No one is sleeping late in Stamford, CT these days as Synchrony comes up with yet another credit card win. Since January, the firm has announced their expanded closed loop multistore credit card, settled a claim by Walmart as the portfolio moved to Capital One, announced renewals with Google and Amazon, and delivered a ROA of 2.8% for 2018 (10% better than forecast).
Now, a breakthrough innovation for the credit impaired with Amazon, which will work wonders for those wanting to transact online but lack the necessary history to warrant a credit card. If all goes well, and Mercator Advisory Group expects it will, Synchrony will have a first mover advantage as a secured issuer for retail stores.
First, background on Secured Cards is here, and Private Label cards is here.
Secured cards have an ugly past but a bright future. Before the Great Recession, hard money lenders charged sky-high fees to people needing credit. It was not uncommon to find $500 credit lines that only had $75 in open-to-buy because accounts carried origination fees, booking fees, and special credit risk assessments. After the Card Act of 2009, regulatory direction scarred away these lenders and quality credit card companies like Bank of America, Capital One, Citi, Discover, US Bank, and Wells entered the market.
What Synchrony accomplished is unique. It married the secured card to a private label credit card, creating a new class of credit card accounts. The idea is sure to be a winner. Mercator Advisory Group projects the Secured Card market at $430 billion in revolving credit with 5.3 million cards by 2021. This move may bump that number up a bit.
Private label credit cards are non-bank, non-network credit cards. Rather than carrying an American Express, Discover, Mastercard, or Visa brand, they exist as a closed loop card intended for use at a retailer. Secured cards allow a cardholder to place cash into a bank account to secure the credit line.
The new product simply allows a cardholder, with a secured account, to open a private label card. Starting with a $257 billion retailer who accounts for half of US online spending and 5% of retail spend is a pretty nice place to start.
Nerdwallet lays out the terms nicely:
- Annual fee: $0
- Security deposit: Minimum of $100, a maximum of $1,000. (This refundable deposit must be made with Synchrony Bank.) The amount of your deposit will be your credit limit.
- New-cardmember offer: A $10 Amazon.com gift card after making an account-opening deposit.
- APR:24% (as of June 10, 2019).
- Rewards: The baseline Amazon.com Store Card Credit Builder doesn’t earn rewards, but cardholders with an eligible Amazon Prime membership are automatically upgraded to the Amazon Prime Store Card Credit Builder, which offers the option of earning 5% back on Amazon.com purchases. (A Prime membership costs $119 a year)
Marketwatch reports that the card is unique, quoting Creditcards.Com.
- The structure of the new credit offering struck credit-card experts as rather unusual. “I’ve looked at hundreds of retail cards, and I can’t recall ever seeing a secured retail card,” said Ted Rossman, industry analyst with CreditCards.com.
Me either. I haven’t seen this concept in 40 years.
The Amazon-Synchrony card will be a winner for the 20% or so of the population that live on the fringes of credit. What will be more exciting, though, is how this model can bring a whole new class of credit cards, private label secured credit card, to market. That is a big deal.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group