems, and the store card encourages better customer loyalty, provides better direct mail advertising opportunities, and facilitates the handling of returned merchandise. A sizable number of these stores have been converting simple charge accounts to a revolving credit basis which is in general favored by consumers. Consumer credit held by the travel and entertainment card firms doubled between mid-1968 and mid-1972. Yet, as with the bank cards, growth has slowed considerably over the last year or two. This type of credit has remained quite small in absolute terms. For example, it was equal to only 3 per cent of the outstandings under bank credit card plans at the middle of 1972. Much of the credit extended through these plans is repaid on a revolving basis, and some of the revolving credit receivables is acquired by banks through agreements with the travel and entertainment card firms. Consumer credit outstanding under oil company credit cards increased by 77 per cent between June, 1968, and mid-1972. However, here also the rate of increase has been falling since the end of 1970. At the end of June, 1972, outstandings under these plans were equal to two-fifths of the amount of bank card credit. A number of companies have been converting 30-day plans to a revolving credit basis. Some have also linked their cards with a variety of other uses, including travel facilities (such as motels), merchandise items, and insurance. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 10 - So, in the last two years or so, the competitive pressures generated by bank credit cards have induced firms offering a variety of other consumer credit plans to modify their range of services. In the process, the benefits to consumers have been broadened and improved. Changing Geography of Credit Card Banking The sharp increase in bank credit card plans and check credit plans had its beginning in the years 1966 and 1967, when several hundred new ones were started. As indicated above, by December, 1967, there were 390 card plans and 732 check credit plans in operation. At that time, the card plans were concentrated in the San Francisco Federal Reserve District. (Table 7.) Of the banks throughout the country which held receivables, 83 of them (21 per cent) were located in that District. What is even more striking, these banks held 45 per cent ($370 million) of all bank credit card outstandings. Bank card plans were also popular in the Chicago District (which had 18 per cent of the outstandings) and in the New York District (where 13 per cent of the receivables were held). This pattern corresponds to the three areas of the country where a few plans had started up in the 1950's and which had managed to survive early operating difficulties. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 11 - Not only did the San Francisco District lead the nation in the amount of receivables held, but it also was the leader in terms of the proportion of commercial banks having plans (Table 9). At the end of 1967, 19 per cent of banks in that District had card plans, while 11 per cent operated a check credit plan. At that time, San Francisco was the only one of the 12 Federal Reserve Districts with a larger proportion of the banks participating in card plans than in check credit plans. On the opposite side of the country, the Boston District had 17 per cent of its banks operating a check credit plan while only 4 per cent had card plans. Generally speaking, a larger proportion of the banks in the Northeast had check credit plans while on the West Coast the emphasis was on credit cards. In the Southeast and the vast mid-section of the country, both types of plans were relatively sparse in 1967. In the sizable expansion of bank credit card plans that took place in 1969, the percentage of commercial banks offering plans rose from 4 per cent in 1968 to 9 per cent a year later. However, in some of the Federal Reserve Districts, the gain was even more dramatic. In the Boston District, for instance, the proportion of insured commercial banks which operated card plans went from 6 per cent in December, 1968, to 40 per cent at the end of 1969. The New York, Cleveland, Richmond, and Atlanta Districts also showed large increases in the participation rate. During the same period, there were only minor gains in the percentage of banks offering check credit plans. The national rate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 12 - climbed only one percentage point from 7 per cent to 8 per cent, and the largest increase in any of the Districts was 3 percentage points in Cleveland and Chicago. The St. Louis, Minneapolis, Kansas City, and Dallas Federal Reserve Districts all stayed at low levels, both in participation of banks and in levels of credit card and check credit outstanding (Tables 7, 8, and 9). Thus, the credit card and check credit plans were strong east of the Mississippi and west of the Rockies at the end of 1969. In between, little use was made of this means of lending to consumers. At the end of 1971, there were only minor variations from the geographic pattern that prevailed at the end of 1969. The percentage of banks participating in some sort of plan grew only slightly, both nationally and in each of the Federal Reserve Districts. Likewise the distribution of credit card and check credit outstandings among the various Districts changed little. The fact that there has been little change in the regional distribution of bank card and check credit during the last few years might be taken as evidence that the plans have reached their maturity and that there will be little additional change in coming years. However, there is nothing in the data available to indicate that such is the case. There are such widespread differences among the Districts that room for growth still seems to exist in some if not all areas. For example, when one looks at the proportion of banks within each District that operate a credit card plan, one finds that the fraction ranges Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 13 - from 45 per cent in the Boston District to a low of 3 per cent in the Minneapolis District. Likewise, the participation rate in check credit plans varies from Boston's 24 per cent to 4 per cent at both St. Louis and Dallas. Of course, some variation is to be expected due to the differences in the organization of different plans. A single bank's plan can be limited to one city or it may be a statewide system. Typically, statewide or regional systems are more common in states where branch