No, Wells Fargo & Co. is not feeling the heat to issue more credit cards. But consumers applying for an interest-free loan to purchase a furnace might automatically land a new Wells card, too.
Carrier Corp. is providing interest-free loans tied to a cobranded Wells preferred customer credit card. But unlike typical merchant cards, Carrier’s comes with two lines of credit on top of the initial loan–one the company provides to encourage additional purchases from its product offerings and another, smaller one Wells provides for purchases anywhere Visa is accepted.
Indianapolis-based Carrier’s deal with Wells Fargo Financial Retail Services became effective Feb. 1. A Carrier spokesperson declined to comment.
Carrier, which operates in a market where repeat sales may be few and far between, wanted to provide additional functionality to the finance loan it provides to furnace buyers by offering a card that could support purchases for filters and other supplemental products, Dan Abbott, Wells head of retail services, tells PaymentsSource. The dual-line cards also offer some brand enhancement for the seller, he adds.
“More typically, the credit cards we provide for all other industries we support–home furnishings is the largest segment–those cards are just plain private-label credit cards,” he says. “There’s no Visa line associated with it.”
Home-improvement outstandings represent about 40% of Wells’ overall retail card receivables. Wells has roughly 3.5 million retail cardholders, about 30% of whom have dual-line cards, Abbott says.
Wells launched dual-line credit card services in the mid-1990s, he says. Other dual-line customers have included Lay-Z-Boy Inc. and Pella Corp.
“Whether [a loan] is supported by a dual-line product or a private-label product, the important thing is, for high-end purchases, consumers really need that kind of budgeting support that is provided by longer-term interest-free terms as opposed to writing a check or tapping into lines of credit,” he says. “These days more than ever, consumers want peace of mind that they can commit to these purchases and will have enough time to pay them off.”
Few customers actually use the Visa credit line Wells provides, and the issuer is reviewing whether adding value to the offering might spur more use. However, it does not want to veer far from the product’s original intent, which is to help the cobranding partner to sell more products, Abbott says.
Moreover, Wells did not design the card to secure long-term cardholder relationships, and the issuer does not use it for cross-selling purposes, he adds.
Merchants cobranding dual-line cards pay Wells a percentage of each sale. The rate varies, depending on the merchant type, typical purchase amounts, the length of deal and other factors, Abbott says. Wells does not share the earned interchange on card purchases.
Wells imposes a 27.99% annual interest rate on revolving purchase balances that may vary depending on the U.S. prime rate, according to card account agreement terms.
Representatives from GE Capital Retail Finance and HSBC Finance Corp., which also specialize in offering retail cards, either were unavailable to comment about dual-line products by PaymentsSource deadline or declined an interview.
Megan Bramlette, a director at Auriemma Consulting Group, says tying a credit card to a vendor’s interest-free loan is “a brilliant move” for Wells.
“What’s the harm?” she says. “There’s a lot of upside for Wells and relatively little investment on their part. … With an incremental credit line, they have an opportunity for you to make more transactions on the card.”
Carrier and Wells might want to work on their promotional marketing, however. Nothing on the introductory sheet holding the Visa-branded card mentions Carrier. The Carrier name is revealed only after peeling back the activation sticker on the card.
And surprising customers with a new credit card in the mail is not good marketing, Bramlette says. “It seems like a disconnect to me,” she says.
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