Deloitte is forecasting that credit card charge-offs could increase to 8.1% in 2021, in a new report hitting this week.
As the methodology explains: “To forecast the impact of the COVID-19 pandemic on the credit card charge-off rate from 2020 to 2024, the research team at the Deloitte Center for Financial Services studied the relationship between the national unemployment rate and banks’ credit card charge-off rate over the past 20 years.
Charge-off rates showed a one-to-one relationship with the unemployment rate during the 2008–09 financial crisis; however, the correlation somewhat weakened following the peak, with a deceleration in charge-off rates. Charge-off rates are expected to show a lower correlation with unemployment in 2020–24. As a result, the increase in charge-offs will likely be lower in magnitude compared with the rise in unemployment, due to government intervention with unemployment benefits, a financially stronger consumer, issuers’ proactive approach to help distressed borrowers, and nuanced differences in the nature of unemployment compared to the 2008–09 crisis.”
This is part of a new report titled “US Consumer Payments in a Post-COVID-19 World: How to Bolster Payments Institutions’ Growth in Challenging Times” (online here). The report authors write that “we expect to see an acceleration of some recent trends in the way consumers ‘live, work, play, and pay’ and integrate real anddigital more, which will likely stick in a post-COVID world.”