ABSTRACT
This chapter reviews ways to measure and compare profitability. It discusses the variables that impact portfolio profitability including product pricing. For credit cards, people start by taking net profit before taxes for calculating the various profitability indicators. Return on assets – defined as net profit as a percentage of assets – appropriately reflects the productivity and profitability of key business assets. The single most important driver of portfolio profitability in credit-based payment products is interest income, which from the customer's perspective is more commonly referred to as the finance charge. The chapter discusses the key revenue and cost drivers of card-issuer profitability to understand the impact of each on overall profitability and to review the latest trends for each item. No card issuer can afford to ignore the importance of interchange fees in payment card profitability. Card issuers must strive to maximize revenue streams from all possible sources while running, at the same time, an optimized and efficient operations department.
