Published by Maney Publishing (c) The Editors and W. S. Maney & Son Limited COMPETITION & CHANGE, Vol. 10, No. 3, September 2006 301–319 E-mail address: jlvm20@sussex.ac.uk © 2006 the Editors and W. S. Maney & Son Ltd DOI: 10.1179/102452906X114393 The Financialization of the American Credit Card Industry JOHNNA MONTGOMERIE Department of International Relations and Politics, D511 PG Pigeonholes, University of Sussex, Falmer, BN1 9QN, UK 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 innova- tion 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. KEY WORDS Financialization, Credit cards, Securitization, Finance-led growth Introduction 1 The rapid expansion and astronomical profitability of the credit card industry makes it the most profitable financial service in the United States. In 2004, the after-tax profits in the American credit card industry were $24.44 billion, a 50 per cent increase from 2003 with reported profits of $14.24 billion dollars (Simpson 2005). If we consider that the same year (2004) all commercial banks averaged a 1.98 per cent return on all assets, the credit card market, on the other hand, had a 3.55 per cent return on before-tax earnings (Federal Reserve Bank of the United States 2005). Despite these impressive statistics there has been little attention paid to the consumer credit industry in IPE. Consumer credit has been largely considered just another financial service that ballooned after rounds of deregulation. 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