Discussion 1: Provide an overview of the credit card issuing industry cost structures and revenue sources
Credit card issuing companies generate revenues from different sources. One of the primary sources of revenue is consumer (merchant) fees collected from the cardholders for annual subscription, card renewal, card replacement, and redemption of reward points. Customer fees contribute around 9 percent of total industry revenues (Gambardella, 2020). Issuing companies also generate revenues from interest charged on conversion of outstanding amounts to easy Equated Monthly Instalments (EMI), balance transfers between cards, cash advances, and late payment (Hill, Schilling & Joes, 2016). Interest fees account for 36 percent of industry revenues (Gambardella, 2020).
The highest revenues are generated from merchant or interchange fees (Gambardella, 2020). When a cardholder makes payment to a merchant through a credit card, the merchant does not receive the full amount. A certain processing fee is deducted, a portion of which is forwarded to the issuing bank through the payment network. This is referred to as interchange fees, and it usually ranges between 1% and 3% of the transaction. Interchange revenues account for over 46 percent of the industrys revenues, and are the largest source of revenue (Gambardella, 2020). Credit card issuers also earn commissions from the sale of third party products such as when sales agents promoting the credit card engage in cross-selling of other products such as investment...
Some revenue is also generated from co-branding activities, such as when third parties pay advertising fees for inclusion of their adverts in customer credit card statements (Hill et al., 2006).The cost structure of credit card issuers includes operating expenses, costs incurred in reward programs, and bad debts or charge-offs (Gambardella, 2020). Operating expenses are costs incurred in the day-to-day running of the companies, including preparation of customer statements, printing of plastic cards, payment of wages for workers, mailing, research & development, and marketing. Operating expenses account for around 34 percent of the industrys annual costs (Gambardella, 2020). Credit card issuers emphasize the value of their services through their reward programs (Gambardella, 2020). As such, reward programs make up a significant part of the company expenses. Costs are also incurred in the form of bad debts, when customers completely fail to pay their credit card bills, causing a loss to the issuing company (Hill et al., 2006).
Discussion 2: Product Life Cycle Analysis: A Case Study of the Sapphire Brand
JP Morgan Chases Sapphire credit card was released in 2016 with insane offers that included a 100,000-point introduction bonus, a $3,000 travel credit, and bonus points for dining and travel…
References
Gambardella, A. (2020). Credit Card Issuing in the US. S Industry Expert Summaries.
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Hamilton, R. W., Rust, R. T., & Dev, C. S. (2017). Which Features Increase Customer Retention? MIT Sloan Management Review, 58(2), 79-85.
Hill, C. W., Schiling, M. ., & Jones, G. J. (2016). Strategic Management: Theory and Cases: An Integrated Approach (12th ed.). Boston, MA: Cengage Learning.
Nilson Report (2020). Top US Credit Card Issuers. Nilson Report. Retrieved from https://nilsonreport.com/mention/490/1link/
Pilcher, J. (2016). Millennials Go Bananas for Super Cool, Very Pricey Metal Credit Card. The Financial Brand. Retrieved from https://thefinancialbrand.com/61696/chase-sapphire-reserve-millennial-travel-rewards-cred
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