Dive Brief:
- Detroit-based Ally Financial plans to acquire the credit card company Fair Square Financial, the company announced in its third-quarter earnings report Thursday.
- The $750 million, all-cash deal is expected to close by the end of the first quarter of 2022.
- This deal is Ally’s first venture into the credit card business since June 2020, when the bank reneged on plans to merge with subprime credit-card lender CardWorks in a $2.7 billion deal.
Dive Insight:
The Fair Square deal marks Ally's return to the credit-card space after a couple of years away. Ally ended its credit-card partnership with TD Bank in 2019, when the Detroit-based lender determined the $100 million loan portfolio wasn't meeting expectations. The Ally-TD credit card launched in June 2016 to sell additional products to Ally's auto loan customers. The card offered cash rewards between 1% and 2% and limited Ally's risk — TD took on the credit losses — but Ally also had less of an opportunity to earn money from the card, it said.
Ally abandoned credit cards in favor of point-of-sale lending — a maneuver it bolstered first with a $190 million deal to buy Charlotte, North Carolina-based Health Credit Services in 2019.
Ally then linked up with Mastercard’s Vyze last year to enter the retail point-of-sale lending space. Through that partnership, it eyed installment loans on purchases between $500 and $40,000 with interest rates ranging from 9.99% to 26.99%.
Between the two deals, Ally sought to merge with subprime credit card lender CardWorks in a $2.7 billion transaction that never materialized. The companies pointed to "the unprecedented economic and market conditions resulting from the COVID-19 global pandemic."
"We’ve been trying to figure this out for years and years," Ally CFO Jennifer LaClair told Bloomberg.
Fair Square Financial offers a digital-first credit card platform, and boasts 658,000 cardholders and $763 million in loan balances. The Wilmington, Delaware-based lender focuses on below-prime consumers.
The average FICO score for Ally’s auto finance borrowers is 683, and the average for Fair Square customers is 657, according to American Banker.
"Our announcement to acquire Fair Square Financial — a digital-first credit card company — aligns with our long-term strategy to be the leading full-service digital-bank," Ally CEO Jeffrey Brown said Thursday on a conference call. "The transaction enhances our ability to provide Ally’s growing customer base with the ability to save, spend, invest and borrow with differentiated-products. The addition of credit card complements our existing offerings, adding a growing, customer-focused product with attractive risk-adjusted returns."
The acquisition will not impact Ally’s plans to repurchase $2 billion in shares, the bank said.
Meanwhile, Ally reported $1.99 billion in third-quarter revenue Thursday. The bank’s consumer auto originations increased from $9.8 billion to $12.3 billion over the past year — a time frame in which net income jumped from $476 million to $683 million.