Private-Label Card Trends May Signal Uneven Holiday Spending

Private-label credit cards, or store cards, make up a small percentage of overall consumer credit.

The Federal Reserve estimated earlier this year that “ retail credit outstanding ” totaled $130 billion, or more than 2.5% of total outstanding consumer credit, as of the end of last year. Nearly 85 million individuals had those cards in hand. Over 60% of retail credit balances were held by borrowers with nonprime credit scores.

Elsewhere, PYMNTS Intelligence data found that 42% of consumers who used store cards reported doing so because it earned them more rewards than other methods. Consumers with store cards use the cards 87% of the time when they have the option to do so.

More than 60% of consumers hold at least one co-branded credit card . These cardholders said their most frequently used co-branded credit card is affiliated with a retailer — a greater share than said the same of any other kind of brand, such as travel, local business or technology company.

Earnings season has given hints of mixed spending ahead at the same merchants who, along with issuers, get closed-looped cards in the hands of shoppers.

Synchrony Financial ’s third-quarter earnings showed that purchase volumes were down 4% to $45 billion. Dual/co-branded cards saw the same metric slip 2% year on year to $19.5 billion. Purchase volumes per account were down 4% during the same period. Accounts 30+ days past due as a percentage of period-end loan receivables were 4.8% at the end of the most recent quarter, where that percentage had been 4.4% a year ago. Net charge-offs were about 6.1% in the quarter, compared to 4.6% last year.

‘Modest’ Pullbacks Amid Inflation

During a conference call with analysts, Synchrony CEO Brian Doubles said “both new accounts and purchase volume growth continued to be impacted by a modest pullback in consumer spending, as well as the credit actions that Synchrony has taken since the middle of 2023 to reinforce the credit trajectory of our portfolio in 2024 and beyond. Despite those actions, average active accounts remained stable versus last year, and ending receivables grew 4% … our customers continue to be discerning in our discretionary purchases.”

He said later during the call that consumers’ discerning behaviors center “around larger-ticket categories such as home furnishing, travel and entertainment, and [they] are prioritizing nondiscretionary spend by groceries and pharmacy.”

Overall, the consumer remains in “pretty good shape [as] inflation is having an impact,” he said. “…Consumers are slowing spend, but they’re doing it in a … rational, disciplined way. We actually like the fact that we can see that they’re managing a budget. They’re navigating the higher cost of goods.”

Chief Financial Officer Brian Wenzel said during the call that “transaction values [are] coming down, so the consumer is trading down a bit … We’ve seen that across the board [from] our retailers. And I think you see it, generally speaking, across the board in discretionary items.”

Capital One , for its part, noted stable trends among consumers in its earnings results released Thursday (Oct. 24). CEO Richard Fairbank said on a call that card loan balances were up 6% year over year, and the period-end loans held for investment were $149.4 billion. The 30-plus delinquency rate at quarter end was 4.5%, up 0.22%.

“The pace of year-over-year increases in both the charge-off rate and the delinquency rate have been steadily declining for several quarters and continued to shrink in the third quarter,” he said.

“We see some pockets of pressure related to the cumulative effects of inflation and elevated interest rates,” he added. “…I’d say consumers on the whole are in good shape compared to most historical benchmarks.”

The earnings supplementals revealed that the allowance coverage (for credit losses) in the branded card portfolio was 9%, compared to the overall card coverage ratio of 8.4%.