The U.S. Market for Private Label Credit Cards, 4th Edition

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Published Nov 1, 2004 | 164 Pages | Pub ID: LA975904

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While largely mature, the market for private-label credit cards promises considerable activity at all levels for years to come. Leading retailers such as Sears and Circuit City, once committed to managing their own card programs, have moved en masse to sell their portfolios to third-party issuers like Citi Commerce Solutions and GE Card Services. And as those two financial giants battle for dominance, an assortment of smaller issuers, acquirers, and processors are carving out their own slice of the private-label market. Consumers have staged a slow exodus away from private-label cards in recent years, but new products and marketing tactics are waiting in the wings to—with any luck—reverse that trend.

This Packaged Facts report, The U.S. Market for Private Label Credit Cards, focuses on the $98 billion private-label credit card industry, covering cards issued directly by retailers as well as cards issued by third parties; to a lesser degree, consumer usage of “travel” cards (gas, air, and auto) is discussed in relation to the market overall. The report examines the latest trends in the private-label market—including widespread consolidation among market leaders, retailers’ new fondness for third-party issuers, the impact of co-branding, and new developments in “cardless” cards and so-called consumer-to-consumer credit—placing them in context in the overall credit industry. It also explores the state of private-label card marketing, detailing new application procedures, online marketing, advertising, and trends in tiered and rewards-based card programs. Also included are detailed company profiles of the leading bankcard associations and card issuers (including Citi Commerce Solutions, GE Consumer Finance, Household Retail Services, Inc., and J.P. Morgan Chase & Co.), as well as demographic data on private-label credit card holders.

Report Methodology
The information in The U.S. Market for Private Label Credit Cards is based on both primary and secondary research. Primary research involved interviews with marketing, public relations and analysts within the financial industry and consultants to the industry. Secondary research entailed data-gathering from relevant trade, business, and government sources, including company literature, data from CardSource and corporate filings.

What You’ll Get in this Report
The U.S. Market for Private Label Credit Cards identifies and assesses the economic drivers shaping the market for retail and travel cards, as well as the technological innovations and regulatory changes affecting its competitiveness and growth. In addition, the report profiles the market players as well as the market strategies and trends that will help shape its future.

Chapter 1:  Executive Summary

Scope and Methodology

Scope of Report

Report Methodology

Introduction

Private-Label Card Basics

Private-Label Cards Offer Many Benefits for Retailers

Third-Party Issuers Dominate Market

The Market

Market to Top $112 Billion in 2009

Market Is Largely Mature

Greatest Growth in Store for Largest Issuers

The Marketers

Volume Concentrated Among Top-Tier Marketers

Figure 1-1:  Top Marketers of Private-Label Retail Cards, 2004 (percent)

The Leading Payment Processors

Overlapping Roles of Issuers, Acquirers, Processors

The Leading Oil Company Card Programs

Competition for Private Label on Many Levels

Third-Party Consolidation Driving Market

Strategic Partnerships Helping to Grow Market Share

Marketing Trends

Shifts in Basic Private-Label Marketing

The Co-Branding Question

Rewards Programs Continue to Evolve

The Consumer

19% Penetration Level for Department Store Cards

Table 1-1:  Household Penetration Rates for Selected Credit Card Classifications: Have or Use, Used in Year, and Used in Last Month, 2004 (U.S. households)

73% Frequent Usage Level for Gasoline Cards

Chapter 2:  Introduction

Private-Label Card Overview

Scope of Report

Private-Label Card Basics

Private-Label Cards Offer Many Benefits for Retailers

Third-Party Issuers Dominate Market

Overlap with Corporate Card Market


 

Private-Label Risks, Rewards, and Innovation

Private-Label Payments a Low Priority for Consumers

Challenges from General-Purpose, Co-Branded Cards

Aggressive Consolidation Among Top-Tier Issuers

…But Second-Tier Companies Standing By

CRM Development Remains Key to Private-Label Growth

Online Ventures Bring New Private-Label Strategies

Target Deals a Blow to Smart Cards

Other New Technology Struggling to Break Through

Internet Security and Innovation

Diversification

The Regulatory Environment

Repercussions of Anti-Trust Rulings

Merchants Pushing for More

Gramm-Leach-Bliley and Simplified Notices

Chapter 3:  The Market

Market Size and Composition

Note on Methodology

Market Approaches  $100 Billion in 2004

Figure 3-1:  U.S. Market for Private-Label Credit Cards, 2000-2004 (in billions of dollars)

Table 3-1:  U.S. Market for Private-Label Credit Cards, 2000-2004 (in billions of dollars)

Private-Label Less Than 15% of Total Card Market

Proprietary Cards Generate Low Volume But Big Transactions

Factors to Market Growth

Market Is Largely Mature

Retailers Recognize Benefits of Scale

Greatest Growth in Store for Largest Issuers

Second-Tier Issuers Focus on Specialty, Smaller Retailers

Cardless Cards and C2C Credit

Online Purchasing Makes Private-Label More Appealing

Smart Cards May Have Missed Their Window

M-Commerce Still on Hold, Other Technologies in the Wings

Consumer Credit Quality on the Rise

Increased Buying Power of Minority Populations

Confronting Debit, Payroll, and Co-branded Cards

New Products, Promotions, and Possibilities

Figure 3-2:  Projected U.S. Market for Private-Label Credit Cards, 2004-2009 (in billions of dollars)

