Private Label Credit Cards Experience Decline in the Current Market

Private label credit cards, also known as store cards, have been a popular choice for customers due to the exclusive perks they offer, such as discounts and rewards, writes Connie Diaz De Teran for the Payments Journal. However, these cards are currently facing challenges in remaining the preferred choice for consumers.

A recent report titled «Private Label Credit Cards: Still Relevant But Losing Luster,» by Ben Danner, Senior Analyst of Credit and Commercial Payments at Javelin Strategy & Research, sheds light on the current state of the private label credit card market in the United States, risks for consumers, and potential threats to their market share.

Private label credit cards have reached a point of market saturation, as revealed by recent data analyzed by Danner. Initially, it was predicted that there would be around 225 million private label card accounts by 2023. However, the actual numbers fall significantly short of this prediction. According to Equifax, there are currently 186 million private label card accounts in the U.S. In comparison, there are 524.9 million regular bank card accounts. While private label cards still hold relevance in the overall credit card marketplace, they constitute a much smaller segment compared to traditional credit cards.

Private label cards have traditionally appealed to customers with subprime credit scores. These cards provided an easy entry point into the credit system as they were offered at the point-of-sale, making it convenient for customers to make significant purchases.

It’s essential for consumers to be aware of the risks associated with private label credit cards. Despite the benefits, these cards function like regular credit cards, with an interest-bearing balance and potential fees if not paid in full at the end of the month. Danner points out that private label card usage trends reveal a concerning picture, with delinquency rates significantly higher than those of general-purpose credit cards. In fact, the delinquency rate for private label cards over $60 was double that of traditional bank cards.

Private label cards face increasing competition from point-of-sale (POS) financing, which offers consumers a convenient way to finance purchases with less demanding approval qualifications. Once approved, customers can select from various payment terms that align with their budget. Consequently, consumers are more inclined to pursue this option rather than applying for a credit card.

Despite the growing popularity of «buy now, pay later» (BNPL) services, Danner argues that they do not pose a significant threat to private label cards. He highlights that BNPL instant financing lacks the same rewards and loyalty benefits offered by private label store cards. Additionally, BNPL services often lack the promotional offers available with private label store cards. As a result, private label cards continue to maintain an edge over BNPL services.

Ultimately, one factor that continues to attract customers to credit cards is the allure of rewards. Private label cards still excel in this area, offering customers a range of rewards and loyalty benefits.

Private label credit cards are currently navigating a changing landscape. While facing a decline in market share and increased competition from alternative financing options, private label cards still hold appeal for customers who value the rewards and exclusive benefits they provide.