But first of all, I would ask interviewer to clarify what credit card markets means (monthly fees ? transaction fees ? revenues implied by drawdowns on authorizations). My understanding is fees directly generated by credit cards issuance)
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Hi, Peter!
In this case you should follow demand-driven approach to market sizing. By market size I would assume value of credit card debt in the U.S. (not the number of Credit Cards issued).
First of all you can start by outlying an algorithm which would consist of 3 big steps:
1. Total addressable market
X
2. Product penetration
X
3. Average ticket size
Now let’s see how to calculate each of these blocks:
1) Total addressable market = US population X % bankable population
2) Product penetration = number of credit cards per capita in US X % of active cards
3) Average ticket size = average credit card limit X %limit usage
Let’s plug-in the data:
1. Total addressable market = 330 mln x 80% bankable population = 264 mln
X
2. Product penetration = 2 X 50%
X
3. Average ticket size = 4k USD X 5 X 20% = 4k USD
Thus credit card market size is 264 mln X 1 X 4k USD ~ 1tn USD
Let’s double check with official statistics. STATISTA.COM provides the following data: Value of credit card debt in the U.S is 0,93 tr USD. Thus our answer is super close
You can also make your calculations a bit more sophisticated if you add segments (e.g. by income or credit score). In this case you would have to provide detailed assumptions on product penetration and average ticket size for each segment.
As for the sources for your assumptions you can use:
Hi,
I would address personal & professional credit cards in two different buckets
Personal credit cards
Professional credit cards
All in all, I would say ~520M of credit cards in the US !
Finally average fees / month for each credit card should be around 10 USD / month so 62,4 Bn USD / year overall
Hope it helps
David
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But first of all, I would ask interviewer to clarify what credit card markets means (monthly fees ? transaction fees ? revenues implied by drawdowns on authorizations). My understanding is fees directly generated by credit cards issuance)
(edited)
Hi Peter, in addition to the solutions proposed by the other coaches in the discussion, I would like to suggest similar cases in the platform to practice with:
Hope it helps,
Antonello
Hi there,
This is quite a typical marketing sizing question, which can be addressed using the demand based approach, as other experts already explained.
Beside, you can also reference to this article which gives pretty detailed explanation.
https://www.mbacrystalball.com/blog/2020/02/10/market-sizing-questions-examples-answers/
Best,
Emily
Hello!
To add on top on what has been said: this is a very standard type of case.
The important thing here is not how accurate your estimations, but your line of tought (e.g., how do you pass from total market > total adressable market > penetration > exceptions, etc.)
Hope it helps!
Best,
Clara
Hi Peter,
All of the answers have touched on the typical approach you can take here from a demand perspective. That works well and you will answer the question if you use it. Here's an alternative approach for you to consider
Take the average income in the US - $65k per household
Avg Household size - 2.5 - So we have roughly 128M HHs in the US
Now you can ask yourself what would be the amount of leverage I would be willing to give individuals from a credit card perspective. For example, if you say that you want to give up to 20% of annual HH income - that is roughly $13k per household. This is approximately $1.6Trillion annually. (you can get to this number in many ways - for example you can say rent is 30% - 50% of income, auto loan and student loans is 10-20% and you would not want to reach more than 80% debt to income/expense ratio.
Just a different way to get to the same answer
Best,
Udayan
Learn more about Market Sizing Questions and how to approach them in Case Interviews. The Case Interview Basics at PrepLounge offer you everything you need!
Thank you for your help! Now it seems quite clear to me!
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