Lee Schafer
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A recent Wall Street Journal article on the evolving credit card market sent me checking to see which card I actually carried. Credit cards are so boring I had no real idea, despite being urged repeatedly on TV to check what's in my wallet.

This card turned out to be so fancy it had to have two registered trademarks — the U.S. Bank FlexPerks® Travel Rewards Visa Signature® Card. I also had to look up the current interest rate, and it's not bad, at just 11.74 %.

It was surprising that it was not closer to the industry average, something like 17%. That's what got me thinking about who might be benefiting the most with changes in the credit card market. It might be me. It's certainly not our kids.

One of the main points of the Journal's article is that a segment of bank customers has grown very fond of grabbing the rewards points generated by using their credit cards. Paying for these rewards is costing the banks more, so banks that were already charging very high interest rates have been increasing them.

This is happening in a very low interest rate environment, when the money banks are lending out via these credit cards costs them very little. The difference between those rates, the net interest margin on credit cards, has never been higher, as reported by the consumer finance site WalletHub.

About 20 years ago, when the average rate on charge cards was not quite 15%, the industry's net interest margin was 6.4%. As of the most recent data, that rate has jumped to 11.7%.

A lot of consumers understand how costly these things are, as the Fed reports, from its look into consumer finances, that at least half of cardholders report trying to pay off the balance every month. The Fed data also show an interesting divergence in two lines that in the past were always more or less the same: the average rate, and the average rate on accounts that incurred finance charges.

More recently, the average rate paid on accounts that had balances is quite a bit higher than the average rate for the industry.

This suggests that those who can pay off their balances each month are doing fine, but households that need to borrow money on credit cards for unanticipated expenses — or maybe just to do something nice — must be paying a lot.

Just another unhappy story about who really gets served well by the financial-services industry.

Most of the credit card loans are held by a relatively small number of big companies, among them Minneapolis-based U.S. Bancorp. U.S. Bank had about $23.7 billion in credit card loans on its books at the end of September, up about 3.7% over the June quarter's total.

In its payment-services segment, where it reports credit card results, the net interest margin for the bank was 7.3%.

But issuing credit cards isn't just about collecting interest, with lots of fees to be earned both from the cardholder as well as businesses where bank customers use their cards. U.S. Bank's total fees in its payments segment easily exceeded its net interest revenue for the quarter.

If you are in the credit card business for the fees, maybe it makes sense to issue a rewards card that may rarely be used to generate high-interest loans for the bank. If customers do need to borrow money on the Flexperks card, 11.74% seems like a painful rip-off compared to what U.S. Bank will pay consumers to save money — 1.83% for a 37-month certificate of deposit.

But 11.74% apparently is dirt-cheap money for the credit card business, and on financial websites that review such things, "low interest rate" is one the main benefits of this particular card.

The marketing at U.S. Bank behind this card also might explain one of the odder things found in a few hours of clicking around on consumer websites, and that's the zero-percent credit card. These are cards issued by major banks that charge no interest for the first 15 to 18 months or so.

There's actually a dizzying array of features and fees associated even with the so-called zero APR cards. The Chase Freedom Unlimited card, for instance, gives back cash rewards, has no annual fee and was interest-free for 15 months.

What's not to like? Well, only consumers with high credit scores need apply. There's a 3% fee if these cards are used abroad. And once the free period is over, the interest rate could reach more than 25%.

Credit card lending seems to be a business long overdue for an outsider to upend it, using technology to dramatically lower the cost of payments and offering loans that cost a lot less than 17%. The Minneapolis firm Sezzle Inc., for example, might be one long-term solution, helping consumers make payments over time for purchases online, with zero interest.

But you would have to be pretty gutsy to compete directly against the big banks and their legacy credit card operations. The existing payments infrastructure has been set up for credit and debit cards, and big banks have more than ample budgets for information technology and marketing. The big banks also can obtain money to lend in the capital markets and from depositors at a cost so low that no upstart could match it.

There are companies that appear to be trying, though, and while looking around for financial technology innovators, one writer pointed to a Chicago company called Avant. The financial site Credit Karma just favorably reviewed the AvantCard offered by this company, deemed a no-frills "starter card" for younger consumers.

"You should know that AvantCard is targeted toward individuals who may not have a long or pristine credit history," the reviewer writes. "For this reason, the regular variable purchase [annual interest rate], at 25.74%, is pretty high."

If close to 26% only seems pretty high, I hate to see what interest rate might qualify as "really high."

lee.schafer@startribune.com 612-673-4302