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The red-hot credit card market just got even more heated. In another blockbuster deal, ScotiaBank announced it’s purchasing a 20 per cent stake in Canadian Tire’s lucrative financial services division for the tidy sum of $500 million. In addition, ScotiaBank has agreed to finance up to $2.25 billion in credit card receivables for Canadian Tire.
Canadian Tire may be best known for its successful retail business, but its highly-successful financial services unit generates most of its cash flow today. As the country’s eighth-largest credit card issuer, Canadian Tire’s financial services division has $4.4 billion in receivables and 1.8 million active customer accounts. The partnership with Canadian Tire Financial Services will help ScotiaBank gain a bigger foothold in the highly sought-after credit card space.
Recent Acquisitions by ScotiaBank
With mortgage lending slowing amid tighter lending rules, ScotiaBank is looking for growth from credit cards. With $10.5 billion in outstanding credit card balances, ScotiaBank currently sits in fourth place among credit card issuers.
The deal comes on the heels of a highly-successful partnership with American Express, where ScotiaBank issued a record-setting 250,000 travel reward cards, making it the most successful launch in history. ScotiaBank is no stranger to credit card success. It has partnerships with Cineplex Entertainment, offering the Scene VISA, and with the NHL, offering the Scotia Hockey NHL VISA card.
How Credit Cards Help the Bank’s Bottom Line
Credit cards are a great way for lenders to attract new customers and offer a whole host of financial products, including lines of credit, mortgages, and investments. Not only will the partnership allow ScotiaBank and Canada Tire to share customers, it will allow them to bring in new customers, helping boost the bottom line of both.
As Canadians we are one of the most prevalent users of credit cards worldwide. In 2012, cashless transactions totaled just over 9.9 billion with credit cards making up 32%. (Source: CPSS – Red Book Dec 2013) That number is only expected to grow in future years. As more Canadians rely on their credit cards for everyday purchases, credit cards will continue to offer lenders a steady stream of revenue.
You may not be aware of it, but every time you tap or swipe your credit card, 1 to 2 per cent of the purchase price goes to your credit card issuer. It’s that lucrative interchange fee issuers are after.
How Consumers Could Benefit
As major credit card issuers duke it out in this increasingly competitive space, customers are seeing attractive credit card offers like never before. To lure potential cardholders, issuers are offering more generous welcome packages. That’s not all – premium credit cards that typically offer higher rewards, are willing to waive their annual fees just for signing up.
Canadian Tire currently offer three credit cards – Options MasterCard (earn Canadian Tire Money rewards everywhere you shop), Gas Advantage MasterCard (save up to 10 cents per litre at Canadian Tire Gas Bars), and Cash Advantage MasterCard (earn up to 1.5% cash back everywhere, and up to 3% at Canadian Tire stores, Canadian Tire gas bars and Mark’s Work Wearhouse). Could we see the opportunity for more lucrative reward points or the introduction of a new card? Only time will tell.
ScotiaBank Still Plans to Grow from Within
Although ScotiaBank purchased a stake in Canada Tire Financial Service, the big bank says it’s still very much focused and committed to grow its credit card offering from within. “We are still very much intending to growing our credit card business organically,” said Robin Hibberd, head of retail products and services at ScotiaBank. “We have very significant plans.”
It will be interesting to see what the remainder of 2014 has in store for cardholders. If it’s anything like 2013, 2014 could end up being another boon for cardholders.
