It looks like PLCC 2.0 has arrived.
Instead of the business model linking iconic retailers, or top retail stores, Synchrony’s new approach with Discover enables fragmented vertical markets into one master private label credit card function rather than individual, dedicated card programs. The Discover-Synchrony option means three things: 1.) You won’t need a handful of private label credit cards to satisfy all your needs; 2.) Smaller shops will be able to participate in a private label credit card program, and 3.) adds an exciting channel to the Discover closed-loop business.
In a press release today, Synchrony announced: “Synchrony is partnering with Discover® Global Network®, the fastest growing global payments network to provide greater acceptance within the automotive category.” With Discover’s reach in acceptance, Synchrony will not only enable top auto transmission repair shops, such as Aamco, but they will also reach many of the 11,000 smaller locations normally outside the scope of private label credit cards. The same goes for automotive subsectors such as painting, shock absorbers, and automotive technology.
The expansion is also a win for Discover. Credit card brand startups traditionally have a chicken-egg challenge. To get cardholders, you need merchants to accept the card; to get merchants, you need cardholders. Discover solved that problem nicely over the past 30 years and now enjoys ubiquitous acceptance at the point of sale.
By using the same payment rails Discover uses to support its proprietary branded card, Discover and Synchrony recently did a proof-test in the home payments vertical. Transactions run through as restricted authorization network items, so it is likely that the home card will not be usable on auto transactions, but if the model works as well as it appears, it might be a further opportunity in future years.
Mercator’s recent report on the PLCC market identified that the motor vehicle and parts dealer sector generated 24% of the US’ $5 trillion retail markets. With more than 300 million cards in the market. The move is a significant stride for retailers and likely to trigger more new deals this year.
For Discover, this is an awesome play which will certainly add scale to the growing payments network; for Synchrony, there is now a new option in PLCC cards- a super PLCC option.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
