![]() 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. Some analysts had suggested the company was paying a steep price for CardWorks and might be better off building a credit card business organically.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. On Wednesday, he said Ally’s “long-term strategic priorities remain intact” and its “industry-leading businesses and robust capital and liquidity positions will enable us to continue serving as a source of strength during these uncertain times for all of our customers.”Īlly’s shares fell 5.6% to $18.31 in Wednesday’s regular session before rallying by 9.2% to $20 in extended trading. Privately-held CardWorks is the parent company of Merrick Bank, which specializes in providing consumer loans to borrowers with subprime credit scores.Īs FinanceFeeds reports, “The acquisition of CardWorks was supposed to further diversify Ally’s product offerings, adding an established credit card platform, full-spectrum servicing and recovery operation and a nationwide merchant acquiring business.”īrown had called it “an important milestone in Ally’s evolution to be a full-service financial provider for our customer” and described CardWorks as “an ideal cultural fit for Ally.” The deal was the second-biggest bank acquisition announced in 2020. ![]() Neither company will incur any termination or break-up fees as a result of the decision to scrap the merger. ![]() “This was a difficult decision to make following a long process to bring two strong companies together,” he added. “Given the unprecedented economic and market conditions resulting from the COVID-19 global pandemic, Don Berman and I, along with our boards of directors, believe it is in the best interests of our customers and stakeholders to terminate the agreement,” Ally CEO Jeffrey Brown said in a news release. The two companies said Wednesday they had agreed to terminate the merger agreement they had announced in February, citing the impact of the COVID-19 pandemic. Ally Financial will not be completing its $2.7 billion acquisition of CardWorks, dealing a blow to its plans to diversify beyond auto loans. ![]()
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