Private label credit card issuer Alliance Data Systems was in dire straits last year with its heavy exposure to the apparel industry, which saw the biggest drop in sales of any retail category during the first phase of the pandemic.
But as retail partners Forever 21 and Pier 1 Imports filed for bankruptcy and longtime partner Victoria’s Secret closed stores and began exploring a buyout, Alliance Data diversified its mix of merchants and businesses. ‘credit offers.
A key part of its turnaround is the Columbus, Ohio-based firm’s acquisition of New York-based fintech Bread, which Alliance Data bought last year for $ 450 million to launch. its entry into the fast growing installment loan market after decades of relying solely on traditional revolving credit card lines.
Existing Alliance Data retail customers can add Bread’s buy now / pay later loans through a white label approach to online and in-store sales, according to Bread president Derek Joyce, who joined Bread in 2020 from BNPL pioneer Klarna. Joyce has already served for almost a decade at American Express.
“Alliance Data is unique among other private label credit card issuers in that it already has deep point-of-sale integrations in many stores. So adding Bread’s cutting edge installment loan technology is relatively turnkey, ”Joyce said. .
Online sales have been BNPL’s largest buying channel – powered by giants Klarna, Affirm and Afterpay working as third-party vendors for merchants – and currently around 40% of Alliance credit card sales. Data comes from the online side, Alliance Data recently reported. .
Joyce predicts that the installment loan movement will start to accelerate faster at the point of sale.
“The in-store shopping experience is coming back, and just as we see a rebound in the travel industry, we will see brick and mortar become a big driver for BNPL loans,” Joyce said.
The acquisition of Bread opened the door for another transaction: In April, Alliance Data entered into a new strategic relationship with Fiserv to provide lending options to points of sale, including BNPL, to the stable of acquirers of Fiserv merchants.
Bread will deliver BNPL technology through Fiserv’s dashboard and Alliance Data will launch and manage loans, with merchant acquirers receiving an acquisition fee for each sale, Alliance Data CEO Ralph Andretta told analysts earlier this year when reviewing 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 CFO 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 in the meantime, 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 entered into a Fiserv-like deal with RBC, whereby RBC’s merchant acquirers will have Bread’s financing options available alongside other options. RBC will initiate 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 clients,” Joyce said.
An analyst notes that while consumer enthusiasm for BNPL loans persists, 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 market capitalization. following the fall in 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 high 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 of the sprawling consumer loyalty unit this turned out to be a distraction for Alliance Data’s core lending operations.
For years, Alliance Data’s LoyaltyOne unit has managed Canada’s popular Air Miles coalition program as well as BrandLoyalty, a global grocery store marketing program. Both saw a dramatic reduction in rewards earned and redeemed during the pandemic due to travel restrictions and blockages, 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 fixing its own issues – will capitalize on post-pandemic buying trends by creating a seamless payment experience for consumers. borrowers.
“The shopping journey has changed to be more holistic, with consumers using online and mobile, but also using curbside pickup and going to stores, where they expect to find a full range of options. funding, ”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 their way. to spend.
“For many years there was a notion that Millennials don’t use credit cards, but the reality is they were late users. 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 retain their existing offices while working closely with Alliance Data using a technology team spread across the country, Joyce said.
“This is a great fit as Bread continues to acquire merchants directly, but with Alliance Data we are increasing our reach to merchants exponentially and Alliance now has the industry leading installment loan technology,” did he declare.