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<keyword id="20599258" type="General" weightage="20" keywordseo="Indian-consumers" source="keywords">Indian consumers</keyword> demonstrated a significant increase in their <keyword id="21084888" type="General" weightage="100" keywordseo="credit-card-spending" source="keywords">credit card spending</keyword> in July this year, marking a 19% increase compared to the same month last year. According to a report released by <keyword id="19945737" type="General" weightage="20" keywordseo="SBI-Securities" source="keywords" meta.keywordsubtype="org" meta.entityname="SBI Securities" meta.hostid="261" meta.entityid="SBI Securities">SBI Securities</keyword>, the total expenditure by credit card users across the country reached an impressive Rs 1.7 trillion. This substantial uptick highlights the growing reliance on credit cards for transactions, reflecting broader economic trends and <keyword id="20740758" type="General" weightage="20" keywordseo="consumer-confidence" source="keywords">consumer confidence</keyword>. The report also highlighted a considerable increase in <keyword id="21118324" type="General" weightage="20" keywordseo="transaction-volumes" source="keywords">transaction volumes</keyword>, which surged by 39% year-on-year, reaching a total of 38.4 crore transactions in July 2024. This increase in the number of transactions underscores the widespread adoption and usage of credit cards as a preferred <keyword id="20632158" type="General" weightage="20" keywordseo="payment-method" source="keywords">payment method</keyword> among Indian consumers. "Credit card spending in India increased 19% YoY to Rs 1.7 trillion in Jul'24. The transaction volume during the month was 38.4 crore, up 39% YoY" said the report. The report also noted that among the banks, <keyword id="19895995" type="General" weightage="20" keywordseo="HDFC-Bank" source="keywords" meta.keywordsubtype="org" meta.entityname="HDFC Bank" meta.hostid="261" meta.entityid="HDFC Bank">HDFC Bank</keyword> emerged as the leader in terms of transaction volumes, with its credit cards facilitating 9.9 crore transactions during the month. <keyword id="19900482" type="General" weightage="20" keywordseo="ICICI-Bank" source="keywords" meta.keywordsubtype="org" meta.entityname="ICICI Bank" meta.hostid="261" meta.entityid="ICICI Bank">ICICI Bank</keyword> followed closely with 7.1 crore transactions, while SBI secured the third position with 6.3 crore transactions. In terms of transaction value, HDFC Bank again led the way, with a total spend of Rs 44,369 crore through its credit cards in July. ICICI Bank and SBI followed with Rs 34,566 crore and Rs 26,878 crore, respectively. The report said "In Jul'24, transaction volumes was led by cards issued by HDFC Bank (9.9 crore) followed by ICICI Bank (7.1 crore) and SBI (6.3 crore)". Additionally, the <keyword id="22988051" type="General" weightage="20" keywordseo="average-transaction-value" source="keywords">average transaction value</keyword> (ATV) also saw a marginal increase of 1.4% month-on-month in July 2024. This marks the first increase in ATV in ten months, suggesting a shift in consumer behaviour towards higher-value transactions after a period of stagnation. Overall, these figures reflect the growth of credit card usage in India, driven by increased consumer confidence and the convenience offered by credit card transactions.

