Charles Davis reports on how Toronto
Dominion Bank is aiming to boost its private-label card business in
the US and Canada, as other private-label players struggle with the
impact of the credit crunch. Alongside a rebranding initiative, TD
is also considering portfolio acquisitions to boost its market
Sensing a retreat by many of its competitors
beset with financial woes, Toronto Dominion Bank is looking to
significantly increase the size of its private-label credit card
business in the United States and Canada.
The company became a division of TD Banknorth
in January 2006 and currently ranks as the seventh-largest provider
of private-label credit, with over one million cards in circulation
between the US, Canada, Puerto Rico and the US Virgin Islands. TD
could grow even larger as the credit crunch wreaks havoc on smaller
private-label players. Its client list today includes the
operations of prominent retailers and manufacturers including
Movado, Fred Meyer, Pfaltzgraff, Bang & Olufsen, The Source By
Circuit City, Briggs and Stratton, B Moss, Carlyle & Co and
many others.

TD committed to investment

Marc Sczesnak, president of the newly renamed TD Retail Card
Services, said that the bank is committed to investing
“multi-million dollars” in technology, risk management, and
marketing with a goal of boosting private-label card receivables
from $500 million currently to $2 billion by 2011.

“As we move forward under our new name, our
opportunity is to think beyond the transaction,” Sczesnak told CI.
“It’s all about getting to a customer’s payment preferences and
supporting retailers to get spend and shopping frequency to new
levels. The days of dictating how people pay are over. It’s up to
retailers to have a loyalty currency that celebrates the
relationship in ways that involve the customer. Mid-size retailers
know how to accomplish this better than anyone. We want them to
know we’re thinking the same way.”
Sczesnak issued the call to action as TD
announced the rebranding of Shoppers Charge Accounts Co to TD
Retail Card Services. Toronto Dominion’s US banking arm, TD
Banknorth of Portland, Maine, acquired Shoppers with Hudson United
Bancorp of Mahwah, New Jersey, in 2006, and the Canadian parent had
always planned to expand it, Sczesnak said.
The re-branding is being directed by an
expanded senior management team led by Sczesnak, who joined the
division late last year after being at the marketing helm of two of
the world’s largest private-label card programmes.
During his years at the credit card operations
of retailers Sears and Macy’s, he helped to extensively grow these
programmes and extend the product suite. Shortly after his arrival,
Sczesnak moved to add to the division’s management team bench
strength by recruiting leaders from top retailers and
TD Retail Card Services, one of the top 10
private-label card issuers in the US, will now report directly to
Toronto rather than to TD Banknorth in Portland, Sczesnak said. TD
Banknorth has a consumer credit card business it picked up with its
March acquisition of Commerce Bancorp, but executives at Toronto
Dominion have decided to keep the units separate.

Growth opportunity in Canada

TD Retail Card Services expanded into the private-label market in
Canada in October, although the move was not officially announced
until 23 June. Sczesnak said the unit would soon announce its first
Canadian private-label contract, with a gardening retailer.

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“Canada is a significant growth opportunity for
us,” he said.
TD might soon seize on an opportunity to gain
greater private-label market share if companies like Citigroup and
HSBC Holdings retreat in the face of earnings pressure to focus
more on preserving capital. Indeed, it might find little
competition for US portfolios, as the typical buyers such as Citi,
GE and HSBC are all battling mortgage-related woes.
GE’s consumer finance division is trying to
unload its private-label cards business. Keith Sherin, GE’s chief
financial officer, said during a conference call with investors in
April that it was “on track” to sell the private-label unit in the
second half of 2008. Target sold 47 percent of its card business to
JPMorgan Chase for $3.6 billion in May, and Charming Shoppes, which
in recent years has purchased portfolios from Citi and Alliance
Data Systems, recently hinted that it might be on the block as
Then there’s Alliance itself, still very much
in the private-label business after the private-equity firm
Blackstone backed out of a $7.8 billion deal earlier this year,
leaving a huge prize on the market for some potential suitor.
The company manages the credit card businesses
of dozens of retailers, including Sportsman’s Guide, Williams
Sonoma, and Orchard Supply Hardware. It had $3.94 billion of
receivables as of 30 September 2007. Alliance also processes card
transactions, manages data, and does marketing for retailers,
financial services companies, and utilities.
With alternative payments such as PayPal and
BillMeLater on the rise, and with defaults and delinquencies
continuing to plague the revolving credit card market, the
relatively small number of small- to medium-sized private-label
issuers that have stuck it out will feel renewed pressure to exit
the business.
Smaller issuers are at pains to serve their
retail customers these days in part because of a reversal of the
trend among retailers to sell their private-label portfolios and
outsource the management of their card businesses to banks in an
effort to reduce credit risk.
Now however, those portfolios still in the game
want their bank partners to do more to extend the reach and utility
of their private-label brand, at the worst possible moment for the
banks, who have grown wary of extending credit. That means that
more than ever before, private-label issuance is dependent upon
economy of scale.
Four significant US retailers continue to
maintain private-label cards businesses: Charming Shoppes ($613
million in receivables), Cabela’s (more than $2 billion of
receivables), Nordstrom ($1.8 billion in receivables), and Target
(which retains control of about $4.3 billion of receivables after
selling the stake to JPMorgan Chase).
With so many of the other major players
entrenched in mortgage issues, TD looks like a titan in the