banking is permitted. However, they can occur in unit banking states through the use of other banks as agents. Since agent banks typically run little risk, many small banks may be persuaded to act in this capacity in order to get merchants' deposits. Data on the geographic distribution of agent banks are unavailable. Nevertheless, one would not expect variations in the use of agents to account for all of the regional differences noted previously. Moreover, there is additional evidence that the credit card plans have not reached the same degree of maturity in every region of the country. When one looks at the ratio of credit card outstandings to total bank instalment credit, the marked variations among the Districts can be seen readily (Table 10). In the San Francisco District, credit cards account for over 13 per cent of the banks' outstandings. On the other hand, in the Philadelphia District, they account for only 3 per cent, and in the Minneapolis District they represent only 0.7 per cent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 14 - One would expect that--if all credit card plans had reached the same maturity—there would be little variation in these figures. But one finds that—in those areas of the country where credit card plans were underdeveloped prior to the 1969 growth spurt—the plans account for a lower percentage of bank instalment credit to consumers. But in the Northeast and on the West Coast, credit card plans have grown to be over 10 per cent of bank instalment credit. In addition, when one looks at the historical development of these proportions, it is evident that, although the figures for Boston, New York and San Francisco were quite different in 1967 and 1968, they had all arrived at approximately the same level in 1971. Therefore, while there has been little development in the credit card systems in several regions, there is little reason to expect that it will not occur. Participation by Banks of Different Size As bank credit card systems have expanded in recent years, some concern has been expressed about the competitive position of smaller banks. Some observers have been concerned about the possibility that the latter might be adversely affected—since heavy start-up and administrative costs may make it necessary to generate a large volume of business. While credit card receivables have been concentrated in the larger institutions, many of the smaller banks have been able to provide revolving credit to their customers. To do so, many of these smaller banks have employed alternatives to independent credit card operations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 15 - Large banks have dominated the credit card business since the end of 1967, but the degree of concentration in the largest institutions has declined somewhat over the period (Table 11). At the end of 1967, there were 23 banks (6 per cent of all credit card banks) with total deposits of $1.0 billion or more. This group of banks held over two-thirds of the total credit card receivables. By the end of 1971, 53 banks with card receivables were in this size class. However, they represented only 3 per cent of the card-issuing banks, and they held less than half of the total receivables. The major gains in shares have occurred in the middle size classes—i.e., banks with total deposits between $100 million and $1.0 billion. The smaller banks have maintained a rather modest share of the credit card market. At the end of 1967, there were 288 card- issuing banks (about three-fourths of all such banks) with total deposits of less than $100 million, and these banks held only 7 per cent of card outstandings. At the end of 1971, there were 1,164 card-issuing banks (just under four-fifths of all banks with cards) in these lower size classes, and they held about 10 per cent of the total receivables. Not only are credit card receivables concentrated in the upper size classes, but the proportion of all insured commercial banks holding receivables is also higher the larger the size of bank (Table 13). Furthermore, since the end of 1967, the proportion of banks holding receivables has increased most in the middle and upper Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 16 - size classes—i.e., from $100 million and more of deposits. At the end of 1971, there were over 3,900 banks with total deposits of less than $5.0 million; only about 1.0 per cent of these had credit card receivables outstanding. On the same date, there were about 9,000 banks with total deposits between $5 million and $100 million; 12 per cent of these banks had card receivables. In contrast, at the end of 1971, there were 64 banks with deposits over $1.0 billion, and 53 (82 per cent) had card receivables. At the end of 1967, 49 per cent of the banks in the highest size class held receivables as opposed to 1 per cent of banks in the lowest size class. The smaller banks, whose participation in credit card receivables has remained relatively modest over the period since 1967, have not generally turned to check credit plans--which require a smaller initial investment and have lower operating costs—as a substitute for independent credit card plans. Indeed, the fact that 20 per cent of the banks offering revolving credit at the end of 1971 offered both types of plans indicated that they are complementary rather than substitutes for each other. The degree of concentration of check credit receivables in large banks is as high as for credit cards, and the pattern has changed little since 1967 (Table 12). At the end of 1971, 61 of the banks with check credit (4 per cent of the total) had deposits of $1.0 billion and over; these banks held 58 per cent of the check credit receivables. Seventy-four per cent of the banks with check credit had deposits under $100 million, but th6se banks held only 9 per cent of the receivables. Banks with deposits under $10 million held a negligible proportion of credit outstanding* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 17 - As with credit card plans, the larger the size of banks, the higher the proportion of banks holding check credit receivables (Table 13). At the end of 1971, this proportion rose from 1 per cent in the smallest size class to 80 per cent in the largest size class. The proportions of banks holding check credit receivables have shown modest increases in most size-of-bank classes since the end of 1967. While the majority of the smaller banks have neither check credit nor independent credit card plans, many have made revolving credit available