This Week in Business Understanding the True Costs Behind Credit Card Lending
Dec 10, 2025
Itamar Drexler, a Wharton finance professor and expert in consumer credit, dives into the complexities of credit card lending. He reveals how high interest rates stem from a mix of defaults, soaring marketing costs, and the market power of issuers. Interestingly, he points out that consumer rewards are largely paid for by retailers, not interest rates. Itamar also offers practical tips for securing lower rates, like exploring credit unions or personal loans to manage debt more effectively.
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Research Sparked By Fintech Question
- Itamar Drexler began investigating credit cards while comparing incumbents to fintech disruptors.
- The team was surprised by how much higher card rates are compared with other bank loan returns.
Marketing Explains Much Of The Rate Gap
- Credit card APRs far exceed obvious costs like defaults and short-term rates.
- Operating costs, especially marketing/customer acquisition, explain a large share of the gap.
Credit Cards Are High-Cost Businesses
- Credit card banks have unusually high operating costs relative to other banking businesses.
- A big portion of those costs are customer acquisition and marketing spending that consumers ultimately fund.