The financial performance of retailers owning credit card banks

Abstract

Some retailers and other firms expecting to improve their operating performance have established Credit Card Banks (CCBs) as a revenue management tool to handle their proprietary credit card receivables, as well as those from Visa and MasterCard. The expected improvement in performance has to come primarily from increasing sales revenue with the retailers' own private-label credit cards, from interest income and from reducing the amount of credit card receivables and the cost of financing them. We test the differences in corporate performance, primarily measured by the Economic Value Added (EVA), 1 and the efficiency of the accounts receivable management, between firms with and without CCBs. We find no significant improvement in their performance. In addition, we document that retailers with CCBs have longer average collection periods and relatively more receivables than those without CCBs, and that there is no difference in the revenue growth rate between the two groups of retailers.