Indians credit card spending increases 19% YoY to Rs 1.7 trillion in July 2024

<keyword id="20341279" type="General" weightage="20" keywordseo="sbi-cards-and-payment-services-ltd" source="keywords">SBI Cards and Payment Services Ltd</keyword> has reported an 8 per cent rise in net profit to Rs 549 crore for the third quarter ended December 2023. The pure-play credit card company, promoted by <keyword id="19898108" type="General" weightage="20" keywordseo="sbi" source="keywords">SBI</keyword>, had posted a net profit of Rs 509 crore during the corresponding period of the previous financial year. Total income grew to Rs 4,742 crore during the October-December period from Rs 3,656 crore in the year-ago period, <keyword id="20190417" type="General" weightage="20" keywordseo="sbi-card" source="keywords">SBI Card</keyword> said in a regulatory filing. Total operating cost increased by 23 per cent at Rs 2,426 crore for the third quarter of FY24 from Rs 1,974 crore in the previous fiscal, it said. Gross non-performing assets (NPA) rose to 2.64 per cent during the quarter under review as against 2.22 per cent a year ago. Net NPA too increased to 0.96 per cent from 0.80 per cent at the end of the December quarter of the previous financial year. As a result, impairment losses and bad debt expenses grew to Rs 883 crore from Rs 533 crore in FY23. As of December 31, 2023, the card company's capital adequacy ratio was 18.4 per cent compared to 23.1 per cent as of March 31, 2023. As per the capital adequacy norms issued by the <keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword>, the company's capital-to-risk ratio consisting of Tier I and Tier II capital should not be less than 15 per cent of its aggregate risk-weighted assets on the balance sheet and of the risk-adjusted value of off-balance sheet items. SEE ALSO:<a href="https://www.businessinsider.in/tech/mobile/webstories/oneplus-12-vs-oneplus-12r-heres-whats-different-between-the-two-devices/slidelist/107138750.cms" target="_blank"></a> <a href="https://www.businessinsider.in/tech/mobile/webstories/oneplus-12-vs-oneplus-12r-heres-whats-different-between-the-two-devices/slidelist/107138750.cms" target="_blank">OnePlus 12 vs OnePlus 12R – What distinguishes the two new smartphones</a> <a href="https://www.businessinsider.in/business/auto/news/rolls-royce-spectre-rolls-out-as-indias-most-expensive-electric-car/articleshow/107051636.cms">Rolls Royce Spectre rolls out as India’s most expensive electric car</a> <a href="https://www.businessinsider.in/tech/news/global-pc-shipments-decline-for-the-eighth-straight-quarter-hopes-pinned-on-ai-to-drive-sales/articleshow/106981182.cms">Global PC shipments decline for the eighth straight quarter; hopes pinned on AI to drive sales</a>

SBI Card Q3 profit rises 8 pc to ₹549 crore

India has witnessed the fastest jump in alternative payment share for <keyword id="21422684" type="General" weightage="100" keywordseo="e-commerce-payments" source="keywords">e-commerce payments</keyword> in the <keyword id="20122305" type="General" weightage="20" keywordseo="Asia-Pacific-region" source="keywords">Asia-pacific region</keyword> from 20.4% in 2018 to 58.1% in 2023 as per a report by GlobalData, a data and analytics company. Options for payment other than traditional cash include <keyword id="19900911" type="General" weightage="20" keywordseo="UPI" source="keywords">UPI</keyword>, <keyword id="6354770" type="General" weightage="20" keywordseo="debit-cards" source="Orion">debit cards</keyword> and <keyword id="6387037" type="General" weightage="20" keywordseo="credit-cards" source="Orion">credit cards</keyword> among others. "This significant uptake of alternative payment solutions can be attributed to the widespread usage of <keyword id="21223853" type="General" weightage="20" keywordseo="mobile-wallets" source="keywords">mobile wallets</keyword>, largely driven by UPI, which facilitates mobile payments in real-time simply by scanning <keyword id="19993724" type="General" weightage="20" keywordseo="QR-codes" source="keywords">QR codes</keyword>," GlobalData report elaborated. The report highlights that in the Asia-Pacific (APAC) region, the payment solutions such as mobile and digital wallets have displaced traditional payment methods like cash and bank transfers for e-commerce payments. The report states that such alternative payments are already immensely popular in countries like <keyword id="1334" type="General" weightage="20" keywordseo="china" source="Orion">China</keyword> and India and are also gaining traction in other APAC markets as well. However, China led the way in 2023, with alternative payments accounting for nearly two-thirds of the total e-commerce payments value in 2023 that took place in the entire Asia Pacific region. However, India is also not far behind, with a significant surge in alternative payment methods since 2018. The e-commerce analytics by the company revealed that even traditionally cash-intensive countries in APAC such as the Philippines, Malaysia, and Indonesia, are witnessing a similar trend. "While most Asian markets are traditionally cash-dominated, the adoption of alternative payment methods for both online and in-store payments is growing across many markets in the region, even outpacing the West. This trend is driven by the rising smartphone and internet accessibility, increasing convenience of electronic payments, and the proliferation of mobile and QR code-based payment solutions" said Shiv Gupta, Senior Banking and Payments Analyst at GlobalData. The report also highlights that within the Asia-Pacific region, China and India have a higher adoption rate of alternative payment methods as compared to their peers. According to the company's 2023 Financial Services Consumer Survey, alternative payment solutions account for more than 65% of the e-commerce transaction value in China, the largest e-commerce market globally. It represents a significant increase from 53.4% in 2018. Other Asian markets like Indonesia, Hong Kong, Singapore, and the Philippines are also seeing higher adoption of alternative payment solutions. "Alternative payment solutions accounts for lion share in e-commerce markets across many APAC countries, supported by rising internet and smartphone penetration, and growing acceptance of digital payments by merchants. With the convenience, speed, and security they offer, coupled with high expected growth in the overall e-commerce market in the region, these payment tools are anticipated to further gain traction and disrupt the consumer payment space in the region" said Gupta.

