Credit card chart of the day
John B just left me an interesting comment on the subject of credit cards:
Your statement on banks needing to focus on competing, rather than pages of agate type is correct. but is there a substantially large enough market of major credit card issuers to sustain true competition? I donâ€™t think so. And probably not in a more regulated environment.
It’s a good question, so I used the data here to chart the share of the credit card market held by the biggest issuers. The percentages aren’t of the total market, just of the top 15 issuers, but it’s close enough:
It’s pretty clear from this chart that between them, the big credit card issuers absolutely have the ability to set prices. It’s also clear just by looking at their marketing materials that none of them is particularly interested in competing with the others by reducing the maximum interest rate that they charge.
In most contexts, a chart like the one above would I think bespeak a competitive market. But in credit cards, I’m not so sure. On the other hand, do we want credit cards to be highly competitive? I’m not sure that we do: what we really want is for credit cards to be transparent.
At the margin, if the card issuers bring down their interest rates, that will only result in even more people borrowing even more money on their credit cards. But doing so is nearly always the worst possible way of borrowing money, except for maybe going to the loan shark down the street. Ideally we want the whole credit-card market to shrink, and for banks to go back to offering personal loans.