These transactors typically have higher credit scores. Although profit margins are high for incumbent credit card lenders like Chase, Citi, Discover, and Capital One, it can be hard to break into the market for entrants with less data.Īlly could have tried to avoid risk by pursuing a credit card business built around the customers who pay their credit card bills in full every month, commonly known as transactors. Finding those customers can be easier said than done, especially when you’re directly competing against other big banks. With credit card interest rates around 20% or 30%, lenders can only turn a profit if, for every customer that defaults, they find roughly four customers who borrow money but eventually pay it back. It’s hard to build a credit card business without dataĪs reported by The Street, Piper Sandler analyst Kevin Barker said in a note to clients that Ally had paid a “steep price to to pay in order to diversify the company’s product offerings,” adding that he would have preferred to see Ally "organically build a card offering.”īut while Ally probably could have learned how to print plastic credit cards on their own, the acquisition of Merrick brings them something valuable beyond an existing cashflow: data on which current or past customers have defaulted, and which current or past customers paid their bills on time. To be finalized, the acquisitions will need approval by regulators.Īs a veteran of the credit card industry, here are a few of my thoughts on what this acquisition would mean for Ally Bank, CardWorks, and for consumers. Investors haven’t generally treated the proposed acquisition of Merrick as good news: Ally Bank’s stock fell by 13% on Tuesday, although it inched back up in subsequent days.
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