The Effect of Credit Card Usage on Retail Banking Profitability: A Case Study of Wema Bank, Niger State
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Background of the Study
Credit cards serve as a vital tool for generating revenue and enhancing customer engagement in retail banking. At Wema Bank in Niger State, credit card usage plays a key role in driving profitability through interest income, annual fees, and transaction charges. The bank has designed an attractive suite of credit products accompanied by rewards programs, cashback incentives, and digital management tools that facilitate ease of use and enhance customer convenience (Okeke, 2023). Such initiatives encourage frequent usage, which in turn increases the bank’s revenue streams. Moreover, the integration of credit card services with digital banking platforms has streamlined account management and offered customers real-time insights into their spending patterns. However, despite these advantages, challenges such as high default rates, fraud risks, and rising competition can offset the profitability gains. The operational costs associated with credit card management and promotional activities also play a crucial role in determining net profitability. This study examines how credit card usage impacts retail banking profitability at Wema Bank by analyzing revenue generation, customer behavior, and the associated risks and costs (Chinwe, 2024; Akinola, 2025).
Statement of the Problem
While credit card usage is designed to boost profitability, Wema Bank encounters obstacles that can detract from its effectiveness. High levels of default and fraud not only increase operational costs but also erode profit margins. The intense competitive landscape forces the bank to invest heavily in promotional incentives, which may diminish net returns. Additionally, some customers find credit card terms unfavorable, leading to lower adoption rates than projected. Operational inefficiencies, such as delayed processing and inadequate customer service in resolving disputes, further impact the overall profitability of credit card products. These issues underscore a misalignment between the revenue potential of credit cards and the challenges in managing associated risks. Consequently, while the bank invests in expanding its credit card portfolio, the overall impact on profitability remains uncertain, calling for a comprehensive investigation into the underlying factors that influence performance.
Objectives of the Study
- To assess the impact of credit card usage on Wema Bank’s profitability.
- To identify operational and risk-related challenges affecting credit card performance.
- To recommend strategies for optimizing credit card products to enhance profitability.
Research Questions
- How does credit card usage contribute to profitability at Wema Bank?
- What challenges negatively impact credit card revenue and performance?
- What strategies can be implemented to mitigate risks and improve profitability?
Research Hypotheses
- H₁: Increased credit card usage is positively associated with higher bank profitability.
- H₂: High default and fraud rates significantly reduce net credit card revenue.
- H₃: Enhanced risk management and customer incentives improve overall credit card profitability.
Scope and Limitations of the Study
This study focuses on the credit card operations at Wema Bank in Niger State. Limitations include fluctuations in customer behavior, regulatory changes, and external economic influences.
Definitions of Terms
- Credit Card Usage: The frequency and volume of transactions made using credit cards.
- Profitability: The bank’s ability to generate profit from its credit card operations.
- Retail Banking: Banking services provided to individual customers.
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