CHICAGO — One sign that credit card losses, including those in credit unions, may continue to rise this year and next is the way that they have become tightly correlated with job losses, according to one financial analyst.
Speaking to executives from different facets of the payments industry at Federal Reserve Bank of Chicago's 2009 Payments Conference, David Stewart, senior expert with McKinsey and Company, explained how in the past credit card losses have generally tracked increases in the nation's unemployment rate, but that in the last two years they have become quite closely correlated.
"We generally have not seen credit card losses move in lock step with job losses the way they do now," Stewart explained, pointing to a graph demonstrating that fact. "You will also no doubt notice at the end of the graph that as unemployment has risen steeply, so too have credit card losses."
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The shift in correlation is significant, Stewart suggested, because it may portend even steeper rises in credit card losses in the days ahead. This may force issuers to cut costs further to try to drive the point where card losses begin to seriously cut into their business model even further, he said.
"Traditionally that point has been with credit card losses of about 9%," he said, "but with card issuers doing everything they can to cut costs, that number might be 9.6% or even 10% by next year."
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