Private label credit card issuer Alliance Data Systems was in dire straits last year due to its heavy exposure to the apparel industry, which saw the biggest drop in sales of any sales category at retail during the first phase of the pandemic.
But as retail partners Forever 21 and Pier 1 Imports filed for bankruptcy and their longtime partner Victoria’s Secret closed stores and began exploring a buyout, Alliance Data diversified its merchant mix. and credit offers.
A key part of its turnaround is the Columbus, Ohio-based firm’s acquisition of Australia-based fintech Bread, which Alliance Data bought last year for $ 450 million to boost its entry. in the rapidly growing installment loan market after decades of exclusive dependence. on traditional revolving credit card lines.
According to Bread CEO Derek Joyce, who joined Bread in 2020 from BNPL pioneer Klarna, existing retail customers of Alliance Data can add Bread’s Buy It Now / Pay Later (BNPL) loans. via a white label approach for online and in-store sales. Joyce previously served for almost a decade with American Express.
“Alliance Data is unique among other private label credit card issuers in that it already has deep point of sale integrations in thousands of stores, hence the addition of cutting edge installment loan technology de Bread is relatively turnkey, ”Joyce mentioned.
Online sales have been the primary channel for BNPL purchases – powered by giants Klarna, Affirm and Afterpay working as third-party vendors for merchants – and currently around 40% of Alliance Data’s credit card sales come from on the online side, Alliance Data recently reported. .
Joyce predicts that the installment loan movement will begin to accelerate faster at the point of sale.
“The in-store shopping experience is coming back, and just as we see the travel industry rebound, we’ll see brick and mortar become a big driver for BNPL loans,” Joyce said.
The Bread acquisition opened the door to another deal: In April, Alliance Data entered into a new strategic relationship with Fiserv to provide point-of-sale lending options – including BNPL – to the stable of merchant acquirers. by Fiserv.
Bread will deliver BNPL technology through Fiserv’s dashboard and Alliance Data will create and manage loans, with merchant acquirers receiving an acquisition fee for each sale, Ralph Andretta, CEO of Alliance Data, told analysts earlier this week. year when presenting the first quarter results.
Alliance Data’s agreement with Fiserv is not exclusive. Other consumer credit lenders have benchmark relationships with Fiserv’s wide range of merchants, but Bread will be the only BNPL or installment lender built into its platform, Andretta said.
Andretta, a longtime Citi Cards executive who joined Alliance Data in early 2020, also served as the company’s interim chief financial officer before Perry Beberman took office in July when he left Bank of America.
Bread’s loan options will go live with Fiserv merchants starting this fall, and meanwhile, Alliance Data has added several new non-apparel partners, including Petco, furniture retailer APT2B and mattress maker Luxi. . In total, Alliance Data has around 65 million consumers in its credit issuance database, the company said.
Alliance Data also recently signed an agreement similar to the Fiserv Pact with RBC, whereby RBC’s merchant acquirers will have Bread’s financing options available in addition to other options. RBC will create and manage these loans, Alliance Data said.
“RBC has the largest merchant base in Canada, but it didn’t have the technology to offer installment loans directly to customers,” Joyce said.
An analyst notes that while consumer enthusiasm for BNPL loans continues, the earnings outlook is not so clear.
“Lenders need to be careful,” said Brian Riley, head of credit counseling at Mercator Advisory Group, noting that over the past 12 months, BNPL’s largest lenders have lost more than $ 8 billion in capitalization. market due to falling stock prices.
But after making a profit in 2020 despite the tough retail environment by carefully managing lines of credit, Alliance Data could be in a good position to balance future market risks, Riley suggested.
“With Fiserv’s extensive risk and Alliance Data’s ability to serve a wide range of second-tier retailers, businesses are likely to see physical point-of-sale traction,” said Riley.
The last element of Alliance Data’s turnaround was put in place in May with the announcement of a spin off the vast consumer loyalty unit this was turning out to be a distraction from Alliance Data’s core lending operations.
For years, Alliance Data’s LoyaltyOne unit has managed the popular Air Miles Coalition program in Canada with BrandLoyalty, a global marketing program for grocery stores. Both saw a dramatic reduction in rewards earned and redeemed during the pandemic due to travel restrictions and lockdowns, the company reported in April.
Bread’s challenge – now that retail sales are picking up and Victoria’s Secret gears up for an IPO after sorting out its own issues – will be to capitalize on post-pandemic buying trends by creating a seamless payment experience for borrowers.
“The shopping journey has changed to be more holistic, with consumers using online and mobile, but also using street pickup and going to stores, where they expect to find a full line of financing options, ”Joyce said.
Although credit card receivables fell during the pandemic, Joyce says it was a short-term reaction to economic uncertainty and that the largest segment of consumers – millennials – are on the verge of spending.
“There was an idea for many years that millennials didn’t use credit cards, but the reality was they were late adopters. Most millennials have credit cards and they are in a good position to spend, especially on electronics and household items, as the pandemic emerges, ”he said.
Bread, who has offices in New York and Tampa, Florida, will maintain their existing offices while working closely with Alliance Data using a technology team spread across the country, Joyce said.
“It’s a good match, as Bread continues to acquire merchants directly, but with Alliance Data we are expanding our reach to merchants exponentially and Alliance now has industry leading installment loan technology,” did he declare.