Projected Market Growth

Market to Top $112 Billion in 2009

Table 3-2:  Projected U.S. Market for Private-Label Credit Cards, 2004-2009 (in billions of dollars)

Chapter 4:  The Marketers

Overview

Volume Concentrated Among Top-Tier Marketers

The Leading Payment Processors

Overlapping Roles of Issuers, Acquirers, Processors

The Leading Oil Company Card Programs

Table 4-1:  U.S. Private-Label Credit Card Market:  Selected Marketers and Brands, 2004

Marketer Shares

Top Two Private-Label Issuers Account for 69% of Market

Figure 4-1:  Top Marketers of Private-Label Retail Cards, 2004 (percent)

Table 4-2a:  Top Marketers of Private-Label Retail Cards: Estimated Receivables and Market Share, 2004 (in billions of dollars)

Table 4-2b:  Top Marketers of Private-Label Retail Cards:  Estimated Market Share, 2000 vs. 2004 (percent)

Rankings Beginning to Solidify

The Competitive Situation

Competition for Private Label on Many Levels

Third-Party Consolidation Driving Market

Strategic Partnerships Helping to Grow Market Share

In-House Control Still Offers Competitive Advantages

Competitors Seek Growth in International Arena

Marketing Trends

Shifts in Basic Private-Label Marketing

The Co-Branding Question

Rewards Programs Continue to Evolve

Maximum Flexibility in All Facets of Card Membership

The Hard Sell Pays Off

Attracting Customers with Easier Application Procedures

Advertising Trends

Chapter 5:  Competitor Profiles

Competitor Profile:  Alliance Data Systems Corp.

Corporate Overview

Private-Label Growth

A Winning Focus on Marketing

New Venture in Utility Services

Co-Branding Worries Unfounded, Says ADS

Competitor Profile:  Citi Commerce Solutions (Citigroup, Inc.)

Corporate Overview

Citi Scores Coup with Sears Acquisition

Citi Expands, Holds Tight to Acquisitions

Relying on Old Tactics


 

Competitor Profile: Federated Department Stores, Inc.

Corporate Overview

Federated Loses Share to May, Focuses on Existing Operations

Website Leads Way to Wider Changes

Partnership with Cosi Brings New Opportunities

Competitor Profile: First Data Merchant Services Corp.
(First Data Corp.)

Corporate Overview

Concord Acquisition Moves First Data Forward

Playing on a Larger Field

Competitor Profile: GE Consumer Finance
(General Electric Co.)

Corporate Overview

A New Start

Product and Marketing Innovations

New Directions, Expanded Services

New Competition from Old Ally

Competitor Profile: HSBC North America Holdings, Inc.

Corporate Overview

Integration with HSBC Pays Off

Competitor Profile:  J.P. Morgan Chase & Co.

Corporate Overview

The ARC Advantage

Refuting Rumors

Competitor Profile:  The May Department Stores Co.

Corporate Overview

Marshall Field’s Deal Shakes Up Proprietary Program Rankings

Competitor Profile:  Shoppers Charge Accounts Co.
(
Hudson United Bancorp)

Corporate Overview

Full Service for Smaller Operations

Reaching Out to Business Clients

Competitor Profile: Target Financial Services (Target Corp.)

Corporate Overview

Target’s Not-So-Smart Card

New Formats, New Opportunities

Competitor Profile:  Total System Services, Inc.

Corporate Overview

Switching to TS2

Chapter 6:  The Consumer

The Private-Label Cardholder:  Introduction

Simmons Market Research Bureau Data

19% Penetration Level for Department Store Cards

Table 6-1:  Household Penetration Rates for Selected Credit Card Classifications: Have or Use, Used in Year, and Used in Last Month, 2004 (U.S. households)

73% Frequent Usage Level for Gasoline Cards

Figure 6-1:  Percentage of Overall Card Users Who Use Cards Monthly: Selected Credit Card Classifications, 2004 (U.S. households)

Consumer Focus:  Overview of Demographics

55-64 the Prime Age Bracket

Women Post Index of 140 for Clothing/Specialty Cards

Asians Post Index of 119 for Clothing/Specialty Cards

Northeast the Top Region

Downscale Skew for Sears

Skew to Two-Person Households

Table 6-2a:  Indices for Use of Selected Credit Card Classifications in Last Year: By Adult Age Bracket, 2004 (U.S. households)

Table 6-2b:  Indices for Use of Selected Credit Card Classifications in Last Year: By Adult Age Bracket, 2004 (U.S. households)

Table 6-3:  Indices for Use of Selected Credit Card Classifications in Last Year:  By Gender, 2004 (U.S. households)