India's non-cash payments on e-commerce platforms surge to 58.1% in 2023

<ul class="summary-list"><li>Some retailers and fast-food chains are limiting their operations following a global IT outage.</li><li>McDonald's Japan said some of its stores had temporarily closed.</li></ul>A <a target="_blank" class="" href="https://www.businessinsider.com/major-disruptions-airline-bank-london-stock-exchange-microsoft-outage-2024-7">massive IT outage</a> has taken its toll on some grocery stores, retailers, and fast-food giants around the world.Starbucks' mobile-ordering system appears to be experiencing widespread issues in the US, with stores listing their order-ahead function as "not available."One barista in Atlanta, whose identity has been verified by BI, said that mobile orders weren't operating at their store. "Definitely a weekend that I'm glad to be not working," they said.Various Reddit users, whose identities haven't been verified by BI but who say they're Starbucks baristas, said the disruptions led to chaos at their stores and <a target="_blank" class="" href="https://www.reddit.com/r/starbucks/comments/1e74zsd/is_everyone_surviving_the_outages/">long lines</a> of <a target="_blank" class="" href="https://www.reddit.com/r/starbucksbaristas/comments/1e70xwb/everything_is_down_and_were_still_open_and_doing/">angry and impatient customers</a>. Some said that their stores had closed over the issue.Starbucks did not immediately respond to a request for comment from BI.McDonald's Japan said on Friday some of its stores had temporarily closed or were only running limited operations because of a malfunction of their in-store cash registers. <a target="_blank" class="" href="https://www.bloomberg.com/news/articles/2024-07-19/mcdonald-s-in-japan-hit-by-systems-outage-closing-30-of-stores">Bloomberg</a> reported that about a third of outlets in Japan were closed on Friday.A McDonald's spokesperson later told Business Insider that all its restaurants in Japan were open and operating.The Australian grocery-store chain Woolworths told BI that some stores had been affected by the IT issue. The chain said that all but six stores were open, while some had fewer checkouts functioning.A banner on Woolworths' website said it was "experiencing intermittent technical difficulties instore and online."Coles, another Australian grocery-store chain, told BI it was being "affected by a global technical issue which is disrupting some of our systems in our supermarkets and liquor stores."A spokesperson from the UK grocery-store chain Morrisons told BI that it was "experiencing some issues with payment in some stores." And a spokesperson for Waitrose, another UK grocery-store chain, told BI it had "briefly" experienced issues with contactless payments.Various other companies reported issues with some card payments not working on Friday.Transport for Ireland <a target="_blank" class="" href="https://x.com/TFIupdates/status/1814207452105060808">said</a> that the top-up app for its transport passes had been down for several <a target="_blank" class="" href="https://x.com/TFIupdates/status/1814295821069750528">hours</a>. WWF Australia <a target="_blank" class="" href="https://x.com/WWF_Australia/status/1814212390348894368">said</a> that its credit-card-donation system was down and told people to donate via PayPal instead. Trelissick, a country house in Cornwall, England, <a target="_blank" class="" href="https://x.com/NTTrelissick/status/1814231647945896189">said</a> that visitors couldn't pay by card. A cinema and café in Bristol, England, <a target="_blank" class="" href="https://x.com/wshed/status/1814222356807598554">said</a> that it could only accept cash.<a target="_blank" class="" href="https://www.bloomberg.com/news/live-blog/2024-07-19/microsoft-cloud-technical-outage-updates">Bloomberg</a> reported that staff at the Ocean Park Marriott in Hong Kong were using pen and paper to check guests in. "We are actively working with our vendors to resolve issues that have impacted certain hotel systems," a spokesperson for Marriott International told BI.Major airlines, banks, and supermarkets are experiencing widespread disruptions linked to an IT outage after Microsoft reported problems with its online services, linked to an issue at the cybersecurity firm CrowdStrike.But not all retailers have been affected. Representatives for the UK grocery-store chains Asda, Sainsbury's, and Marks &amp; Spencer told BI that they were operating as normal. And a spokesperson for the US-based chain Kroger said it wasn't experiencing any major issues.

