Credit Card Issuer Economics: Interchange, Revolve Rates, Losses & Rewards Cost

What you'll build

What you will be able to do

Each lab ends with a concrete result that you build yourself and the checker confirms, cell by cell.

• Measure how many of Velmora Card's open accounts are really used, how much an active account spends and how fast the active base grows.
• Calculate the interchange Velmora Card earns in each spend category, including the fixed per-transaction fee, and find the blended rate of the whole portfolio.
• Split Velmora Card's receivables into interest-bearing and non-interest-bearing balances, calculate interest income, funding cost and the net interest margin.
• Add up Velmora Card's fee income, from annual fees net of waivers to late, foreign transaction, cash advance and balance transfer fees, and express it per account.
• Calculate Velmora Card's net charge-offs and annualised loss rate per quarter, the allowance for credit losses and the provision expense that hits the P&L.
• Turn Velmora Card's points earned into an expected rewards cost, allow for breakage and see how much of the interchange is left after paying for rewards.
• Build a profit per account for each behaviour segment of Velmora Card, roll it up to total profit, chart it and see who really pays for the card.
• Value a new Velmora Card Plus account over five years: survival, discounting, cumulative present value, the acquisition cost, the payback year and the lifetime value.