The Decade’s 12 Greatest Developments in Payments: #6 What Has a Bigger Head and Longer Tail? Card Issuing

Its head has gotten bigger and the tail longer and skinner. I’m not talking about a scary monster but about the distribution of purchasing volume for the credit and debit card issuers in the United States.

According to Nilson data, the five largest issuers had 70.1 percent of the volume in 2008 compared with 54.3 percent a decade year. The ten largest issuers had 83.8 percent of the volume in 2008 compared with 73.2 percent a decade year. Smaller issuers have exited the business over the past decade mainly because they couldn’t get their costs low enough to compete with the biggest players who benefit from scale and from investments in fraud control and other technologies.

The debit side of the business has consolidated for a different reason. Debit cards are tied to deposit accounts. As a result of consolidations a small number of banks account for a larger fraction of customer accounts. The financial crisis helped, as I pointed out in my choice for the 10th Greatest Development of the Last Decade in Payments — Collateral Damage from the Financial Crisis: Consolidation and Regulation. In 2008 the five largest debit card issuers accounted for 42.8 percent of debit card purchasing volume compared with 22.7 percent a decade earlier. The ten largest debit card issuers accounted for 50.8 percent of debit card purchase volume compared to 29.4 percent in 1998.

This consolidation isn’t unusual. Most industries over time become more concentrated as a result of a handful of firms emerging that are just more efficient than others. It has happened in just about every major industry from automobiles to software. Moreover, the issuing business also isn’t highly concentrated when compared to many other modern industries. Nor does it present an antitrust concern. Issuing remains an intensely competitive industry with several large players slugging out. We’ve seen this in acquiring and merchant processing where the earlier consolidation led to a small number of big players who’ve competed to drive costs way down.

Nevertheless, the payment card industry has come a long way from the highly fragmented industry that existed in the 1980s. Back in 1983 the top ten credit and charge card issuers accounted for just slightly more than half of industry purchasing volume. This move towards scale is a significant development in the United States in part because it affects the balance of power in the ecosystem. The large issuers are a counterweight to MasterCard and Visa. Each of the large bank issuers accounts for such a significant portion of MasterCard and Visa volume that a threat to move volume between the networks, including American Express and Discover, is taken quite seriously. While the threat of starting their own card system seems to have passed the possibility of mergers among some of the networks and the large issuers could also significantly change the payment card landscape.

There’s no reason to believe that we’ve seen the end of the scale story for credit or debit card issuers. Technology as well as scale advantages in dealing with new government regulations will probably lead to the more efficient players getting bigger, others getting smaller, and still others withdrawing especially from the tough credit card business.

Previous Great Developments in Payments During the Last Decade:


#7 How the ACH System in the U.S. is Encouraging Electronic Payments Innovation

#8 The Magstripe Lives On

#9 Shanghai Surprise

#10 Collateral Damage from the Financial Crisis – Consolidation and Regulation

#11 How the World War on Interchange Fees Transformed the Card Industry

#12 American Express Goes Global

David S. Evans bio



The PYMNTS Cross-Border Merchant Friction Index analyzes the key friction points experienced by consumers browsing, shopping and paying for purchases on international eCommerce sites. PYMNTS examined the checkout processes of 266 B2B and B2C eCommerce sites across 12 industries and operating from locations across Europe and the United States to provide a comprehensive overview of their checkout offerings.

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