Capital One Financial Corp. is looking for another private-label credit card portfolio to buy, as it absorbs the U.S. card business of HSBC Bank USA and the Kohl's Corp. store card portfolio, CEO Richard Fairbank said on Thursday.
Private-label card portfolios represent "a significant growth opportunity for us," Fairbank said during the conference call to discuss third-quarter earnings. "For a long time," private-label card operations were pushed into the background by faster growing cobranded card programs, he noted.
"I think (private-label's) demise has been greatly exaggerated," Fairbank said. As Capital One shops for additional private-label card programs, it will be selective and "sensitive to the sort of auction price nature of how some of these portfolios move," he said.
The McLean, Va.-based bank in August said it would buy HSBC's $30 billion credit card business, which includes issues general-purpose credit cards and store cards on behalf of retailers including Best Buy Stores Inc., Neiman Marcus Inc. and Saks Inc.'s Saks Fifth Avenue.
Fairbank said Thursday that Capital One hopes to close the HSBC deal during the second quarter of 2012. In 2010, Capital One acquired 20 million store-branded Kohl's card accounts.
Fairbank says that one reason private-label cards have gained appeal is that receivables growth in general-purpose bankcard products has slowed, as consumers have reduced spending dramatically and fewer are revolving balances from month to month.
Private-label programs target a broader array of customers, and while Fairbank acknowledged that the HSBC portfolio contains some "subprime branded stuff," it also has "massive prime and top of the market" customers whose spending patterns show promising growth.
On the general-purpose card front, Cap One is engaged in a costly marketing war with JPMorgan Chase & Co., American Express Co. and other major issuers to capture prime customers who use credit cards for everyday spending, Fairbank said.
"We're investing very heavily, as frankly, are Chase and Amex in particular, in the real top of the market heavy spender, and these are very expensive accounts to get," he said. "As everybody knows, when you get them, they tend to have great performance and very heavy spending patterns, and they're long annuities."
As a result, direct-mail volume "is returning dangerously close to sort of where it used to be," Fairbank added, noting that surprisingly the recent influx of credit card offers "don't even show that a lot of the marketing has moved to the Internet."
Mintel Comperemedia data earlier this year showed a significant uptick in direct mail offers, including cash incentives encouraging consumer to switch issuers.
Capital One reported higher credit card purchase volume for the third quarter and lower cardholder defaults, which Fairbank attributed in part to stepped-up marketing efforts.
The issuer's credit card business generated net income of $663 million for the third quarter, up 5.1% from $631 million a year earlier. Total revenues for the card operation rose 3.8%, to $2.7 billion from $2.6 billion.