Table 6-4:  Indices for Use of Selected Credit Card Classifications in Last Year: By Race/Ethnicity, 2004 (U.S. households)

Table 6-5a:  Indices for Use of Selected Credit Card Classifications in Last Year:  By Region, 2004 (U.S. households)

Table 6-5b:  Indices for Use of Selected Credit Card Classifications in Last Year:  By Region, 2004 (U.S. households)

Table 6-6a:  Indices for Use of Selected Credit Card Classifications in Last Year: By Household Income Bracket (in Thousands), 2004 (U.S. households)

Table 6-6b:  Indices for Use of Selected Credit Card Classifications in Last Year: By Household Income Bracket (in Thousands), 2004 (U.S. households)

Table 6-6c:  Indices for Use of Selected Credit Card Classifications in Last Year: By Household Income Bracket (in Thousands), 2004 (U.S. households)

Table 6-7:  Indices for Use of Selected Credit Card Classifications in Last Year: By Household Size, 2004 (U.S. households)

Consumer Focus:  Demographics by Card Type

Department Store Cards vs. Credit Cards Overall

Sears vs. J.C. Penney

Middle-of-the-Road Incomes for Gasoline Cardholders

Clothing/Specialty Cards:  Household vs. Individual Incomes

Table 6-8:  Demographic Characteristics Favoring Use of Credit Cards:  In Last Year, 2004 (U.S. households)

Table 6-9:  Demographic Characteristics Favoring Use of Credit Cards:  In Last Month, 2004 (U.S. households)


 

Table 6-10:  Demographic Characteristics Favoring Use of Department Store Credit Cards: In Last Year, 2004 (U.S. households)

Table 6-11:  Demographic Characteristics Favoring Use of Department Store Credit Cards: In Last Month, 2004 (U.S. households)

Table 6-12:  Demographic Characteristics Favoring Use of Sears Credit Cards:  In Last Year, 2004 (U.S. households)

Table 6-13:  Demographic Characteristics Favoring Use of Sears Credit Cards:  In Last Month, 2004 (U.S. households)

Table 6-14:  Demographic Characteristics Favoring Use of J.C. Penney Credit Cards: In Last Year, 2004 (U.S. households)

Table 6-15:  Demographic Characteristics Favoring Use of J.C. Penney Credit Cards: In Last Month, 2004 (U.S. households)

Table 6-16:  Demographic Characteristics Favoring Use of Gasoline Credit Cards: In Last Year, 2004 (U.S. households)

Table 6-17:  Demographic Characteristics Favoring Use of Gasoline Credit Cards: In Last Month, 2004 (U.S. households)

Table 6-18:  Demographic Characteristics Favoring Use of Clothing/Specialty Store Credit Cards: In Last Year, 2004 (U.S. households)

Table 6-19:  Demographic Characteristics Favoring Use of Clothing/Specialty Store Credit Cards: In Last Month, 2004 (U.S. households)

Consumer Focus:  Cardholder Attitudes

Clothing/Specialty Cardholders as Avid Shoppers

Department Store Cardholders More Loyal

J.C. Penney Window Shoppers, Family Shoppers

Table 6-20:  Indices by Credit Card Classification for Agreement with Statement: "I Use Internet to Help Plan Shopping Trips," 2004 (U.S. adults)

Table 6-21:  Indices by Credit Card Classification for Agreement with Statement: "Tend to Spend Long Periods of Time in Store Browsing," 2004 (U.S. adults)

Table 6-22:  Indices by Credit Card Classification for Agreement with Statement: "Store’s Environment Makes a Difference in Whether I Shop There," 2004 (U.S. adults)

Table 6-23:  Indices by Credit Card Classification for Agreement with Statement: "I Only Shop in Favorite Stores; They Have the Brands I Like," 2004 (U.S. adults)

Table 6-24:  Indices by Credit Card Classification for Agreement with Statement: "I’m Drawn to Stores, Don’t Shop by Sales," 2004 (U.S. adults)

Table 6-25:  Indices by Credit Card Classification for Agreement with Statement: "Head Right to Clearance Rack When Entering a Store," 2004 (U.S. adults)


 

Table 6-26:  Indices by Credit Card Classification for Agreement with Statement: "I Go Shopping Frequently," 2004 (U.S. adults)

Table 6-27:  Indices by Credit Card Classification for Agreement with Statement: "Even When I Don’t Purchase, I Enjoy Shopping," 2004 (U.S. adults)

Table 6-28:  Indices by Credit Card Classification for Agreement with Statement: "I Prefer to Shop with My Family," 2004 (U.S. adults)

Table 6-29:  Indices by Credit Card Classification for Agreement with Statement: "I Prefer to Shop with Friends," 2004 (U.S. adults)

Chapter 7:  Looking Ahead

Trends and Opportunities

Third-Party Issuers Take the Reins

Room to Grow with Smaller Merchants

Reaching New Populations

Lessons Learned from High-Tech Gimmicks

CRM the Key to Growth

Appendix:  Addresses of Selected Marketers