Ally returns to credit cards with $ 750 million deal to buy Fair Square Financial

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Dive brief:

  • Detroit-based Ally Financial is considering acquiring credit card company Fair Square Financial, the company said in its third quarter results report Thusday.
  • The $ 750 million cash deal is expected to close by the end of the first quarter of 2022.
  • The deal is Ally’s first venture in the credit card business since June 2020, when the bank reversed its plan to merge with subprime credit card lender CardWorks in a 2-month deal. $ 7 billion.

Dive overview:

The Fair Square deal marks Ally’s return to the credit card space after a few years of absence. Ally ended her credit card partnership with TD Bank in 2019, when the Detroit-based lender determined the $ 100 million loan wallet did not meet expectations. The ally-TD credit card launched in June 2016 to sell additional products to Ally auto loan customers. The card offered cash rewards between 1% and 2% and limited risk to Ally – TD took on the credit losses – but Ally also had fewer opportunities to make money with the card, he said. -he declares.

Ally ditched credit cards in favor of point-of-sale loans – a move she first bolstered with a $ 190 million deal to buy Charlotte, North Carolina-based health credit services. , in 2019.

Ally then teamed up with MasterCard Vyze last year to enter the retail point-of-sale lending space. Through this partnership, she envisioned 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 a subprime credit card lender CardWorks in a $ 2.7 billion deal that never materialized. The companies underlined “unprecedented economic and market conditions resulting from the COVID-19 global pandemic. “

“We’ve been trying to figure this out for years and years,” said Ally CFO Jennifer. LaClair says Bloomberg.

Fair Square Financial offers a first digital credit card platform and has 658,000 cardholders and $ 763 million in loan balances. The Wilmington, Delaware-based lender is focusing on consumers below the premium.

The average FICO score for Ally 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 digitally focused credit card company – aligns with our long-term strategy to be the leading full-service digital bank,” Ally CEO said Thursday , Jeffrey Brown, 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 the 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 of shares, the bank said.

Meanwhile, Ally reported $ 1.99 billion in third-quarter revenue on Thursday.. The bank’s consumer auto productions grew from $ 9.8 billion to $ 12.3 billion in the past year – a period in which net income rose from $ 476 million to $ 683 million. of dollars.

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