to their customers through agency arrangements with card-issuing banks. At the end of 1971, 8,247 such arrangements were made with banks of the two nationwide credit card systems (Table 14), and very few card-issuing banks also act as agents for another card plan (less than 1 per cent at the end of 1971). In fact, many of the smaller banks have signed up as agents of two card systems, thus gaining the advantage of offering merchants two card plans for a single account. National Credit Card System The two national credit card systems (BankAmericard and Interbank Card Association)—which have dominated the field for the last 3-1/2 years—seem to have entered a new phase. After a period of rapid growth—especially on the part of the Interbank system— they seem to be in the midst of a number of measures designed to consolidate their positions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 18 - In May, 1966, the first national interchange program for a bank credit card was formed with the national licensing of BankAmericard. The Interbank Card Association was also formed in 1966 for the purpose of facilitating the national interchange of its members1 charge cards. In April, 1969, Interbank acquired the Master Charge trademark from Western States Bankcard Association and became the sole licensing agent for the Master Charge Card. On June 30, 1972, there were 4,195 banks participating in the BankAmericard (BA) system, and 5,600 were in the Interbank Card (IB) 3/ system. (Table 14.)— On June 30, 1969, the number of participating banks were 3,085 and 3,050, respectively. So, during the three years ending in mid-1972, the number of BA banks rose by 35 per cent, and the number of IB banks rose by 83 per cent. However, the general structure of the two systems--which has differed markedly from the outset—remained essentially unchanged. For example, on June 30, 1969, the BA system had 185 card-issuing banks and 2,900 agency banks. So 6 per cent of the participating BA banks carried the credit card receivables on their own books, and 94 per cent operated as agents for other banks. In contrast, on the same date, the IB system had 500 card-issuing banks and 2,550 agency banks. Among the IB group, 16 per cent of the members were card-issuing banks, and 84 per cent were agents. 3/ The system figures for numbers of banks and merchants cannot be added to obtain a total since some duplication exists. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 19 - Two and one-half years later—on December 31, 1971, the BA system had 3,978 participating banks—divided into 245 card-issuing banks and 3,733 agency banks. There were 5,495 IB participants--of which 981 were card-issuers and 4,514 were agents. Thus, card-issuers still represented 6 per cent of the BA banks while agent banks represented 94 per cent. In the case of the IB banks, card-issuers had risen slightly--but only to 18 per cent--and agents had eased off to 82 per cent. At the end of June, 1972, there were 246 card-issuing banks in the BA system. This number has remained essentially unchanged since the end of 1970—where there were 245 card-issuers in the BA system. So all of the rise in the number of BA participating banks (444 or 12 per cent) during the preceding year and a half occurred among agency banks. The Interbank Card system no longer shows separately the number of card-issuing and agency banks, so the composition of the IB banks at the end of June cannot be determined. However, between December 31, 1970, and December 31, 1971, the number of IB participating banks rose by 135—to 5,495. During the same period, however, the number of card-issuing banks declined by 201 (from 1,182 to 981). So the number of agency banks in the IB system climbed by 336 during 1971. The drop in the number of card-issuing banks during 1971 was equal to 17 per cent of the number in the system at the end of the previous year. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 20 - As mentioned above, the two national credit card systems have dominated the bank credit card field since the middle of 1969. At the end of 1970, the combined outstandings of the two systems accounted for 93 per cent of total bank card outstandings. However, since then, the proportion has declined slightly. It fell to 90 per cent by mid-1972, despite the conversion of a large local plan in the mid-Atlantic region to the BA system early this year. The number of cardholder accounts in the two systems totaled 30.3 million at the end of last June. This was a decline of 6.5 million since the end of 1970. In fact, the decrease during 1971 was even larger (7.5 million), but some of the loss was recovered in the first half of this year. The number of active accounts rose by 2.3 million (to 17.6 million) from the end of 1970 through mid-1972. More importantly, active accounts as a proportion of the total increased substantially— from 41 per cent to 58 per cent. However, the average balance outstanding in active accounts showed little movement over the last year or two. It was $232 at the end of 1970, $243 a year later, and $228 at the end of last June. In passing, another recent development relating to national credit card systems should be noted. A Federal Court ruled in July of this year that a National BankAmericard rule prohibiting member banks from holding certain types of dual membership (including dual card- issuing status in BankAmericard and Interbank Card Association) is a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 21 - "... horizontal restraint of trade or commerce and a per-se violation of the antitrust laws....11 The Court concluded that "both merchants and cardholders will be better served if they are allowed to do business with a bank which handles both cards.11 The BA organization has contended that its dual membership rule was aimed at maintaining and enchancing competition, and it plans to appeal the ruling. The bank challenging the BA rule argued that competition in the bank credit card business is more vigorous between banks—even banks which are members of the same system--than between systems, and that rules against dual membership constitute a violation of antitrust laws. Since the matter is still in the Federal Courts, it would be improper for me to comment on the merits of the case. However, it is evident that the ultimate decision will have important consequences for the future development of the bank card systems. Profitability of Credit Card Banking In recent years, doubt about the possibility of profitable operation of card plans has been rather widespread. This has been due largely to unexpected losses which accompanied the rapid growth of the plans in the 1968-69 period. However, available data on charge-offs and profitability suggest that operating performance has improved in the last year or so. Moreover, unless a renewed surge occurs in the number of banks with plans, average profitability should continue to improve in the near future. