What is a Private Label Credit Card?

All of us are familiar with the “big four” credit card labels that are issued throughout the world – VISA, MasterCard, Discover and American Express. These are all “general purpose” cards that can be used basically anywhere that money can be spent (except, of course, for companies that take cash only).

Many companies, however, choose to issue their own credit cards, rather than accept any of the major labels. These are called “private label credit cards” and they can be used only at the particular store that issued them. The card is branded for that specific retailer, manufacturer or independent dealer. Sports teams, nonprofit organizations, manufacturers and websites also offer their own credit cards.

Some are managed not by the retailers themselves, but by third parties, in which case it is the latter that collect payments from the cardholders. How these cards work will be described in greater detail below.

Why private label credit cards?

Companies issue their own credit cards for several reasons. One is that it increases the volume of sales by providing customers with an alternative way of shopping with them. More importantly, private label cards are the least expensive form of payment that can be accepted by retail companies. This is because tasks that would otherwise be repetitive are automated.

Private credit cards have also been observed to have a deep and lasting effect on customer loyalty: The presence of a card containing the logo of a prominent company in the wallet of a customer has emotional impact and creates a kind of bond, as it were, with that company, precisely because of the exclusivity of such cards. Company cardholders not only make more purchases at the stores that issue them than do non-holders; they also purchase the more expensive products. In addition, those who find themselves in a financial “pinch” tend to pay back their private label card debt ahead of all others, again because of customer loyalty.

How the process works

Larger companies tend to issue and manage credit cards entirely on their own, while smaller ones, as mentioned in the introduction, are more likely to sign an agreement with a bank, which sets up a line of credit with the client and determines the credit requirements for card applicants.

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