Private-label credit cards are a popular solution for businesses that want to expand relationships with existing customers while attracting new ones. These cards tie in branding, customer loyalty initiatives and targeted financing options – and offer insights into how businesses can use finance and branding to create distinctive new areas of value for their customers.

Below, we'll cover what private-label credit cards are, how they work, their benefits and potential challenges, and what businesses should know before introducing their own card.

What's in this article?

• What are private-label credit cards?
  
• Private-label credit cards vs co-branded credit cards
  
• How do private-label credit cards work?
  
• Benefits of private-label credit cards for businesses
  
• Downsides of private-label credit cards for businesses
  
• How to get a private-label credit card for your business
  

What are private-label credit cards?

Private-label credit cards – often called white-label credit cards – are issued by a retailer or brand, often in collaboration with a financial institution. Typically, these cards can only be used for purchases from the issuing retailer, which enables the retailer to cultivate loyalty and gather detailed data about customer purchasing habits.

Private-label credit cards vs co-branded credit cards

Private-label credit cards are issued by a retailer and can typically only be used at that retailer's locations or website. Often, they are not associated with a major card network (such as Visa or Mastercard) and are designed to build loyalty with that store or brand.

Co-branded credit cards are the result of a partnership between a retailer (or other type of business) and a financial institution or card network. These cards can be used anywhere the card network is accepted – not just at the co-branding retailer. They offer special benefits or rewards when used at the associated retailer but function like a regular credit card elsewhere.

How do private-label credit cards work?

Private-label credit cards are dedicated financial tools tied to specific retailers or brands. Here's a look at how they work:

• Issuance: Retailers collaborate with financial institutions to develop and introduce these cards. The card's design and branding usually reflect the retailer's identity, making it distinct from general-purpose cards.

• Acceptance: Private-label credit cards have a limited acceptance range. Typically, a cardholder can only use a private-label credit card at the designated retailer's outlets or online platform.

• Loyalty incentives: To strengthen customer loyalty, retailers offer private-label credit card holders incentives, such as exclusive discounts, early access to sales, special promotional periods with zero or reduced interest, and point-based rewards that are exclusive to cardholders.

• Data collection: One of the primary advantages for retailers is the ability to collect granular data about cardholders' purchasing habits. This data can influence marketing strategies, inventory decisions and promotions, offering retailers a competitive edge.

• Credit assessment: Typically, the partner financial institution manages the application process and is in charge of determining creditworthiness, setting credit limits, and approving or denying applications based on the applicant's financial profile.

• Billing and interest: Private-label credit cards function in a similar way to traditional credit cards regarding monthly statements, displaying transactions, outstanding balances and any interest charges. Sometimes, private-label credit cards come with higher interest rates compared with those of general-purpose cards, so it's key for customers to understand the terms before committing.

• Risk management: Although the financial institution handles most credit risks, the specifics of risk-sharing are spelt out in the partnership agreement between the retailer and the institution. This partnership dictates who absorbs losses from defaults or delinquencies.

• Customer service: Although the card might bear the retailer's branding, the partnering financial institution manages most back-end operations, including customer queries, payment processing and dispute resolution.

Retailers use private-label credit cards to build a stronger, more direct relationship with their customers by offering them exclusive advantages. Retailers also benefit from the wealth of in-depth data and insights provided by these cards.

Benefits of private-label credit cards for businesses

As unique financial tools tailored to specific retailers or brands, private-label credit cards have the potential to generate a variety of advantages that can bolster a business's growth and customer engagement, including:

• Customer loyalty: Creating a dedicated payment channel often results in stronger customer relationships. Exclusive incentives and promotions lead to greater engagement, prompting customers to prioritise the brand over others.

• Data collection: With each transaction that customers make with a private-label credit card, retailers gain important insights from card data. This data can guide decisions about inventory, marketing strategies and targeted promotions, empowering businesses to make more informed choices.

• Increased sales: The purchasing power a credit line offers can motivate customers to spend more, potentially leading to higher average transaction values and more frequent store visits.

