Marketplace Lending: Taking the Excess out of Excess Spread / by David Fry

Late last year, Canadian rating agency DBRS produced its Q3 report on Canadian credit card performance for the first three quarters of 2015.  This report showed detailed aggregated figures on performance metrics like gross yield,  payment balances, delinquencies, and loss rates for Canadian consumer credit card issuers.  Among these metrics is another one called "Excess Spread".  You have to look into the fine print to find the definition of this metric, but it turns out to be quite a simple calculation:  Excess Spread = Gross Yield - Net Loss-Cost of Funds-Other Expenses.  For the credit card issuer (mainly banks), this is simply the rate at which they lend money to you, less expenses, which include losses, funding, and other costs.

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