Global IT outage hits Starbucks mobile-order system and card payments at businesses

New Delhi [India], March 6 (ANI): The <keyword id="19899810" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="keywords">Reserve Bank of India</keyword> (<keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword>) has issued a directive aimed at enhancing consumer choice and competition in the credit card market. In a circular released on Wednesday, the RBI mandated that card issuers must provide their eligible customers with the option to choose from multiple card networks at the time of issuance or renewal. According to a press release, the central bank prohibited card issuers from entering into agreements with card networks that restrict them from availing the services of other card networks. The directive addresses concerns raised about restrictive practices prevalent in the credit card industry. The RBI identified arrangements between card issuers and card networks that limit customer choice as detrimental to the availability of options in the market. By taking decisive steps to promote consumer choice and fair competition, the RBI aims to foster a more dynamic and inclusive financial ecosystem. Key highlights of the RBI directive include the requirement for card issuers to offer eligible customers the choice of selecting from multiple card networks at the time of issuance or renewal of credit cards. This provision seeks to empower consumers by providing them with greater flexibility and control over their financial products. Additionally, the RBI has banned card issuers from entering into agreements with card networks that restrain them from availing the services of other card networks, aiming to promote fair competition and prevent anti-competitive practices. The directive provides definitions for authorized card networks, including American Express Banking Corp., Diners Club International Ltd., MasterCard Asia/Pacific Pte. Ltd., <keyword id="20846648" type="General" weightage="20" keywordseo="national-payments-corporation-of-india-rupay" source="keywords">National Payments Corporation of India-Rupay</keyword>, and <keyword id="20846647" type="General" weightage="20" keywordseo="visa-worldwide-pte" source="keywords">Visa Worldwide Pte</keyword>. <keyword id="20040916" type="General" weightage="20" keywordseo="limited" source="keywords">Limited</keyword>. Certain exemptions have been outlined as well, including an exemption for credit card issuers with a smaller customer base of 10 lakh or fewer active cards. The implementation timeline for the directive is set to be six months from the date of issuance of the circular, allowing card issuers and card networks sufficient time to comply with the new requirements. The directive underscores the RBI's commitment to promoting transparency, choice, and competition in the credit card market, with a focus on creating a more consumer-friendly financial ecosystem. With the issuance of this directive, the RBI reaffirms its role as a proactive regulator dedicated to safeguarding the interests of consumers and promoting a competitive and resilient financial system. (ANI)

RBI directs card issuers to offer choice among card networks, bans restrictive agreements

New Delhi [India], August 1 (ANI): The <keyword id="6354335" type="General" weightage="20" keywordseo="Reserve-Bank-of-India" source="Orion">Reserve Bank of India</keyword> (<keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords">RBI</keyword>) has released a draft framework on alternative <keyword id="20470059" type="General" weightage="20" keywordseo="authentication" source="keywords">authentication</keyword> mechanisms to supplement the SMS-based OTP system for digital <keyword id="22624644" type="General" weightage="20" keywordseo="payment-transactions" source="keywords">payment transactions</keyword>. The RBI noted, "No specific factor was mandated for authentication, but the <keyword id="19989657" type="General" weightage="100" keywordseo="digital-payments" source="keywords">digital payments</keyword> ecosystem has primarily adopted SMS-based OTP as <keyword id="22624645" type="General" weightage="20" keywordseo="additional-factor-of-authentication" source="keywords">Additional Factor of Authentication</keyword> (AFA). While OTP is working satisfactorily, technological advancements have made available alternative authentication mechanisms." The draft discusses the Additional Factor of Authentication (AFA), which involves using more than one factor to authenticate a payment instruction. It requires that the process validate and confirm the credentials of the customer initiating the payment. Furthermore, the draft specifies that issuers must obtain explicit consent from customers before enabling any new authentication factor. Customers should also have the option to deregister from using the new authentication method. The draft states, "All digital payment transactions, other than card present transactions, shall ensure that one of the factors of authentication is dynamically created, i.e., the factor is generated after initiation of payment, is specific to the transaction and cannot be reused." Additionally, the draft mandates that issuers must have a system to alert customers in near real-time for all eligible digital payment transactions. It also prohibits transaction issuers from entering into exclusive arrangements with any Payment Service Provider or Technology Service Provider, which could limit their ability to implement alternative authentication solutions. RBI has proposed <keyword id="22624646" type="General" weightage="20" keywordseo="e-mandates" source="keywords">e-mandates</keyword> for <keyword id="21970493" type="General" weightage="20" keywordseo="recurring-transactions" source="keywords">recurring transactions</keyword> in mutual funds, insurance premiums, credit card bill payments for values up to Rs 1 lakh and in respect of all other categories for value up to Rs 15,000. The banking regulator also suggests that issuer shall be liable for the process and technology deployed for authenticating digital payments. There should also be a system of alerting the customer in near real time for all digital payment transactions. The draft notes that small value card present transactions up to Rs 5000 per transaction in contactless mode at Point of Sale (PoS) terminals are exempt from the AFA requirement. The central bank has invited comments and feedback on the draft framework until September 15, 2024. The proposed alternative authentication mechanisms aim to provide more choices for authentication factors to Payment System Operators and users.

