Mercator Blog

Program Innovations Keep Private Label Credit Cards Competitive in the Consumer Retail Marketplace
Date: December 31, 2019
Brian Riley
Director, Credit Advisory Service
Private label credit card (PLCC) are closed loop cards that directly facilitate retail purchases. PLCC cards differ significantly from co-branded general purpose credit (GPC) cards, which carry a retailer’s name but offer access to the branded payment networks of American Express, Discover, Mastercard, or Visa.

Private label credit cards allow a consumer to transact within the retailer’s network of locations. For example, a Macy’s PLCC card may be used only at Macy’s locations. A customer with such a card is captive to the retailer that sponsors the card. In contrast, a customer with a Macy’s co-branded American Express account can use the card to transact anywhere American Express is accepted.

PLCCs frequently offer promotional credit such as 90 days same as cash or 0% APR for 12 months, which permits retailers to drive purchases selectively with financial incentives. With credit decisioning technology deployed at the retailer’s point of sale or e-commerce site, new accounts can be approved immediately at checkout to facilitate purchases. Retailers have more flexible underwriting than do network-branded general purpose credit cards, whose issuers in the U.S. must answer to regulators for safe and sound lending practices. Retailer cards are a good option for consumers with limited credit history, including first-time and thin-file borrowers.

Despite their many advantages and widely deployed infrastructure, PLCCs now face a new competitive market force in the form of instant application/approval for personal installment loans. Bill Me Later (now PayPal Credit) pioneered this function, which provides a flexible transactional credit vehicle that challenges the traditional revolving credit card account. The target population is often young adults.

Yet, PLCCs remain an essential credit vehicle. They have been adapted successfully and have grown over decades. They continue to show flexibility as retailers refresh their offerings. And they continue to enjoy a 10 to 1 advantage in number of accounts compared to the newer transactional credit accounts.

With strong players in the market, including American Express, Capital One, Citi, Comenity, and Synchrony, it is fair to expect that fintechs will not outmaneuver the market.
 
This research report, Private Label Credit Cards Update: New Opportunities, New Competitors, reviews the U.S. private label credit card market and stakeholders as they adapt to changing retail and consumer interests.