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 22 - To examine some of the areas of concern—and as previously reported"the Federal Reserve Banks were asked in August, 1971, to make an informal survey of a sample of the card-issuing banks in their Districts to check on their experiences with the operation of card 4/ plans.— The emphasis in that special survey was on the development of information on charge-offs fraud losses, and overall profitability. 9 Other sources of information relating to these measures are (1) supplements to the Call Report (where charge-off information is supplied), (2) material from the American Bankers Association's credit card surveys, and (3) information supplied by the two major credit card interchange systems. The data show that the charge-off rate(defined as net charge- offs as a percentage of account liquidations) has improved somewhat since 1970. The rate rose sharply in 1970 to 2.22 per cent from 1.96 per cent in 1969. This jump was probably due to the large number of new programs that started up late in 1969. These programs would not have charged off any accounts until 1970. Since new programs have a greater likelihood of encountering bad accounts, this increase in the charge-off rate is not unexpected. The charge-off rate fell in 1971 to 1.98 per cent, or to a level about the same as that recorded in 1969. While exactly comparable data are not available for the first half of this year, information 4/ See Andrew F. Brimmer, "Growth and Profitability of Credit Card Banking," presented at the 1971 National Credit Card Conference of the American Bankers Association, October 27, 1971, pp. 15-26. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 23 - obtained from the two interchange systems indicates that the rate is continuing to decline. Furthermore, a preliminary estimate for the first half of 1972 places the figure at around 1.2 per cent. A portion of charge-offs is the result of the fraudulent use of credit cards—mainly the use of stolen cards. Naturally, the incidence of fraud is of great concern to all card issuers. Numerous programs have been initiated in an effort to eliminate such fraud, but they have not been completely successful. On the other hand, the available data also indicate that the fraudulent use of cards has not been growing—despite an impression to the contrary that may be fostered by stories of large debts accumulated with stolen cards. The BankAmericard system data show that the proportion of their charge-offs attributable to fraud was about 16 per cent for the first half of this year as well as for the first six months of 1971. One would expect new card plans to have a greater potential for charge-offs to occur. As the plan matures, non-paying customers can be eliminated, and new customers can be checked more thoroughly once the bank learns what to look for. In addition, the bank probably will develop better techniques for dealing with delinquent accounts. The data shown in Table 15 suggest that this is, in fact, the case. Those banks starting their card plans in 1970 experienced a net charge- off rate of 5.48 per cent in 1971. (In this case, the charge-off rate is calculated as a percentage of year-end credit card outstandings, rather than liquidations.) Those plans starting in 1969 had a rate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 24 - of 4.36 per cent, and the decline continues as the age of the plans increases. By the time one reaches the plans launched before 1960, the rate is down to 2.33 per cent. The low charge-off rate shown for plans starting in 1971 is due to the fact that those banks have not held many delinquent accounts long enough for them to be classed as charge-offs. As noted earlier, banks starting a credit card program experience large start-up costs. Since they also tend to have a greater charge-off rate, most plans would not be expected to show a profit for a while. The special survey that the Federal Reserve conducted last year asked banks to report their net profit rate on their card plans. The net profits were to be calculated as income less all expenses, including the cost of money and that portion of overhead that could be allocated to the program. While all of the banks were not able to calculate an actual figure, 30.5 per cent of the banks reported that they had experienced a profit rather than a loss on their operations in 1970. However, for those banks that started their plan in 1966 or before--that is, plans which had been in operation four or more years— 58.3 per cent reported a profit. Of the plans starting in 1967 or 1968, 21.7 per cent had a profit, while of those starting in 1969 or 1970 only 17.1 per cent had a profit. This would indicate that the longer a plan remains in operation, the stronger should be its profit situation. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 25 - Data from the BankAmericard system show the same thing. Approximately 70 per cent of the BankAmericard programs that are over four years old were profitable in 1971. The figure fell to 35 per cent for programs two to four years old, and to 20 per cent for those less than two years old. The profit picture appears to be improving this year— undoubtedly due in part to the fact that the great number of plans which began in 1969 are becoming more mature. The BankAmericard system reports that, while 38 per cent of their plans were profitable in the first quarter of 1971, the proportion rose to 41 per cent in the final quarter of last year. The fraction rose further to 60 per cent in the first quarter of 1972, and it remained at that level in the second quarter . This pattern would indicate that many of the banks are continuing to take active measures to increase their profitability. There are several things a bank can do to raise its profit rate. One of the most common is to eliminate unprofitable accounts. For example, Table 14 shows that both of the national card systems have been doing this* As noted earlier, the total number of accounts has shown a downward trend since 1970, while the number of active accounts has been increasing