RBI proposes alternative methods for authentication of digital payments, in addition to SMS-based OTP system

New Delhi: 78 per cent of consumers now prefer to do most of their banking digitally through <keyword id="19915384" type="General" weightage="20" keywordseo="mobile-apps" source="keywords">mobile apps</keyword> or websites, according to the Alkami report. This shift is part of a broader trend towards <keyword id="21227659" type="General" weightage="20" keywordseo="cashless-transactions" source="keywords">cashless transactions</keyword> and <keyword id="21012835" type="General" weightage="20" keywordseo="contactless-payments" source="keywords">contactless payments</keyword>, which have become the default for many, especially since the COVID-19 pandemic. According to the report, nearly 80 per cent of financial institutions have seen an increase in cashless transactions over the past two years. This change has been accelerated by the pandemic, with many consumers opting for digital payments to avoid handling cash. About 60 per cent of these institutions noted that the volume of cashless transactions has surged by more than 20 per cent. Cashless payments aren't a new concept--personal checks and credit cards have been around for decades. However, today's digital payments, whether made through a smartphone, laptop, or tablet, are quickly becoming the standard. The convenience and safety of these transactions, especially in a post-pandemic world, have made them more popular than ever. Allison Cerra, Chief Marketing Officer at Alkami Technology, said, "The banking leaders of the future will be those that can harness data for the best use, gain a holistic view of their relationships, and meet the rapidly changing needs of digital consumers." With more people turning to <keyword id="20028215" type="General" weightage="20" keywordseo="digital-banking" source="keywords">digital banking</keyword>, there's been a noticeable decline in the use of ATMs and checks. Chad Rogers, Executive Vice President at Connexus Credit Union, noted that even millennials are moving away from traditional banking methods. "What we're seeing, even with our millennial users, is that they're no longer ordering checks, or making cash withdrawals from our ATMs as we would expect. Instead, they are self-serving from home or wherever they are. They're moving money through our digital banking platform," he said. Interestingly, even though fewer people are visiting bank branches in person, their overall engagement with banks has increased. Thanks to the ease of mobile and <keyword id="19998466" type="General" weightage="20" keywordseo="online-banking" source="keywords">online banking</keyword>, customers are now interacting with their banks more frequently, often on a daily basis. While cashless transactions are on the rise, the adoption of cryptocurrency is growing more slowly. Around 21 per cent of financial institutions reported that their customers are asking for Bitcoin products and services. Although this is still a relatively small percentage, 35 per cent of banks believe that offering cryptocurrency options could give them a competitive edge. Banks are also feeling the heat from fintech companies like PayPal, Stripe, and Venmo. Jamie Dimon, CEO of JPMorgan Chase, has called these fintechs "enormous competitive threats" to traditional banking. The popularity of fintechs has only increased during the pandemic, with many consumers turning to these platforms for their financial needs. Despite the competition, some banks are partnering with fintechs to stay relevant. According to the report, 50 per cent of banks and 40 per cent of credit unions have teamed up with fintech companies in the past three years to enhance their digital offerings. Looking ahead, many experts believe that the future of banking will revolve around personalised experiences. However, only about a quarter of financial institutions are currently using hyperpersonalization to gain a competitive advantage. There's a growing opportunity for banks to leverage personalised recommendations and offers to better serve their customers. Data is also playing a crucial role in this digital transformation. Most banks are now using data analysis to improve customer experiences, guide decision-making, and reduce development time and costs. By unlocking the potential of customer data, banks can better anticipate their clients' needs and offer tailored solutions. Allison Cerra Chief Marketing Officer at Alkami Technology, said, "We are now at a place where technology has democratised financial advice and counsel. It is no longer just the privileged upper class who can afford to get financially fit and prepare for the future."

