Private label credit cards, also known as store cards, are a type of credit card that can only be used at a specific retailer. Some of the perks of using these cards include discounts and even earned rewards.
Although private label cards have always had their place in the overall credit card ecosystem, they are facing some pressures to remain top of wallet.
In a recent report, “Private Label Credit Cards: Still Relevant But Losing Luster,” Ben Danner, Senior Analyst of Credit and Commercial Payments at Javelin Strategy & Research, explores the current state of the private label credit card market in the United States, risks for consumers, and the potential threats to their market share.
Current State of Private Label Cards
When it comes to market saturation, private label credit cards have certainly reached it. According to Danner, recent data revealed a slow decline in private label card accounts. In 2019, it was initially predicted that there would be close to 225 million accounts in 2023, however, the real numbers are much lower than predicted.
“Although it’s still a sector that’s relevant to the overall credit card marketplace, according to Equifax, there’s 186 million private label card accounts in the U.S.,” said Danner. “Contrasting that with regular bank card accounts, that’s 524.9 million accounts. So private labels are not small, but in comparison to your everyday credit cards, it’s definitely a lot smaller of a segment.”
Typically, private label cards have been popular with subprime credit score customers. It was an easy entrance into the credit system as it was a product that was offered at the point-of-sale, and an easy way for customers to make a big-ticket purchase.
Risks for Consumers
It’s important to note that consumers shouldn’t overlook the risks associated with private label credit cards. Especially since private label cards are still credit cards—complete with an interest-bearing balance and fees if not paid in full at the end of the month.
Danner explains that the trends for private label card usage do paint an unpleasant picture, and delinquency rates on private label cards are much higher than general purpose credit cards. In fact, the delinquency rate of over $60 was double the rate of a traditional bank card.
Threats to Market Share
Private label cards are facing increasing competition from POS financing, a lending option that offers consumers a convenient way to finance purchases, with less demanding qualifications for approval. Once approved, consumers can choose from a variety of payment terms that best suits their budget. As a result, customers are more inclined to pursue this option than applying for a credit card.
And although buy now, pay later (BNPL) has grown in popularity, due to its similar offering of purchasing via installment payments, Danner says that this option does not pose a threat to private label cards.
“BNPL instant financing doesn’t give you the same type of rewards or loyalty benefits that you can get from a private label store card. They also don’t necessarily have the same kind of promotional offer that you could get on private label store cards,” Danner said.
“That’s why we don’t really see the by now pay later as a true threat to the store card product because it’s missing out on some of those loyalty and reward offerings that you can get with the store credit cards,” he said.
If there’s one thing that continues to drive customers to use credit cards, it’s rewards. And private label cards continue to offer them in spades.
Learn more about this ever-changing market, and what differentiates the private-label card from other in-store financing product lines.
