Credit Card Balance Transfers: A Consumer’s Opportunity and an Issuer’s Bet

Balance transfer offers, when they unfold as designed, can be a win-win for credit card issuers and consumers. Consumers receive a credit card loan that’s interest-free for a prescribed time, and issuers can book the fee—often 3% to 5%—as immediate income. 

If the consumer doesn’t pay the balance transfer loan in the usual term of 12 to 20 months—and somewhere from 40% to 60% do not—the remaining balance will revert to the prevailing interest rate. Balance transfers have been part of the credit card issuing process for three decades, and issuers have taken various approaches to it. This Javelin Strategy & Research looks at the practice, how it is applied at large banks, and the particular risks faced by mid-market and smaller banks, which generally are less involved in the offering.

Key questions discussed in this Credit report: 

• What is a balance transfer offer?
• What happens when it expires?
• Why do top issuers provide balance transfers, and do they make or lose money?
• How does the balance transfer function work?
• What is the meaning of payment hierarchy, and is it good or bad for the cardholder? 

Companies Mentioned: 

American Express, Bank of America, Chase, Citi, Discover, Fiserv, FIS, Mastercard, Visa, Wells Fargo