Methodology: Evaluation of Five Sources Three Market Segments Retail Cards Oil Cards Travel Service Cards Two PLCC Types Revolving-Credit Cards Play Dominant Role PLCCs Issued Directly or Indirectly PLCCs as Marketing Tools PLCCs: Benefits to Retailers PLCCs: Benefits to Consumers The Market
Table 1-1: Estimated Size and Growth of Private-Label Credit Cards, 1993-1999 (dollars, percent change) Growth Flattening Market Still in Positive Mode A Projected Rise to Near $95 Billion Table 1-2: U.S. Private-Label Credit Card Market: Projected Receivables, 1999-2004 (dollars, percent change) Units in Circulation: Retail vs. Oil Cards Table 1-3: Estimated Number of Private-Label Credit Cards in Circulation, 1995-1999 (units, retail and oil cards) Renewal Hinges on Outcome of Larger Battles Two Battlefronts: External and Internal Factors in Growth Present Paradoxical Aspects The Economy: Good Times Favor Bank Cards Will the Next Recession Favor PLCCs? Store Cards May Benefit from Middle Class Fissure Demographics: Elderly PLCC Base Aging Population Could Be Positive for PLCCs Technology: Financiers Appear in Control But Retailers Potentially Benefit from Advanced Data-Mining Software A Great Potential Negative: Retailers and the Internet The Internal Battlefront: Retailers vs. Retailers Disinflation and Retail Dynamics PLCCs and Mass Merchandisers/Department Stores The Marketers
GEC in Solid Second Place Household, Penney, The Associates Round out Top Five Ten Issuers in Second Tier Table 1-4: Market Share: Top Fifteen Store Card Issuers, 1999 (percent share) Oil Card Leaders: Chevron and Mobil Bank Card Flexibility Threatening Store Cards Competition from the Subprime Market Micromarketing the Goal Competitive Pressures Lead to Outsourcing Trend From Outsourcing to Co-Branding Co-Branding Proponents Co-Branding Critics Head-to-Head Rivalry among Third Parties for Outsourced Accounts Third Parties Compete on Type, Degree of Services Offered Consolidation Intensifies Competition Dramatic Changes in Oil Card Control Payment Processors
Process Can Be Simplified with PLCCs Front-Office, Core Processing, Back-Office Top PLCC Processors: First Data, Total System, and Alliance Data Battle Shapes Up Between First Data and Total The Consumer
Number of Owners/Users: By PLCC Type Retail Cards Skewed to Female Base Oil, Travel Cards More Evenly Distributed General Factors in PLCC Ownership/Use
Products Included Products Excluded Contrasting Principles: Exclusivity vs. Inclusivity A Gray Area Terminology
Terms Used For General-Purpose Cards Shortcomings in Shorthand Terms: "Store"/"Single-Purpose" Shortcomings in Terms: "Bank"/"General-Purpose" Shorthand Terms Used Liberally Overview: The Credit Card Industry
General-Purpose vs. Private-Label Cards GPCCs: Charge vs. Revolving Cards Charge Cards Revolving Cards Two GPCC Variations: Co-Branded and Affinity Corporate-Purchasing Cards Debit Cards Smart Cards Stored-Value Cards Overview: Private-Label Credit Cards
Three Market Segments Retail Cards Oil Cards Travel Service Cards Excluded: Commercial and Institutional Cards Two PLCC Types Charge Cards Play Minor Role Revolving-Credit Cards Play Dominant Role "Receivables" Defined PLCCs Issued Directly or Indirectly Third-Party Issuers Own Receivables Technical Distinction: "Proprietary" vs. "Private-Label" Third Parties Take on Operational and Legal Control Outsourcing Advantages Major Retailers Retain Control Credit Card Operations: Procedures Payment Processors Processors Become Players Third-Party Processors: Evolution to Specialists PLCC Attributes
Private Labels Are Versatile Strategic Tools Not Necessarily Profit Centers PLCCs as Marketing Tools PLCCs as Profit Centers PLCCs and Interest Rates PLCCs: Benefits to Retailers Stimulate Store Sales Generate Customer Loyalty Allow Retailer Control Provide a Wealth of Information PLCCs: Benefits to Consumers Broader Credit Acceptance Psychological and Practical Benefits History: Retail Cards
