The market for private label cards is aperennial favorite topic, and is the most frequent subject on whichour credit practice is requested to opine. Frequently the focus ofpotential new entrants discovering this segment for the first time,the challenging economics and operations of private label cards areoften showstoppers.
Capital One has now removed any doubt regarding its interest inprivate label credit cards, with its PLCC-heavy purchase of HSBCcard portfolios. The acquisition will put Capital One in thirdplace among the highly-consolidated third-party issuers in thissegment.
Given past anemic growth and recent declines in private labeloutstandings, this acquisition might be considered by some to bejust another transaction in a zero-sum game. The major issuers havebeen trading portfolios (by acquisition or by winning/losing bids)for a long time. But Capital One stresses the long term enhancementof capabilities to its “partnership platform” which they areobtaining with the purchase (not to mention 27 million newaccounts). They may have a point.
The private label credit market is ripe for a shakeup, andretailers and issuers need to work as partners. Innovativeprograms, like the closely-watched Target 5 percent POS discountREDcards, are causing retailers to look again at the sales liftbenefits of cards with strong embedded loyalty programs – not tospeak of the purchase enablement of consumer credit. And then thereis the small matter of risk. PLCC programs historically serve abroad consumer footprint, and all stakeholders have had difficultyfunding high-risk consumers since 2008. We will know we are in newterritory when non-prime credit begins to flow once again throughPLCC programs.
It is a new landscape with Capital One on the scene. Maybe theshakeup has begun.
