Rising Interest Rates Will Provide a Growth Tailwind for Some, but Not All, Credit Card Issuers

With persistent inflation and global supply issues, expectations are set for an end to the Federal Reserve's highly accommodative monetary policy. After an initial 25-basis-point increase in the federal-funds rate announced March 16 and futures markets implying six to eight more interest-rate hikes in 2022, it has become clear that we have entered a period of rising interest rates. Owing to their tendency to charge variable rates, credit card issuers are typically seen as significant beneficiaries of rising interest rates. However, in practice we find interest-rate sensitivity of the credit card issuers to be more complex, with firms that have cardholder bases that lack a tendency to borrow or have private-label card exposure benefiting less from rising interest rates.