• Financing options: Tailored financing options, such as deferred interest plans or unique instalment structures, can make expensive items more attainable, motivating customers to make purchases that they might otherwise have postponed or abandoned.

• Brand differentiation: Issuing a bespoke credit card elevates a brand's status and reinforces brand recognition by serving as a continuous reminder of the brand every time the customer uses the card.

• Partnership support: Collaborating with financial institutions can yield joint marketing ventures or access to resources that might be out of reach for a retailer operating alone.

• Improved checkout experience: A swift, integrated payment process that integrates rewards or instant discounts can elevate a customer's overall shopping satisfaction.

With these benefits, businesses can harness the power of private-label credit cards to shape their growth trajectory. These cards are often underrated in the broader credit market, but they can be powerful tools when retailers integrate them correctly.

Downsides of private-label credit cards for businesses

Although private-label credit cards provide a range of advantages, they can also pose challenges. Their singular design and close tie to specific retailers or brands mean they don't operate with the same broad flexibility as general-purpose cards. They also introduce certain complexities for businesses.

Understanding these challenges is important for any retailer or brand thinking about introducing a private-label credit card. Although these cards can create deeper customer engagement and potential revenue streams, the operational, financial and reputational risks need careful management. Here's a rundown of some of the possible drawbacks:

• Limited acceptance: Private-label credit cards are restricted to the issuing retailer or brand, limiting their use for customers and potentially reducing their appeal compared with more universal credit cards.

• Credit risk: Even if a retailer is partnered with a financial institution, the business might bear some level of credit risk, especially if there's a high rate of default among cardholders.

• Operational complexities: Introducing and managing a credit card programme can strain a business's resources, demanding dedicated teams to oversee the partnership, manage promotions and address issues.

• Higher interest rates: These cards often carry higher interest rates than general-purpose cards, which can deter financially savvy customers and potentially leave customers with a negative perception of the brand.

• Customer debt concerns: Encouraging customers to use these cards might inadvertently lead some into debt, which can have long-term negative consequences for customers in addition to affecting their long-term loyalty and trust in the brand.

• Competitive differentiation: With many retailers offering cards, the prestige of a private-label credit card might become diluted in a crowded market, making it harder to stand out.

• Potential reputation risks: Any issues with the card – for instance, data breaches or disputes over interest charges – can reflect poorly on the retailer, even if the financial institution is at fault.

Before offering a private-label credit card, it's important to understand what obstacles you might face. As with any key initiative, deciding whether to adopt a private-label credit card must be an informed and intentional choice that reflects broader business goals.

How to get a private-label credit card for your business

Introducing a private-label credit card to your business arsenal involves a thoughtful blend of planning, collaboration and oversight. Here's how to approach this initiative:

• Understand your audience: First, assess your customer base. What are the buying habits of those customers? Would they appreciate the flexibility and benefits of a dedicated credit card?

• Choose a financial partner: Research and collaborate with a financial institution that is aligned with your brand's values and objectives. This institution will manage the card's back-end operations, including credit assessment and billing.

• Design and branding: Work closely with designers to make sure the card reflects your brand identity. The card's look and feel should be aligned with your brand ethos and appeal to your target audience.

• Define card benefits: Decide on the unique benefits and incentives that your card will offer. This could include special discounts, reward points or financing options.

• Set clear terms and conditions: Work with legal experts to draft clear terms for card usage, interest rates and other associated conditions.

• Market the card: Develop a comprehensive marketing strategy to promote your card. This could involve in-store promotions, online campaigns and targeted ads.

• Train your staff: Educate your members of staff about the card so that they can assist and promote it to potential customers.

• Monitor and adapt: Once you've launched the card, keep a close eye on card adoption rates, usage patterns and customer feedback. Use these insights to refine the benefits and address any issues.

Establishing a private-label credit card for your business demands rigorous attention to detail, ongoing oversight and a strong commitment to the customer experience. When executed with precision, this initiative can fortify your position in the market and create lasting bonds with your customers – amplifying your brand's value proposition through every transaction.