Fewer than half of all cardholders have a private-label credit card, but those who do are more likely to routinely carry a balance on their various cards than are consumers who rely only on general-purpose cards, new data from Auriemma Consulting Group suggest.
Holders of private-label cards tend to charge less per month on those cards than do those who have general-purpose cards, but those who carry multiple cards and revolve balances are not likely to change either of their behaviors, Auriemma said in its monthly Cardbeat report.
Subsequently, private-label cardholders generally are “a profitable population for card issuers to target for acquisition and cross-sell offers,” Auriemma said in the report.
Private-label card programs often have looser underwriting requirements than do those of general-purpose credit cards because of their connection to stores’ individual promotional strategies, Scott Strumello, an Auriemma associate, noted in an interview with PaymentsSource. As a result, they tend to be riskier and prone to higher losses, he said.
The average charge-off rate on U.S. private-label credit cards at the end of June was 9.45%, 312 basis points higher than the 6.33% rate for general-purpose credit cards, according to Fitch Ratings Inc. (
Auriemma conducted its online survey of 402 U.S. credit cardholders during the month of July.
Credit cardholders as a whole tend to allocate 48% of their annual card spending on credit cards, 32% on debit cards, 14% on private-label cards and 6% on general-purpose charge cards that require payment in full each month, the survey data show.
Slightly less than half, or 47%, of all credit cardholders carry a private-label credit card, the survey found.
The private-label cards respondents held most commonly are those from Kohl’s Corp., 20%; J.C. Penney Co. Inc., 18%; Macy’s Inc., 18%; Sears Holdings Corp., 14%; Best Buy Co. Inc., 10%; The Home Depot Inc., 9%; and Wal-Mart Stores Inc., 7%.
Respondents spent $527 monthly on general-purpose credit cards compared with $106 spent monthly on private-label cards. They also carried an average balance of $1,486 on their most commonly used general-purpose credit card compared with $549 on their most frequently used private-label card.
That the average outstanding balances are lower on private-label cards is not surprising because private-label cards typically sport lower credit limits, Auriemma noted.
General-purpose credit cards offer an average credit limit of $7,094 compared with $2,995 for private-label cards, Auriemma’s data show. Some 60% of credit cardholders who revolved a balance on their general-purpose credit cards also revolved a balance on their private-label cards.
“We found that once cardholders begin revolving, it is typical they will carry balances often on more than one card as a way of life,” Auriemma said in its report.
Some 49% of respondents said that in the previous one to four years they had never paid off a credit card balance of either type.
Store sales and merchandise discounts are the leading incentive for respondents to use private-label cards, respondents said. Some 38% of private-label cardholders cited a percentage discount on all items in a store as their primary motive for using a private-label card, while 34% cited a store card rewards program and another 34% said a special promotion caused them to use a private-label card.
Some 24% said their fondness for a particular retailer’s merchandise was their primary motive for using a private-label card, and 13% cited special financing available with a private-label card.
The majority of private-label card accounts are opened at the point of sale, according to survey data. Online and direct mail account for 23% and 9% of new-account originations respectively.
Respondents said the interest rate on their most frequently used private-label credit card was about 15.8%, 280 basis points higher than the 13% interest rate typical on their most frequently used general-purpose credit card.
Relatively few respondents cancel their credit cards, but they are less likely to cancel a private-label card. Some 7% of respondents reported canceling a general-purpose credit card compared with 3% who have canceled a private-label card.
Among respondents who canceled a private-label card within the previous year, 40% cited a high interest rate as the reason.