78 pc of consumers choose digital banking over cash transactions

Lana Linge has $42,000 in credit-card debt, but it's not the giant tab that has her most frustrated.The 29-year-old says she takes full responsibility for her debt. After getting her first credit card in her early 20s, Linge accumulated small amounts of debt but was always able to pay it off. That changed in 2020: Linge struggled with managing her spending on necessities and other items, like clothes, while in isolation, causing her bills to grow. Things got worse after she lost her job this past October, and she eventually depleted her savings to keep up with the payments on her card."I know for a lot of people, they're in debt because of these freak things that are outside of their control," Linge tells me. "The reason that I'm in debt primarily is from overspending, and I don't try and negate that in any way."Overwhelmed, Linge is going through the painful bankruptcy process to discharge the debt. Looking back, she regrets not paying more attention to the details of her card's interest rate. Wooed by the rewards and perks the companies were offering, Linge signed up for a card with an interest rate she says ballooned to over 20%. The growing interest payments meant that even as she worked to get her spending under control, the bills kept growing.Linge's experience may be on the extreme end of America's personal finance journeys, but she isn't alone in her interest-rate woes. Consumers are always looking for deals, and it's easy to be swayed by credit-card companies offering glitzy rewards and points. As Adam Rust, the director of financial services at the Consumer Federation of America, told me, issuers are "putting the sizzle before the steak." But many of these cards come with high rates and hidden fees, and by the time consumers realize just what they signed up for, credit-card companies have raked in the profits."Credit-card companies can get away with charging high rates of interest because consumers aren't necessarily paying attention and marketing doesn't focus on that," he said.The average credit-card interest rate is now just over 21%, up from about 15% a decade ago. More importantly, the gap between the interest rate that credit-card companies pay banks that oversee their business and the one they charge you is the widest it has been in nearly 30 years. Even with existing regulations and the recent interest-rate cuts from the Federal Reserve, credit-card companies have the power to exploit consumers, and people with growing debt piles have few avenues for relief. Additionally, as credit-card companies continue to charge high interest rates, more cardholders in debt become delinquent — and that could push the US economy closer to recession."What we're seeing from the data shows a rapidly deteriorating financial landscape for Americans," Bruce McClary, a senior vice president at the National Foundation for Credit Counseling, tells me, "with a lot of people teetering on the brink of severe financial crisis."<h2 id="ddbac9bc-8e83-4317-902e-7a4e1408e665">The squeeze is on</h2>Americans have a lot of debt piled up on their little pieces of plastic. The Federal Reserve Bank of New York said in August that Americans owed a record $1.14 trillion on their credit cards in the second quarter and that balances increased by $27 billion from the same period a year ago, a 5.8% jump. TransUnion says the average credit-card balance per debtor stands at $6,329, up by 4.8% from a year ago. Most worryingly, according to the New York Fed, the percentage of people who had fallen more than 90 days behind on their payments climbed to 6.4% by the end of 2023, up from 4% at the end of 2022. Austan Goolsbee, the president of the Federal Reserve Bank of Chicago, described those rising delinquencies as "uncomfortably high" and a "warning sign" for the economy.This may be worrying news for average households and the US economy, but it is wonderful news for the credit-card companies. Credit-card issuers make money in a few ways, but one of the most important is interest payments. When a customer doesn't pay off their full balance each month, they pay interest that the credit-card company collects, so increasing interest rates is an easy way to bring in more profit. To better understand the strength of the credit-card industry, look at the split between the federal funds rate — the interest rate at which banks make very short-term loans to each other, which is also used as the benchmark for almost every other type of loan — and the average credit-card interest rate. Data from the St. Louis Federal Reserve indicates the difference between the rates is at a nearly three-decade high, suggesting credit-card companies feel free to charge high interest rates regardless of what the Federal Reserve does with the federal funds rate."We should never lose sight of just how profitable credit cards are," Rust says. "You've got interest, you've got interchange, you've got late fees; credit-card companies are making