JPMorgan CEO Jamie Dimon Sounds Off on the Future of Credit Cards

CEO Jamie Dimon gave us his vision of the future of credit cards during JP Morgan’s (JPM) Q2 conference call. Dimon predicted that JPM will incur a few years of credit card losses until the business is restructured. Even though the new regulatory environment is still evolving, it is clear that the old business model of credit cards as a profitable standalone product is over.

Credit cards will become a tool in the overall customer relationship, rather than a product marketed as a single service. JPM will begin issuing credit cards based on the customers’ behavior observed by their retail banking organization. Dimon sees many new credit card products evolving from this relationship model.

Most major market participants have already started the massive switch from fixed to variable rates. The new credit card law prohibits changing fixed interest rates on old balances and requires customer payments to be applied to balances carrying the highest interest rate. The few fixed rate cards that remain will have significant higher initial interest rates to compensate for the inability to ever get rid of legacy lower rates.

Dimon sees more transactional (or convenience) customers and fewer customers carrying continuing balances. But Dimon said it is difficult to determine which customers will borrow from their credit cards and when they will carry a balance. A large portion of their customers occasionally carry balances or switch back and forth between carrying balances.

The most interesting aspect of the credit card discussion focused on funding. JPM increased its credit enhancement of credit card securitization from 7% to 14%, and now has to include these securitizations in its capital ratios. Dimon said that JPM will discontinue credit card securitizations by January 1, 2010. The funding cost of securitization has gotten too high compared to bank deposits.

From an economic standpoint, variable interest rates on credit cards can enhance the Federal Reserve’s ability to manage the economy. Previously card rates operated in only one mode – high.

Disclosures: None

Comments

[pipedream:]

Just another way of saying JP Morgan Chase has to find new ways to screw the average cardholder. What a schmuck he is. Seeing his smug mug has already ruined my morning.

Jul 18 07:29 AM

[Barbara fig...:]

Seeing Jamie's smug face or reading about him and his band of thieves always makes my blood boil. Coincidentally, as I write this, a relatively new Chase commercial just aired on my TV... the cute one where 2 Chase customers are at an ATM, and one customer robs the other of $20 in a really cute way (by fooling the other guy into depositing $20 into his account)..... supposed to be amusing... I guess Chase thinks stealing from others is perfectly acceptable and cute.

Jul 19 09:34 AM

[spectro42:]

"Credit cards will become a tool in the overall customer relationship" ARE YOU KIDDING ME? The only tool I see is Jamie and as far as a relationship gos I want a divorce!

Jul 19 10:15 AM