steadily. Another step that may be taken is to increase customer usage of the cards, creating larger average balances on the accounts. The credit ceiling on accounts may be increased, so that customers are permitted to hold larger balances* Often this move will permit customers Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 26 - to charge large ticket items that would not normally be purchased on the bank card. Also, the bank can attempt to sign up additional merchants, so that the customer can use his card in more places. There are even experiments going on where bank cards can be used by preferred customers for automobile purchases. Thus, on the whole, it appears that a substantial number of the credit card plans have survived the trials of innovation and have become contributors to--rather than a drag on--bank profits. Consequently, a growing number of banks can continue to offer consumers what has become a widely-used form of banking service. Outlook for Credit Card Banking Given the trends and developments presented above, what is the outlook for bank credit cards? In this area—more than in banking generally—it is especially difficult to discern prospective changes even on the near-term horizon. Yet, several broad trends can be noted—for these might provide a rough guide to the road ahead. First, however, one should recall that the very high growth rates in bank card credit occurred during a period of economic expansion and monetary restraint. The growth rate of credit card outstandings declined sharply in 1970, but volume remained high while the economy was slowing down and money and credit were becoming more generally available. On the other hand, the slowdown in growth rate has continued into 1972 while the economy has been showing increasing strength. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 27 - Thus, changes in monetary policy or the state of the economy do not seem to be the major reasons for the behavior of bank credit cards since 1967, and the movement of this credit type over the last business cycle may prove to be atypical. By 1968, substantial operating experience and technology had been acquired by a number of banks in the credit card field, and it appeared that card plans could be operated at a high rate of profit. With an eye on profits and with competition for merchant deposits and cardholder customers increasing, many banks rushed into the field. Subsequent to such a high growth period, it is not unreasonable to expect a period of slower growth. By the end of 1971, most large banks had entered the field, several key regions of the country had been covered, and the potential for additional merchant members and cardholders in these areas had declined. The number of cardholder accounts for banks belonging to the two major interchange systems actually peaked in late 1970 at 36.8 million. As of June this year, customer accounts numbered 30.3 million. As noted above, this decline was due in large part to the purging of inactive accounts. But purging of each accounts is certainly indicative of a maturing business, and it implicitly admits that many individuals simply cannot be persuaded to use bank credit cards. While the number of active card accounts still continues to rise, the rate of growth is apparently declining. Between June, 1971, and June this year, the number of active accounts increased by 12 per cent to 17.6 million. It would perhaps be unreasonable to expect the number of active accounts Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 28 - to increase at a rate much greater than this in the future. Data presented above also indicate that the average balance per active account has been quite stable over the last two years. The $228 average balance in June was virtually identical with the figure for June, 1971. Finally, as -noted earlier, the growth in merchant memberships has abated recently. In fact, in otBe of the systems, there were fewer merchant members last June than there were at the end of 1971. If the trends analyzed here are extended through the next year, it appears that bank card growth will continue, but the pace may also continue to moderate. For instance, if the number of active accounts were to increase by 10 per cent by next June to 19.4 million, and if the average balance is in the $235 neighborhood, credit card receivables held by banks in the two major systems would be about $4.55 billion. If these banks still were to hold their 90 per cent share of total bank card credit, then total receivables would grow from the $4.46 billion recorded in June, 1972, to $5.06 billion by June, 1973. This would indicate a still healthy 13.4 per cent annual growth rate— but one continuing to decline gradually from past growth rates. The above scenario, of course, sketches only one possibility. Rapid development in only-lightly tapped regions of the country may occur. Banks may sharpen their methods of persuading individuals to begin using cards or to use them more intensively. Credit limits, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 29 - which impose a ceiling on account balances, may be gradually raised on those accounts with satisfactory payment records. In addition to simply permitting higher balances, this move could encourage a greater volume of higher-ticket purchases to be financed by bank cards. Regarding merchant accounts, the large department stores present an attractive target. Should these major retailers decide to honor bank cards, the effect on card volume could be substantial. - 0 - Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 1. BANK CREDIT CARD AND CHECK CRBDIT PLANS (Amounts in millions of dollars) Outstandings Extended Repaid end of month during month during month Credit Check Credit Check Credit Check card credit card credit card credit 1967 December 828 522 1968 January 845 556 152 106 135 72 February 847 571 126 83 124 68 March 855 584 132 83 124 70 April 892 602 166 100 129 82 May 914 622 159 105 137 85 June 952 646 163 101 125 77 July 982 667 178 109 148 88 August 1,028 691 187 111 141 87 September 1,073 715 182 112 137 88 October 1,140 741 234 119 167 93 November 1,171 751 195 106 164 96 December 1,307 798 329 143 193 96 1969 January 1,438 833 323 142 192 107 February 1,450 860 209 132 197 105 March 1,470 879 234 141 214 122 April 1,534 928 297 173 233 124 May 1,625 961 297 163 206 130 June 1,705 993 318 163 238 131 July 1,793 1,010 366 148 278 131 August 1,893 1,026 368 140 268 124 September 2,035 1,046 415 150 273 130 October 2,156 1,054 440 145 319 137 