What is credit card receivables?

Credit card receivables are defined as revenue generated via customer credit cards for which the monies have not been transferred to the merchant from the credit card processor. This article focuses on credit card receivables and how you can use them to finance your short-term business needs.

Are credit card receivables asset-backed securities?

Asset-backed securities (ABS) and mortgage-backed securities (MBS) are two of the most important types of asset classes within the fixed-income sector. These securities are usually backed by credit card receivables, home equity loans, student loans, and auto loans.

Is credit card debt securitized?

Credit Card Asset-Backed Securities (ABS) Credit card asset-backed securities ( ABSs ) are fixed-income bonds based on the cash flow stream from pooled credit card accounts. Credit card ABSs are structured so as to mimic the cash flow of a typical bond, but the timing of the cash flow is usually not guaranteed.

Is credit card receivables a liability?

After checking an applicant’s creditworthiness, a lender extends a credit line, or credit limit, that aligns with the applicant’s financial profile. The creditor records receivables only when the borrower uses the card to purchase goods and services, because untapped funds are not a liability to the debtor.

What does it mean to securitize credit card receivables?

Securitization: Not Just Off-Balance-Sheet Debt. Receivables securitization is a well-established funding method whereby assets such as trade receivables, credit card receivables, or other financial assets are packaged, underwritten and sold in the capital markets in the form of asset-backed securities.

Who are the investors in a credit card securitization?

Similar to mortgage and other asset securitizations, the financial institution that originates the credit card receivables sells a group of these receivables to a trust. The trust then creates and sells certificates backed by the credit card receivables to investors, which are predominately institutional investors.

How is a receivables securitization a funding method?

Receivables securitization is a well-established funding method whereby assets such as trade receivables, credit card receivables, or other financial assets are packaged, underwritten and sold in the capital markets in the form of asset-backed securities. Essentially, a pool of assets is sold into a funding vehicle that in turn issues debt

How are trust certificates used in credit card securitization?

The trust certificates are also referred to as transferor’s interest, seller’s certificate, or seller’s interest. Rather than setting up a new trust for each securitization issued, most credit card companies use a single master trust for multiple issues, as illustrated in Exhibit B.