Co-branded relationships are partnerships formed between financial institutions and unaffiliated organizations, generally for-profit organizations such as airlines, automobile manufactures, and retailers. Similar to the affinity program, a contractual agreement governs the co-branded relationship, and the co-branded card usually carries the co-branded partner's logo.
Rebates to customers are normally based on a percentage of purchases or transactions, and the percentage often varies depending on whether purchases were made with the co-branding party or another entity.
The institution benefits from a co-branding arrangement because it generally increases credit card receivables, and accordingly interest and interchange income, due to the consumers' willingness to use the credit card more frequently to reap the financial rewards. However, institutions typically face the risk that higher cardholder monthly payment rates could erode profits.
Nevertheless, for some programs the considerable volume of interchange income generated by high cardholder transaction volumes might substantially offset the interest income opportunity that is lost with higher payment rates. Corporate card programs come in more than one form to serve different business needs. In general, they are contractual agreements between a sponsoring entity and a financial institution, in which the financial institution issues corporate cards to select employees of the sponsoring company.
The sponsoring entities may take on several forms including small businesses; middle market businesses; local, state, or Federal governments; and large corporations. With this type of program, examiners should determine if the institution is allowed to make commercial loans.
While most banks are permitted to make commercial loans, others are prohibited by state law or charter restrictions. The contract identifies the repayment terms and whether the sponsoring company guarantees the loans. These terms often dictate how the bank sets the credit limits. Procurement cards are used for a business's purchases of materials, office supplies, and miscellaneous items. Businesses are attracted to this product because it simplifies accounting, especially for small-ticket items.
Purchase orders are not needed, and only one payables check is necessary. In addition, institutions can provide value-added features such as detailed account statements and summary statistical information on purchasing patterns. The ability to provide value-added features is a critical competitive factor between institutions.
Depending on the needs of the corporation these accounts may have credit limits in the millions of dollars. Corporate card accounts generally pay monthly; thus, issuing banks normally forego finance charges , which could make past due accounts very costly to the bank.
The primary source of income on these accounts consists of service fees, annual fees, and interchange income. Home equity credit cards are secured by housing assets. These credit cards provide consumers with the benefits of a traditional home equity line of credit attractive interest rates and potential tax deductibility while allowing them quick, easy access to the line's funds via the credit card.
Home equity credit card lending involves a significant amount of documentation due to the mortgages, insurances, and other aspects involved. Points unique to these programs compared to unsecured programs include loan-to-value LTV and foreclosure considerations. Cash secured credit cards are generally marketed to two consumers groups: those with poor credit scores or prior credit problems and those with a limited or non-existent credit history. These programs can allow consumers an opportunity to establish or re-establish their credit.
The accounts are collateralized by savings accounts or certificates of deposits. Cash secured credit card lending can be profitable and attractive to institutions because the receivables are self funding, finance charges and fees are high, the collateral is liquid, and new markets are opened. In addition, the statements always feature a personalized statement, notes Chivari. With a private-label card, you can choose to manage all aspects of the program — and subsequently take the hit if customers fall through on their payments — or contract with a financial institution.
The greater the sales a proprietary card is expected to reap, the lower that discount rate will be, and the more profit the merchant will be able to make per sale. Of course, administering card operations inhouse also has its costs.
In , prior to the national rollout of its card, Talbots established its own bank and finance subsidiaries to consolidate and manage the administrative activities associated with it, says Myers. Even so, Feldman says, the representatives he works with at HSBC provide guidance on how to best market the card. Such suggestions might include incentive programs to encourage employees to enroll cardholders, processes to expedite the application process, and programs to enable customers who were declined a card the ability to qualify for some other, less risky form of credit.
Staples also outsources operations of its card. Crude Oil Gold 1, Silver CMC Crypto 1, FTSE 7, Nikkei 28, Read full article. More content below. Elizabeth Dilts Marshall. In this article:. Recommended Stories.
Motley Fool. A private label credit card is a type of revolving credit plan managed by a bank or commercial finance company for either retail or wholesale manufacturers, such as department and specialty stores.
Private label credit cards do not carry a credit card network logo such as Visa or Mastercard and generally are not accepted by other merchants. The private label credit program allows retailers to offer more lenient and extended terms to customers than they could otherwise. Many stores offer private label credit cards to their customers to encourage them to spend more by offering the convenience of a credit card and deferred payment. In addition, when a customer makes a purchase with a private label credit card, they will usually earn loyalty rewards, such as a discount on a future purchase.
In this way, a private label credit card can encourage repeat business and customer loyalty. Private label cards can also make shopping more convenient for customers through features such as returns without receipts.
Private label credit card programs partner with a third party financial institution to manage the card program for the business. These third-party partners perform several functions.
These include the issuance of cards, funding of credit, and the collection of payments from customers. The financial institution and the retailer jointly establish the criteria for credit. The financial institution is then responsible for the underwriting and card issuance process. They are also similar to other credit cards in that while private label credit cards do not carry a payment network's logo, they are still backed by a payment processor and issuing bank.
Target is one of many retailers that offer a private label credit card as of Nordstrom also offers a co-branded Visa card that gives store-specific benefits, rewards on all purchases and can be used anywhere Visa is accepted.
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