In another shake-up to the Canadian credit card industry, Scotia has acquired the Sears Canada MasterCard and private label credit card portfolios from Chase Canada.
The acquisition includes approximately $1.7 billion in credit card loan receivables and 2 million accounts. Scotia will also acquire some of Chase Canada’s credit card operations, as part of the agreement. It will not be entering into a partnership with Sears Canada.
Scotia will be converting Sears MasterCard and private lavel credit card holders to a Scotia credit card in the near future.
This is another significant move by Scotia in the Canadian credit card marketplace, which has recently launched the GM Visa card and took an equity stake in the credit card business of Canadian Tire Financial Services.
Implications For Canadians
There are a couple of significant implications for Canadians:
- The Sears credit card was one of the largest programs in Canada. Over 2 million accounts will now have to be converted from the Sears card to Scotia.
- Canadians will lose one of the few programs to offer no foreign transactions fees on its credit cards (update as of Jan 5, 2016 – Scotia has confirmed it will maintain the same terms and conditions for existing cardholders it converts to the no-fee Scotia Momentum card).
- Some competitors, like the Rogers Platinum MasterCard, are now also offering no foreign transaction fees, with 1.75% cash back and no fee to exploit the void left by the program’s termination. No foreign transaction fees, were one of the programs big selling points.
- With no clear replacement partner in place, this will add even further pressure on Sears Canada’s viability.
- It looks like Scotia should be joining Desjardins and TD in the private label credit card space, after picking up the private label portoflio AND operations of Chase Canada.
- Raises the question of what Chase will do with its Amazon and Marriott credit card partnerships in Canada.
What It Means For Sears Canada
For Sears Canada, it could spell trouble. The revenues Sears Canada derived from Chase were significant contributors to the companies earnings. Sears has not announced a partner to replace Chase – which indicates they may not have one, and most likely none have come to the table. Moreover, the fact that Scotia did not enter into a co-brand agreement with Sears, demonstrates it either didn’t have faith in Sears Canada’s management or in the retailers future, or both.
Moreover, we still don’t have an answer as to how Sears will be offering promotional rate financing to its customers. We would expect Sears to have some type of replacement strategy in place – they just haven’t announced it yet, which is odd given the magnitude of the situation.
Regardless, even if Sears Canada does end up with a new partner, we suspect the economics of the deal will be far less favourable than the revenue share deal it had with Chase, for two main reasons. First, Chase likely overpaid for its partnership with Sears Canada, in order to help Chase get into the Canadian marketplace – Sears won’t see a market-entry type deal again. Second, Sears currently presents significant risk to any new partner – given questions about the viability of its future operations.
Unfortunately, the loss of income from Chase, despite some one time payments, may only further launch Sears into a tailspin.
What It Means For Chase Canada
While Sears Canada was certainly Chase’s largest credit card portfolio in the country, it still has the Amazon and Marriott credit card programs. It seams that Scotia has also acquired Chase’s call center and some of its other Canadian operations – fraud, collections, recovery.
The question is, does Chase intend to continue its partnerships with Amazon and Marriott in Canada?
What It Means For Sears Cardholders
Unfortunately Sears MasterCard and private label cardholders will have to go through a conversion to a Scotia credit card. Scotia will be converting Sears MasterCard to the no-fee Scotia Momentum Cash Back card. It offers 1% cash back on gas, grocery, drugstore and recurring payments, and .5% everywhere else. Scotia has confirmed it will not charge a foreign transaction fee on converted accounts.
Frankly, we think former Sears cardholders looking for a no fee cash back alternative can do better with BMO’s no fee 1% cash back card on EVERYTHING. Or, if you’re a Rogers or FIDO customer, with the Rogers Platinum MasterCard which offers 1.75% cash back on EVERYTHING, and has no annual fee when you set up your card for pre-authorized payment.
Presumably, Sears cardholders took out a Sears card because of the Sears points or some type of promotional financing. Would they use a Scotia cash back card, travel card, Scene card? Or will they close accounts in droves, with Scotia facing mass attrition.
For Sears cardholders looking to transfer their high interest credit card balances, there are plenty of options to reduce their interest rates and we’d expect the Canadian balance transfer marketplace to heat up.
With respect to the conversion itself, there is always risk of execution. When converting accounts, Scotia will have to do so while properly attributing balances, payments, etc… Recent conversions in Canada have not always been flawless, especially when going from one processing platform to another as is the case here.