The credit card industry experienced a sizeable increase in net pre-tax profits in 2010, rising to 18.5 billion, up from the previous year’s $13.6 billion, according to a report from the industry analyst firm R.K. Hammer. This increase in profits came despite the predicted and much-heralded declines in revenues.
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Overall, lenders lost $3.2 billion in revenues between 2009 and 2010, as both interest and fee income slipped, the report said. However, operating expenses, the blended cost of funds and net charge offs all saw significant declines as well, and costs fell to $144.8 billion from $152.9 billion in the previous year.
“Arguably, as with last year it will again take a very complicated and successful set of financial and marketing mechanics by issuers to reverse or at least mitigate what we see as an all out attack on credit card industry profits in such an economic and regulatory climate,” said Robert Hammer, founder of the firm. “We do look for some improvements later in 2011, which should also well serve the broader market and financial institutions in particular.”
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Financial institutions are now fighting a proposed rule that would severely limit the amount they could charge businesses for processing debit card transactions, which they say would cut even more deeply into revenues.