The Financialization of the American Credit Card Industry

This paper asks, what can account for the rapid expansion and growing profitability of the US credit card industry since the mid-1980s? And, what does this mean to the study of global finance within IPE? It is argued that the advent of asset-backed securities, a financial innovation known as securitization, was the key to the enormous expansion of credit card profits and the continued proliferation and growth of the credit card market in the US. This is because securitization moved credit card receivables off-balance sheet, allowing loan pools to be re-capitalized, lowering the cost of borrowing and increasing revenues from payments on securities issued. This financial innovation attracted non-banks, mostly large MNCs, into the credit card market, facilitating greater integration between finance and the ‘real’ economy. The deepening integration facilitated mounting competition and lower costs of borrowing and was the catalyst for the rapid expansion of the credit card market and its unsurpassed profitability.