2019 was a significant year for Synchrony. The company was selected by Venmo to issue a credit card, created an industry-first secured private label card with Amazon, and launched a super individual label card that enables industry verticals rather than single stores. 2020 results will be announced on Friday, January 24.
Zacks Equity Research pointed to the fact that Synchrony managed through Walmart’s exit (to Capital One), which will likely have a positive impact on loan loss reserves, but the big news of the day is the launch of co-brand with Verizon. With this relationship, Synchrony gains access to Verizon’s 150 million U.S. consumer customer base, while Verizon aligns with a top-ten U.S. card issuer.
Synchrony’s active portfolio serves 80.3 million accounts, with $140 billion sales financed, so the issuer certainly has the infrastructure to carry the potential upside of a new card.
The co-brand is undoubtedly the most significant announcements to date and likely to be one of the top wins for the year. Timing is impeccable as some alternative lenders move into the retail space with personal loan products on checkout pages and at the physical point of sale, as we mentioned in a recent report on the Private Label Credit Card space (available here).
While the alternative loans have potential, some issuers such as American Express, Chase, and Citi have strategies in place. Our view is that credit card issuers must press forward and not be distracted by new market entrants. Consumer credit is a long game that is sensitive to various economic cycles.
The Synchrony/Verizon offering is a perfect hedge on shifts in U.S. retailing—Synchrony’s core market—and will provide a healthy balance for their portfolio. For Verizon, this is a new revenue stream that will come in handy as the firm deals with the upcoming finalization of the T-Mobile/Sprint merger.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
