The consumer credit recovery continued in the fourth quarter of 2020, building off trends established last fall, according to the American Bankers Association’s latest quarterly Credit Card Market Monitor. Monthly purchase volumes improved across risk groups for the second consecutive quarter as the share of Revolvers (those who carry over a monthly balance) hit a new record low.
The May 2021 Monitor, which reflects credit card data from October to December 2020, found that monthly purchase volumes continued to rise after bottoming out in the second quarter of 2020, increasing 7–9% quarter-over-quarter across risk tiers while approaching pre-pandemic spending levels. Meanwhile, credit card credit outstanding as a share of national disposable income* rose by 13 basis points to 4.67%, though it remains near an all-time low and 85 basis points below its level one year ago.
The share of cardholders who are Transactors (those who pay their monthly balance in full) rose 1.4 percentage points to 35.1%, setting an all-time high for the third straight quarter. At the same time, the share of Revolvers fell another 1.0 percentage point in the fourth quarter to 39.7%, falling below 40% for the first time. Meanwhile, the share of Dormant accounts ticked down 0.5 percentage point to 25.2%.
The effective finance charge yield (which measures interest payments relative to total outstanding credit in the market) ticked up 5 basis points in the fourth quarter to 12.38%, though it remains well below the pre-pandemic level.
“As 2020 came to a close, consumers were generally flush with cash after months of conservative spending and multiple rounds of federal Economic Impact Payments,” said ABA Senior Economist Rob Strand. “The growing share of Transactors and shrinking share of Revolvers underscores the strong liquidity position of consumers as the economy was beginning to rebound.”
The Credit Card Market Monitor also found that, for the second consecutive quarter, credit lines fell on a quarterly basis for both new and total accounts across all risk tiers. Measured on an annual basis, total credit lines also fell across the board, though the decline in prime account credit lines (-14.2% year-over-year) was notably larger than for subprime and super-prime accounts (-7.3% and -8.8% year over year, respectively).
In the fourth quarter, the number of new accounts opened in the previous 24 months fell by 6.8% to its lowest level in six years. Compared to a year ago, new account openings are 17.3% lower, particularly for new subprime accounts (-31.7%), with both prime accounts (-13.5%) and super-prime accounts (-10.2%) down as well.
The slowdown in account openings contributed to a modest quarterly decrease in the number of total credit card accounts (-0.7%), with most of the decline in subprime accounts. Among all accounts, the subprime tier comprised 17% of total accounts at the end of 2020 while super-prime accounts rose to a record-high share of 54%.
“Subdued account creation reflected caution on the part of credit card issuers at the end of last year,” said Strand. “However, the recent ABA Credit Conditions Index foresees expanded credit availability as well as demand in the months ahead, which should translate into stronger account creation as the year progresses.”
The full report with detailed charts and statistics is available here.
*Seasonally Adjusted
About the Credit Card Market Monitor
The American Bankers Association Credit Card Market Monitor is a quarterly report that provides key statistics on industry trends and relevant economic factors affecting the industry. The credit card data used in the report is taken from a nationally representative sample provided by Verisk Financial | Argus. Credit card data are presented as national averages for all accounts based on actual credit card account information. No individual account holder’s information or specific financial institution’s data can be identified from the data set. Other data used in the report are taken from various public and private sources, including the Department of Commerce’s Bureau of Economic Analysis and the Federal Reserve.
Answers to Frequently Asked Questions and definitions of the data presented in the ABA Credit Card Industry Monitor can be found in an Appendix attached to the monitor.
Results of this and all previous reports can be found at www.aba.com.