These days, many consumers who shop at major retail chains may find themselves receiving offers for store-branded credit cards that will give them a discount on their purchase, and now, one of the nation’s top lenders is looking to increase its control over accounts of this type.
The chief financial officer for Discover Financial Services recently revealed that his company is interested in expanding its standing in the private-label credit card industry, according to a report from Dow Jones Newswires. In particular, it has recently examined the viability of obtaining HSBC’s U.S. credit card business, which has a large number of store-branded credit card accounts.
Discover is enthusiastic about the private-label credit card industry — in which lenders partner with retailers and other major companies to offer branded cards to their customers — and is searching for an entry point into this type of business, the report said. While Mark Graf, Discover’s CFO, would not reveal whether his company actually bid on all or part of HSBC’s portfolio, which was eventually acquired by Capital One, he said the company was intrigued by what it saw.
This revelation may be somewhat surprising because private-label card portfolios are considered somewhat riskier to manage than traditional accounts, the report said. This is because these cards traditionally carry lower credit qualifications, and thus typically see higher rates of delinquency and charge offs. However, Discover may be interested in pursuing these accounts, which counterbalance those risks with higher and therefore more lucrative interest rates, as the national economy continues to improve and consumers get a better handle on their personal finances in the wake of the recent recession. At the same time, the company is also trying to expand into granting private loans, education financing and even mortgages in the near future.
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Consumers who are offered a store credit card when checking out during a shopping trip should think carefully about the repercussions such an account would have for their finances, weighing their repayment habits and whether the one-time discount they receive will be enough to cover the added cost that they might face in higher interest charges. In some cases, it may be a better idea to seek a credit card with a lower interest rate that will end up costing them less over the course of the time it takes to repay the balance they may rack up.
Image: Philip Taylor PT, via Flickr