Ally ends credit card experiment, pivots to point-of-sale loans

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Ally Financial is pivoting away from the credit card business in favor of a different kind of unsecured consumer lending.

The company’s three-year-old credit card partnership with TD Bank has ended, Ally CEO Jeffrey Brown said Thursday. Earlier in the morning, Detroit-based Ally announced that it has agreed to pay $190 million to acquire a Charlotte, N.C.-based company that offers point-of-sale loans to consumers.

“The unsecured space holistically continues to be of interest for us,” Brown said during Ally’s second-quarter earnings call.

Ally launched its credit card in June 2016 as part of a strategy to sell more products to both its auto loan borrowers and its online depositors.

The card offered cash rewards of 1%-2%. Because TD shouldered the credit losses, Ally's risk was limited, but the company also had less opportunity to earn money from the card.

In explaining why the company is now exiting the credit card business, Brown said only that the partnership did not meet Ally’s expectations. He noted that the total loan portfolio was less than $100 million.

Meanwhile, Ally has agreed to acquire Health Credit Services, which currently offers unsecured personal loans for the financing of medical procedures. But Brown indicated Thursday that Ally want to apply the firm’s point-of-sale lending capabilities in other retail sectors.

“We’ve been interested in the unsecured space, and this was an ability to acquire a really nice platform at a relatively inexpensive price. And we’ll seek to grow it from there,” he said.

Health Credit Services’ loans are currently originated by three partners: two banks and a credit union. Brown said that the acquisition does not come with a balance sheet. Yet Chief Financial Officer Jennifer LaClair said Ally intends to originate point-of-sale loans and hold them on its own balance sheet.

LaClair noted that point-of-sale lending to consumers is a rapidly expanding business. “It’s growing at 18 to 20-plus percent,” she said during the company's earnings call.

The point-of-sale loan sector, which includes firms like Affirm, Klarna and Afterpay, has benefited from technology that allows consumers to get quick approvals for the financing of specific purchases that they make on their mobile phones.

Also on Thursday, Ally reported quarterly net income of $582 million, which included a discrete tax benefit of $201 million. Excluding that one-time benefit, net income rose 9% from the second quarter of 2018.

Total net revenue rose 6%, and the firm’s net interest margin declined by less than 1%.

Shares in Ally were up 5.8% in midday trading Thursday.

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Credit cards Point-of-sale Consumer lending Auto lending Earnings Ally Financial TD Bank