Private Label Credit Card

A private label credit card is a store-branded credit card that can only be used at a specific retailer or within that retailer's network of brands. It carries the store's logo but not a major payment network logo like Visa or Mastercard. The retailer partners with a bank, which funds the credit lines, approves applicants, and handles billing. The retailer markets the card in-store and online, shares the revenue from interest and fees, and uses it as a customer loyalty tool.

The Target Circle Card, issued by TD Bank, and the Amazon Store Card, issued by Synchrony Bank, are among the most widely used examples.

How the Economics Work for Retailers

Retailers offer private label credit cards because they generate revenue and reduce transaction costs simultaneously. When a customer pays with a Visa or Mastercard, the merchant pays a processing fee that can exceed 2% to 4% of the transaction. When a customer pays with the retailer's own private label card, that processing fee is typically eliminated or greatly reduced.

Retailers also receive a share of the interest income the issuing bank collects from cardholders who carry a balance. The higher interest rates on private label cards, which typically run well above 25% annual percentage rate, generate substantial revenue that the bank shares with the retailer in exchange for directing customer spending to the program.

Why Consumers Use Them

Private label credit cards attract customers with three types of incentives that regular credit cards do not offer.

• Store-specific rewards: Points, cash back, or discount percentages that apply only to purchases at that retailer. The rewards rate at the sponsoring store is typically higher than what a general-purpose rewards card offers on the same purchase.
• Promotional financing: Deferred interest promotions allow large purchases at 0% effective interest for periods ranging from 6 to 60 months. The entire balance must be paid before the promotional period expires; otherwise, all deferred interest is charged retroactively from the purchase date.
• Easier credit approval: Issuers of private label cards generally apply looser approval criteria than major bank cards. Someone building credit or recovering from past credit problems may find a store card accessible when a Visa is not.

Private Label Credit Card vs. Co-Branded Credit Card

A co-branded card carries both the retailer's brand and a payment network logo. You can use a co-branded Target card anywhere Mastercard is accepted. A private label card can only be used at Target stores and Target.com.

Nordstrom illustrates the distinction cleanly: it offers both a Nordstrom Store Card, which is private label and works only at Nordstrom, and a Nordstrom Credit Card, which is co-branded with Visa and works anywhere Visa is accepted. Both are issued by TD Bank. Six major issuers, Synchrony Financial, Citi Retail Services, Capital One, TD Bank, Bread Financial, and Wells Fargo, dominate the U.S. private label credit card market.

The Risk: High Rates and Deferred Interest Traps

Private label credit cards carry some of the highest interest rates in consumer credit. If you carry a balance past the statement due date, you pay rates that are typically 5 to 10 percentage points higher than comparable general-purpose credit cards.

Deferred interest promotions are the most significant trap. They appear similar to true 0% interest offers but operate differently. If you fail to pay the full balance before the promotional period ends, even by one dollar, you owe all of the deferred interest that accumulated throughout the entire promotional period, not just interest on the remaining balance.

Sources

• https://en.wikipedia.org/wiki/Private_label
• https://stripe.com/resources/more/what-are-private-label-credit-cards-heres-what-businesses-should-know-about-white-label-cards
• https://www.sofi.com/learn/content/private-label-credit-card/
• https://na.bankhawk.com/blog/us-retail-private-label-credit-card-vs-co-branded-network-credit-card