What a Rise in Bank Profits Means for the Rewards Industry

Another report, another profitable quarter for the Big Banks. Apparently Canada’s top 6 banks (in alphabetical order: Bank of Montreal, CIBC, National Bank, Royal Bank, Scotiabank, TD Canada) earned a combined $10.4 billion in one quarter or a 12.6% increase from last year. I recently wrote a post about What to do in a Declining Miles and Points Industry. 

When it comes to signing up for credit cards, a dilemma that I contemplate a lot is whether to wait for a better offer/promotion or to sign up now.  This news pretty much tells me that banks are very comfortable where they are, so they won’t feel the need to make their credit cards more attractive. Therefore, if you see an decent offer from one of the Big 6 banks, I would be more inclined to go for it, rather than to wait for something better. I feel that there is a higher chance of them devaluing their offers, rather than make them more attractive.

Conversely, this should put some pressure on financial institutions that primarily offer credit card such as American Express, Capital One, Chase Canada, PC Financial, Rogers Bank, etc. The way I see it is that if there are so much profits to be made, then these smaller companies should be motivated to go take some market share. I would hope that they come out with some competitive offers.

On a final note, banks usually make most of their money from interest payments (on line of credits, mortgages or credit cards overdue balances), they also make money from transaction fees, credit card transactions, etc. I do caution that if you do not have enough money to pay off your credit card balance in full, you are better off not having a credit card. Being late on credit card payments will only hurt your credit score and nullify the value of any rewards that you are earning.

What do you think a rise in bank profits will do to the miles and points industry?