November 2,286 1,057 416 123 286 120 December 2,639 1,081 715 164 362 140 1970 January 2,802 1,105 588 158 425 134 February 2,831 1,117 415 139 386 127 March 2,846 1,118 465 148 450 147 April 2,912 1,144 500 169 434 143 May 2,954 1,157 478 156 436 143 June 3,048 1,180 525 166 431 143 July 3,132 1,203 564 165 480 142 August 3,219 1,227 559 157 472 133 September 3,336 1,264 610 172 493 135 October 3,404 1,280 601 164 533 148 November 3,475 1,290 573 150 502 140 December 3,792 1,336 890 193 573 147 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 2 - TABLE 1 (continued). BANK CREDIT CARD AND CHECK CREDIT PLANS (Amounts in millions of dollars) Outstandings Extended Repaid end of month during month during month Credit Check Credit Check Credit Check card credit card credit card credit 1971 January 3,806 1,335 612 144 598 145 February 3,754 1,339 513 142 565 138 March 3,711 1,327 612 163 655 175 April 3,786 1,337 669 176 594 166 May 3,832 1,335 620 153 574 155 June 3,895 1,359 710 183 647 159 July 3,933 1,376 670 166 632 149 Augus t 3,992 1,401 711 188 652 163 September 4,060 1,436 725 191 657 156 October 4,040 1,441 659 172 679 167 November 4,080 1,455 728 182 688 168 December 4,419 1,497 1,046 216 707 174 1972 January 4,362 1,511 687 191 744 177 February 4,291 1,524 626 185 697 172 March 4,264 1,529 735 196 762 191 April 4,325 1,551 726 187 665 165 May 4,374 1,582 815 224 766 193 June 4,463 1,618 882 223 793 187 SOURCE: Consumer Credit and Finances Section, Board of Governors of the Federal Reserve System. Series revised September 1972. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 2. NUMBER OF BANKS WITH CREDIT CARD AND CHECK CREDIT PLANS, 1967-1971 (Banks with Receivables) Total Number of Banks with Banks with Banks with Banks Offering Date Credit Card Check Credit Both Types Revolving Credit, Plans Plans of Plans Plans!' September 30, 1967—/ 197 599 67 729 December 31, 1967 —^ 390 732 101 1021 June 30, 1968^/ 416 840 113 1143 December 31, 1968^/ 510 975 144 1341 June 30, 1969^ 699 1061 212 1548 December 31, 1969^ 1207 1128 370 1965 June 30, 1970^/ 1355 1186 406 2135 December 31, 1970^/ 1432 1228 427 2233 June 30, 191^ 1514 1282 450 2346 December 31, 1971-/ 1535 1387 474 2448 1/ Federal Reserve Board, Bank Credit Card and Check Credit Plans, July 1968. 2/ Federal Deposit Insurance Corporation, Call Report. ^3/ Total number of banks offering revolving credit plans is equal to the number of banks with credit card plans plus the number with check credit plans minus the number with both types of plans. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 3. BANK CREDIT CARD AND CHECK CREDIT OUTSTANDING AS A PERCENTAGE OF TOTAL AND BANK INSTALMENT CREDIT OUTSTANDING Bank Credit Check Credit Credit Cia rd and Card Outstanding Outstanding Check Credit Outstanding Per Cent Per Cent Per Cent Per Cent Per Cent Per Cent of Total of Bank of Total of Bank of Total of Bank Instalment Instalment Instalment Instalment Instalment Instalment Credit Credit Credit Credit Credit Credit Outstanding Outstanding Outstanding Outstanding Outstanding Outstanding December 31, 1967 1.0 2.5 0.7 1.6 1.7 4.1 June 30, 1968 1.2 2.7 0.8 1.8 2.0 4.5 December 31, 1968 1.5 3.4 0.9 2.2 2.4 5.6 June 30, 1969 1.9 4.2 1.0 2.4 2.9 6.6 December 31, 1969 2.7 6.2 1.1 2.6 3.8 8.8 June 30, 1970 3.1 7.0 1.2 3.0 4.3 10.0 December 31, 1970 3.7 8.4 1.3 2.9 5.0 11.3 June 30, 1971 3.8 8.1 1.3 2.9 5.1 11.0 December 31, 1971 4.0 8.6 1.3 2.9 5.3 11.5 June 30, 1972 3.8 8.1 1.7 2.9 5.5 11.0 Source: Consumer Credit and Finances Section, Board of Governors of the Federal Reserve System. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 4. BANK CREDIT CARD AND CHECK CREDIT EXTENSIONS AS A PERCENTAGE OF TOTAL AND BANK INSTALMENT CREDIT EXTENSIONS Bank Credit Credit Card and Card Extensions Check Credit Extensions Check Credit Extensions Per Cent Per Cent Per Cent Per Cent Per Cent Per Cent of Total of Bank of Total of Bank of Total of Bank Period Instalment Instalment Instalment Instalment Instalment Instalment Credit Credit Credit Credit Credit Credit Extensions Extensions Extensions Extensions Extensions Extensions January- June, 1968 1.9 5.0 1.2 3.2 3.1 88..22 July- December, 1968 2.5 6.7 1.3 3.6 33..88 1100..33 January- June, 1969 3.2 8.2 1.7 4.4 4.9 1122..66 July- December, 1969 4.8 13.2 1.5 4.4 6.3 1177..66 January- June, 1970 5.5 14.2 1.7 4.5 7.2 1188..77 July- December, 1970 6.5 17.2 1.7 4.5 88..22 2211..77 January- June, 1971 6.5 15.4 1.6 4.0 88..11 1199..44 July- December, 1971 6.9 17.1 1 .7 4.2 8.6 21.3 January- June, 1972 6.6 15.8 1.8 4.2 88..44 2200..00 Source: Consumer Credit and Finances Section, Board of Governors of the Federal Reserve System. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 5 Bank Credit Cards and Other Selected Types of Consumer Credit Dec.67 June 68 Dec.68 June 69 Dec.69 June 70 Dec.70 June 71 Dec.71 June 72 Amoii nts Outs!t anding ([ Millions of Doll,a rs) BBBBBBBaaaaaaannnnnnnkkkkkkk CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt CCCCCCCaaaaaaarrrrrrrdddddddsssssss 828 952 1,307 1,705 2,639 3,048 3,792 3,895 4,419 4,463 BBBBBBBaaaaaaannnnnnnkkkkkkk CCCCCCChhhhhhheeeeeeeccccccckkkkkkk CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt 1111111/////// 522 646 798 993 1,081 1,180 1,336 1,359 1,497 1,618 TTTTTTTrrrrrrraaaaaaavvvvvvveeeeeeelllllll aaaaaaannnnnnnddddddd EEEEEEEnnnnnnnttttttteeeeeeerrrrrrrtttttttaaaaaaaiiiiiiinnnnnnnmmmmmmmeeeeeeennnnnnnttttttt CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt 2222222/////// 61 70 76 84 110 109 122 131 132 140 OOOOOOOiiiiiiilllllll CCCCCCCooooooommmmmmmpppppppaaaaaaannnnnnnyyyyyyy CCCCCCCaaaaaaarrrrrrrddddddd CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt 2222222/////// 939 1,001 1,119 1,194 1,298 1,416 1,650 1,672 1,804 1,769 RRRRRRReeeeeeetttttttaaaaaaaiiiiiiilllllll CCCCCCChhhhhhhaaaaaaarrrrrrrgggggggeeeeeee AAAAAAAccccccccccccccooooooouuuuuuunnnnnnntttttttsssssss 5.939 5.278 6.450 5.574 6,650 5.765 6.932 6,199 7,597 6,764 TTTTTTTOOOOOOOTTTTTTTAAAAAAALLLLLLL 8,289 7,947 9,750 9,550 11,778 11,518 13,832 13,256 15,449 14,754 Percen tage Dist:r ibution,s of Amou:Q ts Outs tanding BBBBBBBaaaaaaannnnnnnkkkkkkk CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt CCCCCCCaaaaaaarrrrrrrdddddddsssssss 10 12 13 18 22 27 27 29 28 30 BBBBBBBaaaaaaannnnnnnkkkkkkk CCCCCCChhhhhhheeeeeeeccccccckkkkkkk CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt 1111111/////// 6 8 8 10 9 10 10 10 10 11 TTTTTTTrrrrrrraaaaaaavvvvvvveeeeeeelllllll aaaaaaannnnnnnddddddd EEEEEEEnnnnnnnttttttteeeeeeerrrrrrrtttttttaaaaaaaiiiiiiinnnnnnnmmmmmmmeeeeeeennnnnnnttttttt CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt IIIIIIIfffffff 1 1 1 1 1 1 1 1 1 1 OOOOOOOiiiiiiilllllll CCCCCCCooooooommmmmmmpppppppaaaaaaannnnnnnyyyyyyy CCCCCCCaaaaaaarrrrrrrddddddd CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt 2222222/////// 11 13 12 13 11 12 12 13 12 12 RRRRRRReeeeeeetttttttaaaaaaaiiiiiiilllllll CCCCCCChhhhhhhaaaaaaarrrrrrrgggggggeeeeeee AAAAAAAccccccccccccccooooooouuuuuuunnnnnnntttttttsssssss 72 66 66 58 57 50 50 47 49 46 TTTTTTTOOOOOOOTTTTTTTAAAAAAALLLLLLL 100 100 100 100 100 100 100 100 100 100 1/ Includes holdings of revolving credit receivables acquired through agreements with travel and entertainment card companies. 