Adding more steam to its operations, private-label card processor Alliance Data Systems Corp. has picked up another large piece of retail business.
The recently formed private-label company signed the deal with Service Merchandise, a Nashville-based retailer, two weeks ago.
Service Merchandise has 400 stores and $400 million of receivables in 800,000 card accounts. It specializes in jewelry, gifts, and home merchandise.
Alliance Data will begin processing transactions for the company's portfolio in 1998, once Service Merchandise's contract with Banc One Private Label Credit Card Co. expires. The Banc One Corp. unit is based in Dayton, Ohio.
Experts said Service Merchandise is switching processors because of price, but they added that Alliance Data is leveraging its expertise in private-label processing and data mining to win clients.
"It's not a technological issue. It's a dollars-and-cents issue," said Paul Martaus, president, Martaus and Associates, Clearwater, Fla. "Data mining has an impact, but it's a bottom-line decision."
Dallas-based Alliance Data was formed last year by merging two properties of the investment firm Welsh, Carson, Anderson & Stowe. The two were Business Services Holdings Inc. and World Financial Network Holding Corp., owner of the Limited's credit card issuing bank.
Last month, Alliance Data acquired a $400 million portfolio from National City Bank, Ohio. It includes accounts from Saks Fifth Avenue, Charming Shoppes, and Citgo. Alliance owns the receivables and will process the portfolio's transactions.
"Alliance Data is a business that can go to large retailers with technology to drive down cost per transaction because of scale," said Anthony J. de Nicola, general partner at Welsh Carson. "This is a situation where the retailer was looking for a more competitive processing solution."
Mr. de Nicola added that Alliance Data has the data mining technology to increase revenue from private-label cardholders through "one-to-one marketing."
A consultant close to Service Merchandise, who insisted on anonymity, said bankers and retailers don't always see eye to eye. "It's been my experience that banks have a harder time providing services to retailers," he said.
Ralph Spurgin, chief executive officer of Alliance Data, agreed. "Our roots are in retailing, not finance or banking," he said. "That understanding will benefit our clients."
"Signing a client of this size helps us attain" a goal of increasing revenue and profit 20% a year, Mr. Spurgin added.
Alliance ranks in the top five as a third-party processor of private- label cards. It processes 12 million statements a month and services 20 million active private-label cards.
"We're sorry to see them go," after four years, said Banc One spokesman John Russell. "Transaction price was a reason. They found a better deal with Alliance Data Systems."
Mr. Russell noted the complexity of servicing private-label accounts. Each client has "a specialized sales process" with "special requirements," he said. "It is not a mass market kind of thing."
Despite the loss of Service Merchandise, Mr. Russell said, Banc One expects to expand its private-label business, due in part to its planned acquisition of First USA Bank Inc.
"First USA is very interested in our private-label business," he said. Banc One expects the combination to help its private-label business "grow handsomely."
