Private-Label Credit Cards: Are They Your Best Option?

Financing Insights | 7 mins

Credit isn’t always king, especially when it comes to private-label credit cards (or PLCCs). With rising credit card fraud concerns, lack of digital innovation, and increasingly high interest rates—businesses and consumers are thinking twice about their relationships with credit cards.

Data from The Federal Reserve indicates private-label credit card payments accounted for just 8.5 percent of all credit card payments in 2018, up from 7.9 percent in 2015. While this figure has shown steady growth, private-label credit cards are clearly not a dominant payment option among consumers.

In an increasingly digital world, where retailers that embrace innovative, seamless customer-centric payment methods attract new and repeatable business, it’s worth determining if a private-label credit card is best for your business—or your customers.

Why Businesses Offer a Private Label Credit Card

A private-label credit card is a store-branded credit card that can only be used at that specific store. They are managed by a third-party financial institution, but are white-labeled so that it displays the store name rather than that of the financial institution, and tend to be most popular at department and specialty stores. They are typically offered by retailers in hopes of driving more sales and at greater amounts.

Retailers who choose to offer a private-label credit card often do so because they are hoping to boost loyalty by offering customers a card with their logo on it, or by providing loyalty programs through said card to encourage repeat business. Retailers also often pitch private-label credit cards as a way to provide customers with access to a revolving line of credit to help them make larger purchases that they might otherwise pass on. These perks sound good in theory, but fall short in reality for ecommerce businesses.

Why Businesses Should Consider Alternatives to a Private Label Credit Card

The initial benefits of offering customers a private-label credit card option seem appealing, but there are considerations as to why an alternative financing option can be a more fruitful long-term solution, especially for ecommerce retailers. This outdated option can’t stand the test of time against alternative financing options that offer more flexible, transparent terms for both businesses and customers.

One of the reasons some consumers are wary of taking on new cards and increasing credit card debt, particularly on a private-label credit card. One study found that 66% of consumers feel that they have enough credit cards and prefer not to open more just to make a big purchase. Millennials in particular are notoriously averse to credit and debt, with another study finding that Millennials carry two fewer credit cards and private label cards on average than their Gen X counterparts, with less than one third of Millennials even in possession of a credit card.

In addition, private-label credit cards often offer less-than-transparent terms. Private-label credit cards in particular are known for offering deferred interest rates. That means that while they advertise an appealingly low promotional APR, if a customer misses a payment, they are forced to pay a much higher interest rate on all of their payments up to and beyond that point, not just on future payments. The actual interest they end up paying on their purchase could go from 0% to 28% overnight. Customers are highly critical of these deferred rates. A survey by Wallethub found that 81% of shoppers think deferred interest rates are unfair, and 54% would negatively view a store that charges deferred interest. Private-label credit cards with deferred interest rates may be lucrative in the short term, but they can have an irreversible effect on brand perception.

The lack of digital innovation across the private-label credit card market is another drawback. Private-label credit cards work great for physical store purchases, but not across the ecommerce experience. Applying for and receiving a private label credit card often involves filling out forms in-store and receiving your card later in the mail. This works well for brands with a heavy physical retail presence, but isn’t so effective for ecommerce businesses. If your business is more specialized or your brand isn’t so well-known, customers likely won’t go out of their way to acquire another card from a company they don’t buy from regularly, or don’t have an existing relationship with. As consumer spend shifts online, retailers must choose payment solutions that streamline checkout and make sense for the realities of their business. Point-of-sale financing checks these boxes.

Private Label Credit Card Vs. Point-of-Sale Financing: What’s Your Best Option?

For retailers looking to deliver a digital-first experience, private-label credit cards aren’t the best solution. To start, as discussed above, there’s the initial friction of applying for a private-label credit card, agreeing to less-than-transparent terms and high APRs that can quickly cause a customer to churn.

A point-of-sale financing option (also known as POS financing) like Bread offers a white-labeled, personalized pay-over-time solution that helps retailers offer more flexible payment options, without the hidden terms associated with private-labeled credit cards.

The biggest benefit of a private-label credit card is the ability to white-label the card. This experience is useful in the in-store experience, but online shoppers expect a different journey. Increasingly, with the rise of digital payment options and buy buttons, this means ditching the physical credit card. Shoppers expect the payment process to be ubiquitous, transparent and predictable. POS financing is the sort of lightweight digital solution that customers can use at their touchpoint of choice—on their desktop, on their mobile devices, over the phone, in-person, and anywhere in between—giving them the flexibility they expect from a modern retail experience.

POS Financing Drives a Better Experience

Offering a point-of-sale financing solution allows retailers to build better consumer relationships, boosting sales and brand loyalty because the retailer is in complete control of the experience while the consumer is on the retailer’s website. Using private-label credit cards means that the payment experience is at the end of the shopping experience, and adds delays by sending shoppers to a third-party page to apply for the credit card. The retailer is then also beholden to the online experience of a third-party financial institution. Bread’s point-of-sale financing provides a full-funnel approach that merges the shopping and buying process by offering instant approval in seconds without the customer ever leaving your site.

Shopping, especially for large-ticket items, is largely an emotional decision. Retailers who use better financing options to guide the customers through the buying journey remove unnecessary friction and increase chances of conversion. Customers are also empowered to convert if they understand their true purchasing power. They may prequalify for more than anticipated, which can help boost sales and drive repeat business. Point-of-sale financing can give shoppers more flexibility around the length of their loan and their monthly payment—putting them in control. This boosts average order volume and leads to bigger baskets.

Point-of-sale financing also simplifies the payment process for both the retailer and consumer. The retailer gets the benefits of the point-of-sale financing offer–but doesn’t have to manage the complex and compliance-heavy world of consumer financing on the back-end.

While private-label credit cards can come with risky deferred interest rates, point-of-sale financing options like Bread make a point of not including deferred interest rates as part of their offering. With POS financing, retailers are paid upfront, and customers know the precise terms that they are agreeing to. This transparency isn’t always provided in the private-label credit card experience.

Choosing the right financing option to offer your customer doesn’t have to be complicated. Private-label credit cards come with too many strings attached, and today’s digital-first consumer is looking for a simple, transparent agreement that can complete their purchase without added friction.

Point-of-sale financing guides your customer through their buyers journey with options that give them greater purchasing power without any added hurdles. For retailers looking to future-proof their customer retention and acquisition strategies, being digital first is the only option. Point-of-sale financing helps you achieve this goal.