2/ Consumer portion only. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 6 Growth in Bank Credit Cards and Other Selected Types of Consumer Credit Change in Amount Outstanding Percentage Change Share of Total Change (millions of dollars) in Outstandings (in percent) Changes from D<e cember 1967 to Decerna er 1971 BBBBBBBaaaaaaannnnnnnkkkkkkk CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt CCCCCCCaaaaaaarrrrrrrdddddddsssssss 3.591 434 50 BBBBBBBaaaaaaannnnnnnkkkkkkk CCCCCCChhhhhhheeeeeeeccccccckkkkkkk CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt 1111111/////// 975 187 14 TTTTTTTrrrrrrraaaaaaavvvvvvveeeeeeelllllll aaaaaaannnnnnnddddddd EEEEEEEnnnnnnnttttttteeeeeeerrrrrrrtttttttaaaaaaaiiiiiiinnnnnnnmmmmmmmeeeeeeennnnnnnttttttt CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt 2222222/////// 71 116 1 OOOOOOOiiiiiiilllllll CCCCCCCooooooommmmmmmpppppppaaaaaaannnnnnnyyyyyyy CCCCCCCaaaaaaarrrrrrrddddddd CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt 2222222/////// 865 92 12 RRRRRRReeeeeeetttttttaaaaaaaiiiiiiilllllll CCCCCCChhhhhhhaaaaaaarrrrrrrgggggggeeeeeee AAAAAAAccccccccccccccooooooouuuuuuunnnnnnntttttttsssssss 1.658 28 23 TTTTTTTOOOOOOOTTTTTTTAAAAAAALLLLLLL 7.160 86 100 Changes fr<a m June 1968 to June L972 BBBBBBBaaaaaaannnnnnnkkkkkkk CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt CCCCCCCaaaaaaarrrrrrrdddddddsssssss 3.511 369 52 BBBBBBBaaaaaaannnnnnnkkkkkkk CCCCCCChhhhhhheeeeeeeccccccckkkkkkk CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt 1111111/////// 972 151 14 TTTTTTTrrrrrrraaaaaaavvvvvvveeeeeeelllllll aaaaaaannnnnnnddddddd EEEEEEEnnnnnnnttttttteeeeeeerrrrrrrtttttttaaaaaaaiiiiiiinnnnnnnmmmmmmmeeeeeeennnnnnnttttttt CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt 2222222/////// 70 100 1 OOOOOOOiiiiiiilllllll CCCCCCCooooooommmmmmmpppppppaaaaaaannnnnnnyyyyyyy CCCCCCCaaaaaaarrrrrrrddddddd CCCCCCCrrrrrrreeeeeeedddddddiiiiiiittttttt 2222222/////// 768 77 11 RRRRRRReeeeeeetttttttaaaaaaaiiiiiiilllllll CCCCCCChhhhhhhaaaaaaarrrrrrrgggggggeeeeeee AAAAAAAccccccccccccccooooooouuuuuuunnnnnnntttttttsssssss 1.486 28 22 TTTTTTTOOOOOOOTTTTTTTAAAAAAALLLLLLL 6,807 86 100 1/ Includes holdings of revolving credit receivables acquired through agreements with travel and entertainment card companies. 2/ Consumer portion only. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 7. BANK CREDIT CARD PLANS BY FEDERAL RESERVE DISTRICT ALL INSURED COMMERCIAL BANKS (Amounts in millions of dollars) December 31, December 31, December 31, December 31, Decembe 19671/ 1968JV 19691/ 19701/ 1971I /31' Federal Reserve District Number Amount Number Amount Number Amount Number Amount Number Amount with out- with out- with out- with out- with out- Plans standing Plans standing Plans standing Plans standing Plans standing Boston 16 27. 9 21 57.5 155 133.4 172 236., 2 170 254. 3 New York 23 109. 5 20 115.3 60 438.1 81 654., 1 85 765. 6 Philadelphia 10 11., 2 9 25.4 12 26.4 32 63., 0 31 96., 7 Cleveland 14 31., 2 48 63.7 186 176.1 230 309., 0 230 359., 2 Richmond 13 38., 9 28 92.7 75 319.0 76 391., 9 78 408.. 0 Atlanta 43 40., 0 53 99.5 243 301.4 273 438., 5 268 491.. 7 Chicago 86 153., 2 107 181. 6 152 246.6 197 350., 8 271 448., 5 St. Louis 36 22., 2 57 52.8 69 91.6 73 121., 6 72 135., 0 Minneapolis 25 1., 8 11 1. 0 11 7.3 16 10., 1 36 11., 5 Kansas City 19 10., 2 19 32. 5 75 123.8 94 206., 6 98 266., 0 Dallas 22 12., 4 22 18. 9 37 81.5 50 170., 4 62 215.. 9 San Francisco 83 369., 9 115 530. 6 132 693.5 138 839., 4 134 1037., 6 All Districts 390 828., 4 510 1311. 5 1207 2638.7 1432 3791., 6 1535 4490., 0 JL/Federal Deposit Insurance Corporation, Call Report Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 8. BANK CHECK CREDIT PLANS BY FEDERAL RESERVE DISTRICT ALL INSURED COMMERCIAL BANKS (Amounts in millions of dollars) December 31, December 31, December 31, December 31, December 31, 1967 1968 1969 1970 1971 FFeeddeerraall RReesseerrvvee DDiissttrriicctt Number Amount Number Amount Number Amount Number Amount Number Amount with out- with out- with out- with out- with out- Plans standing Plans standing Plans standing Plans standing Plans Standing Boston 64 58.2 78 73.3 89 94.9 89 99.4 92 109.0 New York 76 90.0 92 182.4 99 290.8 100 375.3 109 435.9 Philadelphia 48 74.0 49 95.5 57 118.1 56 155.6 56 177.5 Cleveland 40 37.6 76 54.2 99 66.4 94 71.6 99 76.3 Richmond 32 19.8 58 35.8 62 57.9 70 75.8 92 80.9 Atlanta 86 27.5 101 43.7 107 47.6 108 58.1 101 45.8 Chicago 136 50.8 187 77.7 244 99.8 287 123.2 356 142.7 St. Louis 59 13.4 61 19.3 62 21.6 63 21.3 64 21.1 Minneapolis 53 6.9 69 11.3 89 18.5 116 23.7 158 30.8 Kansas City 53 11.6 107 21.5 115 27.5 130 28.9 130 28.2 Dallas 38 5.5 38 8.0 41 9.8 45 11.3 51 10.£ San Francisco 47 126.7 59 175.5 64 227.8 70 291.7 79 305.o All Districts 732 521.9 975 798.1 1128 1080.8 1228 1336.0 1387 1463.9 SOURCE: Federal Deposit Insurance Corporation, Call Report Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Table 9. PERCENTAGE OF INSURED COMMERCIAL BAMS WITH CREDIT CARD AND CHECK CREDIT RECEIVABLES, BY FEDERAL RESERVE DISTRICT, 1967 - 1971 December 1967 December 1968 December 1969 December 1970 December 1971 Credit Check Credit Check Credit Check Credit Check Credit Check DDiissttrriicctt Card Credit Both Card Credit Both Card Credit Both Card Credit Both Card Credit Both Boston 4 17 3 6 21 4 40 23 16 45 23 17 45 24 17 New York 5 16 3 4 20 3 12 20 9 17 21 11 18 23 10 Philadelphia 2 10 1 2 10 1 2 12 2 7 12 4 7 13 4 Cleveland 2 5 * 6 9 1 23 12 8 29 12 8 29 12 8 Richmond 2 4 * 4 8 1 10 8 3 10 10 3 11 12 4 Atlanta 3 6 1 3 6 1 15 7 3 17 7 3 16 6 3 Chicago 4 5 1 4 7 1 6 10 2 8 11 2 10 14 4 St. Louis 2 4 1 4 4 1 5 4 1 5 4 1 5 4 1 Minneapolis 1 4 * 1 5 * 1 6 * 1 8 * 3 12 * Kansas City 1 3 * 1 6 * 4 6 2 5 6 2 5 6 2 Dallas 2 3 * 2 3 * 3 3 1 4 3 1 5 4 1 San Francisco 19 11 4 28 14 6 32 15 7 34 