Overview: Credit Cards an American Invention Industrialization/Urbanization Set Stage for Acceptance Original Credit Cards: Retail Cards Three Early Types of Retail Credit Term Credit for Farmers Open-Book Credit for Regular, Best Customers Installment Credit for Everyone's High-Ticket Items Early 1900s: Installment, Open-Book Credit Adopted by Department Stores 1914: Original Retail Cards Issued to Wealthy Oil Companies and Hotels Take up Concept 1928: Charge-A-Plates Debut A Fundamental Trend Emerges: Class to Mass The Depressions Boosts Need for Credit (Loans) Open-Book and Charge-Card Credit Prove Outmoded Solution: Revolving-Credit Cards Revolving-Credit Concept Refined at Gimbel's Revolving-Credit Cards Perfected in 1956 Retailers Reap Benefits of Streamlined System Three-Tiered Credit Operations Finally, Profit Expectations The Golden Age of Store Cards Retailers Retain Dominance Despite Slight Problem Status Quo Begins to Shift to Bank Cards Bank Incursions Meet Retail Resistance—For the Worse First Retailer Impulse: Close Ranks Small Retailers Succumb to Bank Card Charms Large Retailers Form Protectionist Bloc Regionals Left Suspended on Horns of Dilemma NRMA Recommendations: Outsourcing Origin of Outsourcing in 1930s' Retail Cooperatives Tony NYC Co-ops Offer Mutual Plates Notching Gives Rise to Processors Issuers/Processors At First Make Little Headway GE Capital the Significant Exception NRMA Recommends Outsourcing to GECC GECC's Third-Party Plan GE Capital Capitalizes Other Third Parties Enter the Picture Large Retailer Resistance to GPCCs Finally Crumbles 1980s: Deceptive Perception of PLCC Dominance Retained 1990s: Deceptive Perception Defenestrated Yet PLCCs Maintain Strength History: Oil Cards
A Positive Marketing Tool to Gain Share But Oil Cards Are Money Losers Combined Oversupply and Low-Ticket Purchases Traditional Company Loyalty to Oil Cards Transforming The Original "Courtesy" Cards Extremely Popular, Until the Depression Mass Distribution by Amoco in 1939 Massive Fraud Results Fundamental Issues Raised Plastic Credit Card Prototype Invented by Chevron Oil Companies: Resist, Accept, Resist Bank Cards Atlantic Richfield: Outsourcing, Then Dropping Credit Outsourcing in the 1990s
Conservative Estimates Sales Reckoned in Receivables PLCC Market Worth Close to $90 Billion in 1999 Table 3-1: Estimated Size and Growth of Private-Label Credit Cards, 1993-1999 (dollars, percent change) Growth Flattening Market Still in Positive Mode Growth Dynamics: 1993-1996 Growth Attenuates Since 1997 Overall Dollar Share: GPCCs Extend Lead over PLCCs Table 3-2: Oil Cards and Receivables Oil Cards as Inverse Indicators Oil Cards: Minor Share of PLCC Sales Units in Circulation: Retail vs. Oil Cards Table 3-3: Estimated Number of Private-Label Credit Cards in Circulation, 1995-1999 (units, retail and oil cards) Units in Circulation: PLCCs vs. GPCCs Factors in Future Growth
Proponent Responses to Skeptics Fate of Store Cards Tied to Middle Class Endurance vs. Growth Renewal Hinges on Outcome of Larger Battles Two Battlefronts: External and Internal Factors in Growth Present Paradoxical Aspects The External Battlefront: Financiers vs. Retailers The Economy: Good Times Favor Bank Cards Some Evidence Looming Threat: Banks Consolidating Power Bank Co-Brand Cards Exploit Rigid Store Card Rates Bank Cards Encroach on Store Cards' Turf Banks' Natural Advantage Will the Next Recession Favor PLCCs? The Splitting of the Middle Class The Bankruptcy Factor Store Cards May Benefit from Middle Class Fissure Demographics: Elderly PLCC Base Aging Population Could Be Positive for PLCCs Aging Baby Boomers and Credit Cards Youth Trends Look Promising Untapped Demographic Potential: Race/Ethnicity Technology: Financiers Appear in Control But Retailers Potentially Benefit from Advanced Data-Mining Software A Great Potential Negative: Retailers and the Internet The Internal Battlefront: Retailers vs. Retailers Disinflation and Retail Dynamics PLCCs and Discount Chains PLCCs and Specialty Stores PLCCs and Mass Merchandisers/Department Stores Lowering Interest Rates: A Weapon Goes Unused Except for Wal-Mart The "Overstoring" Phenomenon Overstoring: The Bright Side Retailers Rush to "Incentivize" Their Cards The Gloomy Side of Overstoring: Brick-and-Mortar vs. Dot.Com Bazaar No "E-Tail" PLCC Presence Yet—But Could Be for the Best Outsourcing Trend Positive under Present Conditions Outsourcing Mitigates Reaffirmation Scandal Outsourcing and Oil Cards Market Projections
A Projected Rise to Near $95 Billion Table 3-4: U.S. Private-Label Credit Card Market: Projected Receivables, 1999-2004 (dollars, percent change)
