November 28, 2008
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News: Branded Credit's Changing Climate
There exist inherent similarities and differences between branded, co-branded and straight-industry credit card accounts. At this time of credit card upheaval, a contrast is forming in ways never tested before. On of the best ways to protect ourselves is to consider how the different economic trends are effecting each entity. The branded flavor of credit cards have been traditionally motivated to enhance shopping habits at specific retail stores. This is especially important during this all-important Christmas season, when the bulk of their revenues depend on it. In this depressed climate right now, they will need to put special effort in overcoming the decline in sales that is anticipated. The average consumer holiday spending is expected to drop from $471 last year to only $418 this year. The co-branding market is trying to balance these concerns against threatening losses due to consumer default on their loans and the straight-industry market is primarily concerned with the latter.
Right now, it appears that the tightening credit card market is having sway in sweeping changes across the market. For example, Nordstrom, one of the brand-style credit card leaders, has just issued a notice to it's clients that their terms are tightening. They've enacted a 3 percent interest hike and have raised late penalties from $35 to $39 for card holders with balances over $1,500. Target Corp. has taken it a step further. In addition to rate and penalty hikes, they are ‘targeting' specific areas, starting with those states most hard-hit by the sup-Prime meltdown: Florida, Arizona, Nevada and California. Target Financial Services president, Terry Scully, explains that Target is: "continuing tight credit line management that focuses on high-risk behaviors and high-risk geographies."
In these times of struggling industry concerns, retailers like this are having to hike interest rates, lower credit limits, shorten grace periods and be more discrimination with higher account qualifications. But, for these retail-based card holders that's only half the story. In spite of this credit tightening, most retailers are going all out to encourage new credit card signups.
They're offering immediate 10 to 15 percent discounts for obtaining one or their new credit card offerings complete with ‘points' packages. Managing partner for a Menlo Park payments and financial services consulting firm called Glenbrook Partners, Allen Weinberg, says: "The retailers are pulling out all the stops. They know they're facing a dismal season. They're trying to get people in stores and to spend."