General Electric Co.'s GE Money, a major player in private-label credit cards, says it is about to make a splash in the affinity card business.
Steve Young, the president of GE Money's personal finance unit, said Monday that it has reached more than 20 agreements with affinity groups that will be announced in the next couple of months when deals with their current card issuers expire. (He would not name any of the groups involved.)
GE is up against longtime affinity issuers such as Bank of America Corp.'s MBNA Corp., JPMorgan Chase & Co., U.S. Bancorp, and Barclays PLC's Barclaycard US (formerly Juniper Financial Corp.) - in a niche where one analyst says competition is fiercer than ever. The credit card market is generally pretty tough, and most issuers are struggling to generate growth.
Mr. Young said GE Money, of Stamford, Conn., would differentiate itself with an ability to customize marketing messages to drive volume for affinity partners.
"If you look at some of the companies that have been doing it, … they've created cookie-cutter models; they may have hundreds or thousands of relationships, and it doesn't allow for a more unique approach to that client," Mr. Young said. "We don't want to be an organization that has thousands of relationships."
However, Chris Theoharides, the president of Advantage Consulting Group in Massapequa, N.Y., said that though Bank of America and JPMorgan Chase have thousands of relationships, many other affinity issuers have "only a few well-selected, carefully managed relationships with co-branders." Mr. Theoharides has been advising GE on its entrance into the affinity market.
Affinity cards, which MBNA introduced in the 1970s, are marketed through nonprofit organizations such as universities and hunting clubs. Most are issued on the Visa or MasterCard networks.
Mr. Young said GE is negotiating to issue affinity cards on a third network that he would not name. (GE issues a hybrid card that works as a private-label card in Wal-Mart stores and as a general-purpose card on the Discover network.)
Analysts said that the affinity market is not wide open but that it can accept new players.
Mr. Theoharides said: "I do believe there are opportunities for a new issuer to enter the co-brand market, but it has to be an issuer that brings some strategic advantage into play, given the saturation of the market. There are still new opportunities that can continue to surface; there are a lot of co-branded deals that are up for renewal."
He said that competition in the affinity market is at "an all time high," but that GE's behind-the-scenes experience in running private-label card programs for retailers, such as J.C. Penney Co. Inc., Brooks Brothers, and Lowe's Cos. Inc., is a strong advantage.
"They are a very experienced private-label issuer who is adept at underwriting less creditworthy populations, which will enable them to potentially go deeper into file or approve more accounts for co-branded programs."
In the affinity niche, "their biggest challenge is going to be to learn how to compete and position themselves against other card-issuers' experience in the co-brand market. And that means from the revenue contribution perspective, from the marketing perspective, from the operational perspective. They're going have to learn on all those elements that co-branders evaluate in choosing a card issuer."
Ed Lawrence, a managing associate at Auriemma Consulting Group Inc. of Woodbury, N.Y., said most large affinity groups have already partnered with banks that have been in the market for some time. But he said smaller, regional entities are still untapped. Community banks, for instance, are partnering with municipal governments.
Mr. Theoharides said that banks that have been offering co-branded and private-label cards are looking at integrating the two operations and that GE may be best positioned to offer both under one roof.
Despite the intense competition, he said, GE has "a lot of capability and talent that will enable them to win a bunch of programs."
Mr. Lawrence said affinity cardholders generally do not carry balances as often as regular cardholders, so negotiating a good contract with affinity partners is key to a profitable relationship.
Mr. Young said issuing affinity cards is the next "logical step" for GE, after its having built a name for itself in the private-label market.
"It continues to be a major part of the banking industry, and frankly we'd be remiss not to go after the opportunities there," he said. "It's definitely a space we want to stay in."
