financial services

Private-Label Credit Card Spending Drops

Creditcards-MontagePrivate-label card spending dropped 14.4% percent last year -- the largest decline during the 2006-2010 time period, primarily due to a continued tightening in program quality by many issuers through closing accounts that had become delinquent or shutting down poorly performing programs altogether, according to Packaged Facts.

Spending totaled $183 billion in 2010, according to the report, "Private Label Credit Cards in the U.S., 7th Edition."

Leading the trend in declining purchase volume were several of the larger issuers -- including Citibank, which is the largest -- with retail programs such as Home Depot, Sears, and several retail gas companies. Citibank reported a purchase volume decline of 20%, although the decline can be partly attributed to the sale of certain programs to GE Capital Retail Finance.

Packaged Facts estimates that total private-label credit card receivables plummeted 18% in 2010 -- mostly due to charge-offs by issuers, although most issuers noted that consumers had increased payment rates. Lower purchase volume added less to the balance sheets of issuers.

Wells Fargo, which focuses mostly on smaller specialty retailers such as furniture stores, saw the greatest decline in receivables. Citibank also saw its private-label card receivables fall significantly, as did GE Capital, despite adding $1.6 billion to its receivables balance.

Modest economic growth will be a key factor in the consumer's ability to find additional spending power, said David Sprinkle, publisher of Packaged Facts. Also a consideration is retailers' ability to capture the consumer dollar, and the issuer's ability to balance new accounts with potentially increased credit risk.

Retailers and issuers who want to drive sales through private-label programs must not ignore alternative payment technologies -- particularly mobile, Sprinkle said.  

Mobile payment increases are assured due to what Sprinkle calls a "perfect storm of forces:" a young, tech-friendly consumer raised on mobile technology, a projected increase in smartphone usage, more ecommerce sites enabled for mobile payments, the development of new shopping apps, and mobile payment technologies such as near-field communications, which will bring mobile shopping onto Main Street.



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