Specialty retailers issue private-label credit cards because they encourage loyalty and entice some customers to spend more money, but the retailers have generally stayed away from general-purpose cards that operate on the Visa or MasterCard networks.
That may change, said an executive with Alliance Data Systems Corp., a Dallas private-label issuer that caters to the specialty retailer market.
On Monday, Alliance Data announced that Hanover Direct Inc. has agreed to offer private-label and MasterCard-branded general-purpose cards for the first time. Other Alliance Data customers are also taking a look at offering cobranded cards.
Alliance Data's customers include around 65 retailers, many of them not-quite-household names, such as Limited Brands Inc., Limited Too Inc., Williams-Sonoma Inc., and J. Crew Group Inc.
Though it ranks a distant fourth among private-label issuers - behind Citigroup Inc., General Electric Co.'s GE Consumer Finance, and HSBC Holdings PLC - Alliance Data has a larger concentration of small and midsize retailers than other issuers.
Ivan Szeftel, Alliance Data's president of retail services, said in an interview Tuesday that he is aware that many cobranded retailer cards, including those issued for Kmart Corp. and RadioShack Corp., have not worked in the past. He also said his company would keep in mind a different goal than those of some of the failed programs.
"We come to this from a very different approach than a traditional third-party issuer," he said. "We view cobranded cards as a loyalty-building tool. So many issuers tie themselves into an economic structure, in terms of their relationships with retailers, that are predicated on portfolio assumptions that just don't happen." As a result, "the average balance or purchase volume on the cobrand isn't what they expected."
Alliance Data's approach will be to offer cobranded cards first to private-label cardholders who have stopped using their cards, he said; it hopes that getting a new cobranded card will encourage customers to visit a store or a Web site.
"Our goal is not to convert private-label cards to cobranded. Our approach is to ascertain which group of customers will respond more effectively to a cobranded card than a private-label card," Mr. Szeftel said. "We always run into a situation where certain of their customers will not take the private-label card or will take the card and after a certain period of time stop using it. This is a way to provide a different product to those people."
Alliance Data's research indicates that some customers feel another private-label cards will clutter their wallets, and some do not like the terms of a private-label card, he said. They often feel that they will not earn enough rewards points just shopping at one retailer's stores and want the ability to earn points for all purchases, he said.
Eventually, Alliance Data could offer a dual-purpose card like the ones GE Consumer Finance has issued for Wal-Mart Stores Inc., Mr. Szeftel said. (Those cards function as a private-label card in Wal-Mart's stores and as a Discover card elsewhere.)
He said he did not know if such a card would require an alliance with Discover, but would not rule it out. However, he cautioned that Alliance Data's foray into general-purpose cards was an "evolution of the product," and not a drastic change in strategy.
"You may see us issue more of them where appropriate," he said. "If we don't, it's because it doesn't work."
David M. Scharf, an analyst with JMP Securities LLP, called Alliance Data's cobranded deal with Hanover Direct a good development, but he said he did not expect the deal to affect Alliance Data's revenue in the short term.
