Industry News

01/12/2011 - Wells Fargo, the nation's second-largest bank, is considering moving further into the payment processing industry by offering private label credit cards, or plastic payment systems in the name of retailers.

The Dow Jones Newswire reports that the company's new head of consumer lending, Avid Modjtabai, said that he believes private label credit cards are a possibility worth exploring, especially as profit margins have been thin for many card issuers recently due to low interest rates and consumers wary of taking on more debt.

"It wasn't a segment we were interested in," she told the news source.

However, times have changed, as she added that "we are looking at the typical strategy types of questions: What's the market opportunity? What's the competitive landscape? Does it fit with our existing businesses?"

By offering a number of different products to customers, banks like Wells Fargo have found they can reach out to many potential revenue streams.

Private label credit cards could be one of the strongest offerings, according to the publication, because, while private label cards often come with higher interest rates than cards issued directly from banks, delinquency rates by customers have been on the decline. Other positive signs in the industry could also make this venture profitable.

"Delinquencies are down, there is less competition, and several bankers have said they expect that customers use these cards more often now because the financial crisis has cut overall available credit for many borrowers' bank-branded credit cards," the news source explains.

If Wells Fargo decides to pursue a private label credit card program, it could either buy retail partner contracts or entire portfolios from other banks.

According to Financial News Network Online, Wells Fargo is one of the "biggest movers" in terms of the Dow Jones Industrial Average. As of November 25, the company's shares were up 1.9 percent to $23.65 on the New York Stock Exchange.

Seeking Alpha writes that Wells Fargo is a sound investment choice, especially after the company went back on its plan to charge customers to use debit cards, an unpopular system and a public relations nightmare for the bank and others like it that tried to institute the fee but later reneged.

Major competitors the market for Wells Fargo include CitiGroup and Bank of America.