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How Market Position Shapes Credit Card Interest Rates

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Abstract

Why is it that two borrowers who look much alike can be offered very different rates when applying for a credit card? In a recent paper, we address this question by examining how the rate offered changes when the lender’s funding cost falls. Data on 14 million newly issued cards show that when a lender’s funding costs decline, the lender passes less of that decline on to the offer rate when it holds a large market share. That is, two borrowers with similar credit scores and incomes borrowing from the same lender can see noticeably different interest rates on the credit card they are applying for.

Suggested Citation

  • Kyle F. Herkenhoff & Juan M. Morelli, 2026. "How Market Position Shapes Credit Card Interest Rates," Liberty Street Economics 20261104, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:104016
    DOI: 10.59576/lse.20261104
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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D60 - Microeconomics - - Welfare Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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