Slight Complexity: Retailer-Chartered Banks/Thrifts Number of Store Card Issuers: Retailers Lead Third Parties Retailer Issuers: Sears Dominates, Penney No. 2 The Second Tier: Mostly Department Stores Table 4-1: Leading Retailer Issuers, 1999 (dollars, percent share) Retailer Issuers: Significant Minors Table 4-2: Retailer Issuers of PLCCs, 1999 (companies) Third-Party Issuers: GE Card Services on Top, Followed by Household Second Tier Led by The Associates Table 4-3: Leading Third-Party Issuers, 1999 (dollars, percent share) Third-Party Issuers: Significant Minors Top Three in Cardholder Accounts: GEC, Sears, Alliance Data Table 4-4: Leading PLCC Issuers: By Number of Cardholder Accounts, 1999 Cardholder Accounts vs. Receivables Store Card Issuers: Market Share
GEC in Solid Second Place Household, Penney, The Associates Round out Top Five Ten Issuers in Second Tier Table 4-5: Market Share: Top Fifteen Store Card Issuers, 1999 (percent share) Oil Card Issuers: Market Share
Oil Card Leaders: Chevron and Mobil Tosco Now Leads Second Tier Table 4-6: Leading Oil Company Card Issuers, January 1, 1999 (number of accounts, charge volume) The Competitive Situation: Store Cards vs. Bank Cards
Bank Cards Major Direct Competitors Bank Card Flexibility Threatening Store Cards GPCCs Encroach on PLCC Turf Competition from the Subprime Market To Compete, Store Cards Need Special Extra Value Mimicking Bank Card Rewards Systems Store Cards Must Go Further to Add Value Micromarketing the Goal, But Formidable Obstacles Remain Competitive Pressures Lead to Outsourcing Trend Table 4-7: PLCC Programs Outsourced to Third Parties, 1998-1999 (companies) Outsourcing Permanent? The Bottom-Line Squeeze The Warfare in Retailing The Decay of Predictability Retailers Lack Technological Resources Cyclical Outsourcing and Y2K Outsourcing Processing—But Not Issuing From Outsourcing to Co-Branding Co-Branding Proponents Co-Branding Critics A Wry View of Pros and Cons Wal-Mart and the Co-Brand Approach Various Recent Experiments with Co-Branding Gottschalks: Co-Branding's Most Vehement Opponent Stores vs. Bank Cards: Antitrust Suit against Visa and Mastercard The Reaffirmation Scandal: First Panic, Then Swift Resolution Sears Leading Offender, But Others Involved The Competitive Situation: Third-Party Issuers
Third Parties Compete on Type, Degree of Services Offered Short-Term Contracts Lead to Cyclical Switching Competing through Specialization: Small-Account Services Targeting a Retail Niche Creating New Retail Niches A Muted PLCC Rivalry between Finance Companies and Banks The Rise and Fall of Banc One Citicorp's More Successful Approach A Turn of the Screw: Gateway's Novel Approach to Third-Party Competition The Competitive Situation: Consolidation
Recent Consolidation Events in the PLCC Market Ongoing Consolidation in Retailing The Impact of Retail Turmoil on PLCCs Nordstrom Breaks New Ground in Retailer/Financial Consolidation The Competitive Situation: Oil Cards
Resource Squeeze Leads to Widespread Outsourcing Competitive Profile: Sears, Roebuck & Co.
Enormous Number of Accounts Active Accounts Less Impressive Still, Sears Cards Are Most Profitable in PLCC Market Reasons for Sears' Total Dominance Sears Finally Accepts Bank Cards—Crisis Ensues Basic Features of the Sears Card Store Card Niche Loyalty Programs 1994-1997: The Ambitious Era Initiatives Hit Wall in '97 Took Desperate Measures The Reaffirmation Scandal Breach of Contract 1998: Sears Cleans Its Slate Sears Takes Unprecedented Step: Outsources Processing Justifications A Renaissance? Competitive Profile: GE Card Services (GEC)
GEC No. 2 in PLCC Market Godfather of Third Parties Comprehensive Menu of Services PLCC Portfolio Flat Response: Sell Off Bank Cards, Embrace Store Cards GEC Bails Out Ward Receives Signature GEC Best Poised to Enter New E-Tail, MicroMarket Universe Amazingly, GEC Outsources Processing to First Data Competitive Profile: Household Retail Services USA
Already Strong Presence Bolstered by Beneficial Acquisition PLCC Portfolio Ends Up Top-Heavy with Bottom End Household on Tenuous Foundation Foundation Fortified by Household Strengths Household Prunes, Refocuses Competitive Profile: JC Penney Co., Inc.
