This blog post includes some interesting market share data for the top 15 credit card issuers. The credit card market is dominated by a few large issuers who have the ability to dictate prices, the writer argues. He says that lower interest rates--and presumably more attractive terms all around--will only encourage more people to carry balances and concludes that what the world needs is for "the whole credit-card market to shrink, and for banks to go back to offering personal loans."
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This article tells us nothing of use. The percentage market share of big issuers compared to each other has no bearing on the effects they have on the market as a whole. I'm not saying the author's points are unfounded, however, if he wants to make those points, then he needs to tell us what percentage of the total market is held by the institutions he listed.
I agree, the article is completely incorrect. The big boys like Bank of America and Citizens needed to lower their monthly maintenance fees on checking accounts to compete with the smaller banks and CUs. Citizens used to require direct deposit to avoid a maintenance fee and they do not anymore. We can open a checking account free of any maintenance fees online at BofA. Sure, the big boys can have a little more pricing power because of convenience they have, but that's about it. And the high CC rates are high because its based on risk. CCs are not backed by anything. Car loans are backed by your car. If you don't pay your car loan, the bank will repossess your car; same thing with a mortgage being backed by the house you buy. CCs are not backed by anything. Hence, the higher rates.
It’s pretty clear from this chart that between them, the big credit card issuers absolutely have the ability to set prices.
Wat. No it's not. Unlike some markets, the CC market isn't one in which there is an obvious and direct benefit from using a card issued by the bank with the most customers. This would be true if we were comparing processors, ie. Visa vs MC vs AMEX vs Discover. But given that the cards are both Visa, there's no reason for me to use one (taken from the chart) issued by Chase over one from US Bank if the Chase one has a higher interest rate, or in the case of FWFers, offers lower rewards.
I don't even feel like commenting on the rest of the blog, but it's surprising how many mistakes one can make in a 1/2 page post.
Message edited by: Dazarath on 2009-09-17 21:57:03 CDT
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