17 9 33 19 10 ALL DISTRICTS 3 5 1 4 7 1 9 8 3 10 9 3 11 10 3 Source: Federal Deposit Insurance Corporation, Call Report. *Less than 0.5 per cent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 10. BANK CREDIT CARD OUTSTANDINGS AS A PERCENTAGE OF TOTAL BANK INSTALMENT CREDIT, BY FEDERAL RESERVE DISTRICT, 1967 - 1971 December June December June December June December June December District 1967 1968 1968 1969 1969 1970 1970 1971 1971 Boston 1.8 2.9 3.4 4.2 7.0 9.4 11.7 11.3 11.4 New York 2.5 2.6 3.2 5.2 8.2 9.3 11.0 11.1 12.0 Philadelphia 0.6 0.6 1.0 0.9 1.1 1.6 2.4 2.7 3.3 Cleveland 1.3 1.4 2.2 2.8 5.5 7.0 8.7 8.5 9.0 Richmond 1.4 1.5 2.7 4.3 8.1 8.9 9.3 8.3 8.2 Atlanta 1.3 1.4 2.7 4.0 6.9 8.0 9.2 8.5 8.7 Chicago 3.1 3.0 3.3 3.3 4.2 4.3 5.6 5.4 6.3 St. Louis 1.4 1.5 2.8 3.2 4.3 4.6 5.4 4.8 5.1 Minneapolis 0.2 0.1 0.1 0.3 0.6 0.6 0.7 0.9 0.7 Kansas City 0.6 0.6 1.6 2.7 5.3 5.8 8.3 8.1 9.1 Dallas 0.6 0.9 0.8 1.4 3.0 3.8 6.0 6.1 6.5 San Francisco 6.9 7.7 8.7 8.9 10.3 10.8 12.2 12.3 13.3 ATiT. DISTRICTS 2.5 2.7 3.4 4.2 6.2 7.0 8.4 8.1 8.6 Source: Consumer Credit and Finances Section; Board of Governors of the Federal Reserve System. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 11. BANK CREDIT CARD PLANS BY SIZE OF BANK (Amounts in Millions of Dollars) December 31, December 31, December 31, December 31, December 31, Size of Bank 19671/ 19681/ 19691/ 19701/ 19711/ (Total Deposits, in Amount Amount Amount Amount Amount Millions of Dollars) Out- Out- Out- Out- Out- Number standing Number standing Number standing Number standing Number standing Under 5 51 1.8 29 1.2 56 1.2 74 3.1 46 1.7 5 - 10 51 2.7 58 2.6 157 7.7 171 12.8 162 9.3 10 - 25 79 12.3 123 15.7 331 42.2 389 73.3 423 60.5 25 - 50 60 10.8 80 22.0 227 75.3 271 132.0 315 141.1 50 - 100 47 28.9 67 48.5 153 134.2 190 216.8 218 247.4 100 - 500 67 136.6 109 267.5 209 709.2 241 1045.5 254 1099.8 500 - 1,000 12 67.8 19 152.7 41 460.8 52 612.4 64 794.4 1,000 and Over 23 567.5 25 801.3 33 1208.1 44 1695.7 53 2135.9 All Size Groups 390 828.4 510 1311.5 1207 2638.7 1432 3791.6 1535 4490.0 1/ Federal Deposit Insurance Corporation, Call Report* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 12. BANK CHECK CREDIT PLANS BY SIZE OF BANK (AMOUNTS IN MILLIONS OF DOLLARS) December 31, December 31 December 31, December 31, December 31, SSiizzee ooff BBaannkk 1967 1968 1969 1970 1971 ((BByy TToottaall DDeeppoossiittss iinn Amount Amount Amount Amount Amount MMiilllliioonnss ooff DDoollllaarrss)) Out- Out- Out- Out- Out- Number is tanding Number standing Number standing Number standing Number standing IP Under 5 36 1.4 38 1.8 34 1.9 37 1.2 46 1.5 5 - 10 50 1.7 77 3.7 92 4.5 101 6.9 117 5.5 10 - 25 144 6.4 210 12.3 278 22.0 308 27.7 356 30.5 25 - 50 143 11.2 208 22.3 255 35.2 277 40.0 305 44.9 50 - 100 110 20.4 149 36.8 154 52.3 168 51.3 200 55.5 100 - 500 175 103.9 205 163.4 226 261.9 231 310.0 241 275.0 500-1000 35 88.3 44 142.1 47 172.5 53 170.2 61 203.2 1,000 and Over 39 288.7 44 415.7 42 530.5 53 728.7 61 847$ All Size Groups 732 521.9 975 798.1 1128 1080.8 1228 1336.0 1387 1463.9 Source: Federal Deposit Insurance Corporation, Call Report. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 13. PERCENTAGE OF INSURED COMMERCIAL BANKS WITH CREDIT CARD AND CHECK CREDIT RECEIVABLES BY SIZE OF BANK, 1967 - 1971 Total December 1967 December 1968 December 1969 December 1970 December 1971 Deposits Credit Check Credit Check Credit Check Credit Check Credit Check ($ millions) Card Credit Both Card Credit Both Card Credit Both Card Credit Both Card Credit Both under 5 1 1 * 1 1 * 1 1 * 2 1 * 1 1 * 5-10 2 2 * 2 2 * 4 3 * 5 3 * 5 4 1 10-25 3 5 * 4 7 * 10 9 2 12 9 2 11 9 2 25-50 5 16 1 8 20 2 20 22 6 22 22 5 21 21 5 50-100 11 27 2 15 32 5 31 31 10 35 31 11 35 31 10 100-500 19 49 9 28 52 13 49 54 29 52 50 29 50 48 26 500-1000 22 60 14 34 75 27 70 73 56 77 71 60 76 68 55 1000 and over 49 80 39 49 77 37 70 75 52 76 79 58 82 80 63 ALL SIZE GROUPS 3 5 1 4 7 1 9 8 3 10 9 3 11 10 3 Source: Federal Deposit Insurance Corporation, Call Report. *Less than 0.5 per cent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 14. NATIONAL CREDIT CARD SYSTEMS*/, 1969-1972 June 30, December 31, June 30, December 31, June 30, 1969 1970 1971 1971 1972 Number of Participating Banks!/ Bank Americard System 3,085 3,751 3,902 3,978 4,195 Interbank System 3,050 5,360 5,464 5,495 5,600 Number of Card-Issuing Banks Bank Americard System 185 245 247 245 246 Interbank System 500 1,182 1,010 981 N.A. Number of Agency Banks!/ Bank Americard System 2,900 3,506 3,655 3,733 3,949 Interbank System 2,550 4,178 4,454 4,514 N.A. Number of Merchant Members^/ Bank Americard System 450,000 509,190 512,514 541,566 577,032 Interbank System 450,000 627,968 649,281 668,768 661,052 Number of Cardholder Accounts 33.0 M 36.8 M 33.0 M 29.3 M 30.3 M Number of Active Accounts 8.6 M 15.3 M 15.7 M 16.8 M 17.6 M Per Cent of Accounts Active 26.1 41.4 47.5 57.2 58.2 Average Balance, Active Accounts $182 $232 $227 $243 $228 Amount of Credit Outstanding $1,560 M $3,550 M $3,560 M $4,080 M $4,025 M Per Cent of Total Bank Card Outstandings 92 93 91 92 90 1/ Bank Americard and Interbank systems. 2/ The system figures for numbers of banks and merchants cannot be added to a total since some duplication exists. N.A.- Not Available M - Million Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE 15. GROSS AND NET CHARGE-OFF RATES ON BANK CREDIT CARD PLANS DURING 1971* BY LENGTH OF TIME IN CREDIT CARD FIELD Year Entered Number of Banks Percent of Total 1971 Gross 1971 Net Credit Card Field With Receivables Credit Card Receivables Charge-Off Rate Charge-Off rate December 31, 1971 December 31, 1971 Before 1960 43 17.0 2.78 2.33 1960-1965 10 2.5 3.20 2.49 1966-1967 204 27.2 3.34 2.62 1968 200 14.0 4.34 3.53 1969 754 33.4 5.04 4.36 1970 232 5.4 5.76 5.48 First Half 136 4.0 5.50 5.19 Second Half 96 1.4 6.62 6.44 1971 92 0.5 0.29 0.27 First Half 49 0.4 0.36 0.34 Second Half 43 0.1 0.12 0.10 ALL GROUPS COMBINED 1,535 100 4.07 3.42 SOURCE: Supplement to December 31, 1971 Call Report *Gross and net charge-offs during 1971 as a percentage of credit card outstandings on December 31, 1971. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Andrew F. Brimmer (1972, September 6). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19720907_brimmer

@misc{wtfs_speech_19720907_brimmer,
  author = {Andrew F. Brimmer},
  title = {Speech},
  year = {1972},
  month = {Sep},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19720907_brimmer},
  note = {Retrieved via When the Fed Speaks corpus}
}