Merry Christmas to all and to all a good portfolio of interest-bearing instruments! To close out this week, we have insightful research from the Fed on profits in credit card issuance, and a lesson in branding and name recognition from a (world-famous) cartoonist.
1. Profitability of credit cards and threats
Researchers at the Federal Reserve published an interesting analysis of credit card profitability. Their research is unique in that they breakdown the relative profitability by lending interest component, interchange or transaction revenue, and additional fees like late fees. They look at trends, particularly in the growth of rewards expense on banking profits, and a segementation of the transactional and net margin revenue from different types of credit card customers:
It is notable that heavy and light revolvers pay not only the bulk of interest charges, but also the majority of credit card usage fees. Although usage fees are distinct from both the credit and transaction functions of credit cards, in practice, they appear to be paid mainly by the same accounts that use credit cards for their credit function. Since the credit function of credit cards comprises approximately 80 percent of profitability and fees comprise most of the remaining 20 percent, this suggests that the majority of credit card revenues are paid by revolvers.
This insight into credit card business models is especially relevant considering how Dodd-Frank - Durbin 2.0 might play out and the likely coming upset in reward card offerings from larger (>$10B assets) banks.
2. Branding, the Kardashians, and Race Cars
Famed comic book artist and CEO of Image comics Todd McFarlane shared his insights into how he thinks about branding in his 2 part appearance on the Tim Ferriss Show. As an independent entrepreneur who has spent a career competing with Marvel and DC, and their corporate owners Disney and Time Warner, Todd discusses how he’s managed to stay relevant among much bigger and better-funded brands in his industry.
One of the ways to create a brand that has some value is through attrition. Over time you’re going to have high points and low points, but you have to keep going. The value isn’t any single issue or any single year, it’s the sum total of all of it. All you want to do is keep going so when you go to your next move you can peel off a piece of that. It’s attrition of going again, and again, and again.
The entire discussion is worth the time to listen/watch. He also shares how the Kardashians led him to bring a funny car dragster to a comic book convention.
Happy Holidays. This kid knows what’s up when facing adversity. Anything good or downright terrible in our post this week? Please tell us your unfiltered thoughts at blog@mindspaninc.com, and have a great holidays.