PLCC Program Plunging Reflects Penney's Overall Struggles JCP: A PLCC Pioneer Penney's Recent Moves Fail 1998: Huge Holiday Season PLCC Marketing Push JCP Seeks Third Party Outsourcing Makes Sense for Penney Competitive Profile: The Associates National Bank
Original Focus on Oil Cards Acquires SPS in 1998 SPS a Major PLCC Issuer SPS Offers Impressive Array of Services Associates Out to Dominate Oil Cards Oil Card Co-Brands How to Profit Off Fickle Oil Cards Offering Enhanced Reward Programs Marketing/Product Trends
Discount-Type Offers Sales Events Service-Type Rewards Merchandise Rewards for Co-Brand Cards Cards as Micromarketing Vehicles Macy's Customized Card Program Hudson's Bay: Most Comprehensive Store Card Program in North America The Zed Card HB's Numerous Value Enhancements HB's Advanced Technology Maintaining the Program In-House Trend to Card Stratification Gift Cards Kmart a Gift Card Pioneer All the Rage During '99 Holiday Season Gift Card Trend Could Encourage PLCC Experimentation Combination Credit/Loyalty Cards Multi-Merchant Loyalty Programs The "Interest-Less" Store Card Discounters and Store Cards: Troubles? Target's Card Seems on Track Wal-Mart's Commercial Card Store Cards and the Internet Third Parties Offer E-Tail Payment Options Trends in Oil Cards Advertising/Promotion
Value, Convenience Positioning Rare TV Spots Latest Ad Trend: Travel Service Cards Consumer Promotion
In-Store Promotion Catalog Promotion Rebates Charity, Cause Promotions Contests Collaborative Promotion Trade Advertising
The "Comprehensive" Theme The "Flexibility" Theme
Process Can Be Simplified with PLCCs Front-Office, Core Processing, Back-Office Leading Payment Processors Some Processors Become Store Card Issuers Top PLCC Processors: First Data, Total System, and Alliance Data Battle Shapes Up Between First Data and Total Competitive Profile: First Data Corporation
A World Leader in Processing "Behind-the-Scenes" Partnerships Recent Statistics First Data's Mid-1990s' Acquisition Binge Overextended at a Bad Time A Blow: Sears Goes with Total 1998: Restructuring Pay Off: First Data Lands GEC Account First Data and Wal-Mart Competitive Profile: Total System Services
Transactions Grow Strongly A Huge Cardholder Account Base 1996: Upgrades and Forms J-V with Visa Total System Services Scores Two Coups in 1998 TSS Shaping Up as Formidable Rival to First Data
All Credit Cards: Number of Owners/Users Private-Label Credit Cards: Nine Types Covered Number of Owners/Users: By PLCC Type Table 6-1: Number of Credit Card Owners/Users: All and Private-Label Credit Cards by Type (number, percent) Retail Cards Skewed to Female Base Oil, Travel Cards More Evenly Distributed Table 6-2: Number and Percentage of Private-Label Credit Card Owners/Users: By Sex (number, percent, index) Frequency of Use by PLCC Type Table 6-3: Number of Private-Label Credit Card Owners/Users: Frequency of Use by Type (number, percent) Factors in Ownership and Use of PLCCs
Owners/Users: Upscale Profile Table 6-4: Demographic Characteristics Favoring Ownership and Use of Credit Cards: General-Purpose and Private-Label Credit Cards General Factors in PLCC Ownership/Use Factors: Sears Cardholders Factors: JC Penney Cardholders Factors: Montgomery Ward Cardholders Factors: Department Store Cardholders Factors: Clothing/Specialty Store Cardholders Factors: Oil Card Holders Factors: Travel Card Holders Table 6-5A: Demographic Characteristics Favoring Ownership and Use of Private-Label Credit Cards: Mass Merchandiser Retail Cards Table 6-5B: Demographic Characteristics Favoring Ownership and Use of Private-Label Credit Cards: Other Retail Cards Table 6-5C: Demographic Characteristics Favoring Ownership and Use of Private-Label Credit Cards: Travel Cards Table 6-6A: Demographic Characteristics Favoring Frequency of Use of Mass Merchandiser Retail Cards: Used Last Year Table 6-6B: Demographic Characteristics Favoring Frequency of Use of Other Retail Cards: Used Last Year Table 6-7A: Demographic Characteristics Favoring Frequency of Use of Mass Merchandiser Retail Cards: Used Last Month Table 6-7B: Demographic Characteristics Favoring Frequency of Use of Other Retail Cards: Used Last Month Appendix I: Examples of consumer and trade advertising and promotions (available only with bound editions of this report)
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