so much money."The Consumer Financial Protection Bureau estimated in February that major credit-card companies earned about $25 billion in additional interest revenue in 2023 by raising their annual-percentage-rate margins, or the difference between the APR and the interest rate set by banks, known as the prime rate. It also found that major issuers raised the average margin by 4.3 percentage points over the past decade, to an all-time high. Using data on how Americans deploy their cards to paint a representative picture, the CFPB estimated that the margin increase cost the average consumer with a balance of $5,300 more than $250 in 2023. On top of that, the bureau's 2023 report to Congress on the credit-card market said companies charged consumers over $105 billion in interest in 2022, helping boost the profit margin for these companies to 5.9% from 4.5% in 2019.These staggering numbers are made possible by the tactics that credit-card companies use to lure in new customers. Antoinette Schoar, an economist at MIT who coauthored a paper examining credit-card companies' use of behavioral biases to acquire customers, says companies use data to determine a prospective customer's education and income levels and will tend to offer products with hidden fees and high rates to people with lower educational attainment and income. For example, a company might advertise a 0% APR, but the consumer might not realize that that rate can't last forever, leading them to take on balances higher than they can afford to pay off. She says that while the tactics companies use to appeal to certain consumers can lead to high balances and credit-card debt, the companies aren't the only ones to blame — government regulations to prevent this kind of misleading marketing by credit-card companies could force the companies to compete by offering customers a better deal."We need better regulation so that the card companies are competing on the right dimensions and not on increasing convolution or increasing confusion to their customers," Schoar says.<h2 id="a19bffcc-ffc0-46bd-9211-4a8e68d3409d">'The highest credit-card rates we've ever seen'</h2>Until 1978, most states had laws capping interest rates for credit cards and consumer products. But a Supreme Court decision that year allowed banks to charge whatever interest rate they wanted if they were headquartered in a state without a usury law. This inspired a race to the bottom, with states like South Dakota and Delaware doing away with their laws in order to attract more business from banks. The industry ended up with, as David Silberman, a senior fellow for the Center for Responsible Lending, put it, virtually "no legal constraints on the interest rate they charge." Lawmakers have tried to rein in the industry — for instance, the CARD Act, enacted in 2009, required card issuers to notify consumers of interest-rate increases at least 45 days in advance and put restrictions on things like late fees and withdrawal fees. The legislation, however, didn't cap interest rates or rate increases. Lowering the current high interest rates, and the profits that come with them, has become a priority across the aisle. GOP Sen. Josh Hawley introduced a bill in 2023 that would cap interest rates at 18% and impose penalties on companies that violate the cap. "Americans are being crushed under the weight of record credit card debt—and the biggest banks are just getting richer," Hawley said in a statement, adding that "capping the maximum credit card interest rate is fair, common-sense, and gives the working class a chance." Democratic Sen. Elizabeth Warren brought up the issue during a Senate hearing in May, saying credit-card companies had "grown their profits through interest and fees."The Federal Reserve cut its benchmark interest rate in September after holding it steady for over a year, but credit-card holders with high interest rates won't feel any relief off the bat. Michele Raneri, a vice president and head of US research and consulting at TransUnion, told me that's because consumers have to pay off their balances at the interest rate in place when they accumulated the debt, so the lower rate wouldn't apply."It'll take a while for the consumer to realize the benefit of it," Ranieri says.The high inflation of the past few years has also made it easier for consumers to fall into credit-card debt. Ted Rossman, a senior industry analyst at Bankrate, described the feedback loop of high prices and high interest rates as "a tough cycle to break." Credit-card companies know what they need to do to maximize profit: If they offer rewards and bonuses up front, they can snag new customers before they realize the high rates they're signing up for. Profits keep rolling in for issuers, while consumers fall further behind.<a target="_blank" rel="" href="https://www.businessinsider.com/author/ayelet-sheffey">Ayelet Sheffey</a> is a senior economic policy reporter on Business Insider's economy team.

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