Recent Deals Have TD Diving Deeper Into U.S. Retail Credit Cards

Toronto-Dominion’s U.S. bank is slowly carving out a wider wedge of the tumultuous market for retailers’ credit cards.

Canada’s second-largest bank has been bulking up across the border for years and now has more branches in the U.S. than in its home country. Hidden behind its aggressive expansion in retail banking, TD also quietly has built up a less-glamorous portfolio: the business of issuing credit cards on behalf of retailers and manufacturers who want to offer their customers ways to finance purchases of diamond rings and power tools.

That so-called store card market has been turbulent at best since the financial crisis, when losses on those cards surged and several big lenders tried, unsuccessfully, to leave the business.

But it has become increasingly popular in recent months. For example, Capital One Financial Corp. agreed to buy a $30 billion HSBC card portfolio (see story). And Citigroup Inc. recommitted to its own sizable retailer-cards business (see story).

Now TD is taking an unusual path to compete with its bigger store-card rivals, looking for pockets that are narrow but deep.

The bank wants to grow “vertically” within the private-label credit card space, Marc Sczesnak, TD Retail Card Services president, said in a recent interview.

TD bought the private-label lender Shoppers Charge Accounts Co. in 2006 as part of its purchase of Hudson United Bank and renamed it in 2008. The Mahwah, N.J.-based unit had long focused on running credit card programs for retailers, including online and catalogue merchants.

Now Sczesnak, who took over the unit in 2008, has identified more categories of retailers to target, including those who sell consumer electronics, jewelry and home services.

In each category, TD tries to sign up multiple partners, ranging from luxury companies to discount retailers.

For example, in 2010 TD started issuing U.S. and Canadian credit cards on behalf of luxury jeweler Cartier. Then in February this year the bank announced a deal to issue cards for Carrollton, Texas-based Bailey Banks & Biddle, which sells jewelry that generally is less expensive than Cartier’s products (see story). 

Sczesnak says this approach helps the bank focus its resources on acquiring partners who are a good fit in areas where TD feels it can successfully compete with its U.S. rivals.

So far, the strategy appears to be working for TD Bank, which is competing in a slowly reviving market.

“This gives them a way to create expertise,” says Brian Riley, a senior research director in the bank cards practice at TowerGroup. “It looked like two years ago the private-label card business was dying, but it’s had a nice rebound this year.”

TD is taking advantage of that rebound as some of its bigger rivals are trading places.

JPMorgan Chase & Co., for example, is dropping some retail card contracts as it refocuses its credit card business on attracting wealthy customers. It sold its Kohl’s Corp. credit card portfolio to Capital One in April (see story). And in January, Chase paid Pier 1 Imports Inc. $28.3 million as part of a deal to shorten its private-label card contract (see story).

At the same time, some big U.S. banks are bulking up or recommitting to their store-card operations.

Capital One’s deal for HSBC’s card portfolio will give the McLean, Va., bank partnerships with retailers including Best Buy, Neiman Marcus and Saks Fifth Avenue. Citigroup, which tried to sell its store-card unit for almost two years, said in October it was recommitting to the business. The bank issues credit cards for customers of Macy’s, Home Depot and Sears, among others.

“A number of banks exited that business when it got tough,” says payments consultant Philip Philliou. “I assume TD thinks they can take a leadership position and do well with it. There are not as many players in the private-label space today.”

For the time being, the bank is still pursuing some smaller-scale partnerships. In October, the company said it would issue credit cards for consumers who want to buy power tools from manufacturer Cub Cadet (see story). This year, TD also has signed card deals with several furniture companies, including Ashley Furniture Industries Inc. (see story), Design Within Reach and The Furniture First Inc. (see story).  It also signed a deal with recreation-vehicle maker Forest River Inc. (see story).

Sczesnak attributes some of those deals to his parent company’s expansion in the United States, which he says creates more awareness of TD’s brand and business capabilities.

Analysts agree. “TD is making inroads in the U.S. market on a number of fronts and it is becoming a major retail presence,” says Madeline Aufseeser, a senior analyst at Aite Group LLC.

The bank reports fourth-quarter results Dec. 1.

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