Private label: how to start your own credit card company

mm Paul Verbiton February 12, 2019
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private label credit card

Are you looking to bite into one of America’s largest financial services market?

Considering that the average American has a credit card balance of over $6,000 and the total credit card debt held by Americans has hit $1 trillion, starting a credit card company can be a potentially lucrative move.

What’s more, your company can focus on offering private label credit cards, which allows holders to use it only in specific stores.

Ready to learn what it takes to create your own credit card company?

Read on to find out.

Understand How Private Label Credit Cards Work

The credit card industry is fiercely competitive, with leading players like Bank of America, American Express, Chase and Citibank holding almost impenetrable market shares.

As an entrepreneur aspiring to start a credit card company, it’s unlikely that you have the resources and expertise required to go head to head with these companies. This is why your best short is to start out a private label credit card company.

But how do private label cards work?

Let’s say you already have another small business. Don’t you have customers you allow to buy your goods or services on credit?

A private label credit card enables you to award your customers a line of credit, so they can shop on credit in your store. Also, these type of credit cards typically aren’t powered by card processing companies such as Visa and MasterCard.

However, you’ll need to partner with an established financial services company, such as a local commercial bank, to issue the cards to customers and collect payments.

Another option is to start a credit card company that focuses on offering private label credit cards to small businesses.

Research Your Target Market

Regardless of the business model you want to operate, it’s vital to do extensive research and establish whether there’s a substantial market for your business.

If you want to create a private label credit card for your store, for instance, you must determine whether your customers will warm up to your idea. You don’t want to pump a lot of money into creating a credit card only for your customers to shun it.

And if you want to start a credit card company that focuses on creating private label credit cards for small businesses, you need to establish whether the businesses you’re targeting will embrace the idea.

In general, though, you want to start a credit card company in a city with a thriving financial services market. Because you’ll likely start small and then expand your business reach to other states, it’s crucial that you start out in a solid market.

Another factor to consider is competition in your target market.

If there are other well-established card companies in the area, perform competitor analysis. This will help you learn more about their products and identify what you can do to differential yours and gain a competitive advantage.

Pick a Niche

Perhaps you’re wondering, “Why should I pick a niche if it means targeting a smaller number of consumers?”

Again, it’s all about the competitive nature of the industry. Your company will have a good chance of finding success if it appeals to a niche market with little competition.

And yes, private label credit cards is already a niche market, but you should narrow your focus even further.

For instance, you can offer private label cards targeting a specific demographic group, such as college students or low-income earners. You can also focus on consumers with bad credit. Read this informative post by Bonsai Finance to learn more about credit cards for bad or no credit.

Draw a Business Plan

Once you have your target market figured out, it’s time to draw a business plan.

Bear in mind credit card companies, however, small are complex entities, and as such need a detailed plan. If you’ve little or no experience writing business plans for financial services companies, it’s advisable to hire a small business consultant to lend a helping hand.

Either way, your place should outline the following details:

  • An executive summary – Includes name and location of the company and mission and vision statements
  • Company structure and description
  • Market analysis
  • Organizational structure
  • Products and services (Type of credit cards offered)
  • Capital requirements and financial projections
  • Sales and marketing strategy

Register the Company

Armed with the company’s name and location details, head over to the relevant local government department and register the company.

The financial services industry is highly regulated, so you will also need to secure business permits and licenses.

Secure Startup Capital

One of the reasons it’s necessary to write a business plan is to identify the capital requirements of the business. This means at this stage you already have a good idea of the amount of money you’ll need to start the company.

If you plan to fund the company from your own pockets, you’re good to proceed to the next step. But if you don’t have the funds, you can take out a business loan, run a crowdfunding campaign or find an equity or angel investors.

Build a Team of Credit Underwriters and Hire Other Employees

At the heart of the operations of a credit card company is a team of competent credit underwriters. These are the professionals who evaluate the creditworthiness of card applicants and allocate credit limits.

Therefore, building a team of credit underwriters should be your top priority. You also need to bring on board card designers, sales agents, and marketing professionals.

As the company grows, you can then add to your staff as needed.

Purchase Adequate Business Insurance

A credit card company is essentially a financial lender, meaning it’s a high-risk business. Some of your customers will fail to repay their credit card balances, exposing your business and its’ liquidity provider to losses.

To protect your business from such risks, purchase adequate insurance.

That’s How to Create Your Own Credit Card Company

Open the average American’s wallet or purse and you’ll find at least two credit cards.

Resolving to create your own credit card company is an opportunity to tap into American’s love for credit cards and make good money while at it. And with this guide, you now know what it takes to build a profitable company.

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Paul Verbiton

I enjoy spotting opportunities and doing my best to grab them if I can. I am eager to see the world, I love taking photos and writing, coming up with topics that are pleasant to read, funny, and interesting at the same time.

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