With the traditional credit card business saturated, issuers are looking for opportunities in less crowded niches.
Two announcements Monday from JPMorgan Chase & Co. highlighted two such areas: private-label issuing for retailers and prepaid debit cards for the unbanked.
The New York company said it had agreed to pay face value for Kohl's Corp.'s $1.5 billion portfolio and run the retailer's card business for five years. JPMorgan Chase also said it had become the first large banking company to launch a prepaid debit program for earned-income tax credits.
Over the past month JPMorgan Chase management has stressed its intent to move farther into the private-label business and compete more vigorously with the market leaders GE Consumer Finance, Citigroup Inc., and HSBC Holdings PLC.
"We have just expanded the private-label business with Circuit City and the BP acquisitions and Sears, and we intend to continue to grow those businesses, both with those three partners and other partners," Rich Srednicki, JPMorgan Chase's chief executive for card services, said at an investor presentation last week.
Within 90 days it will purchase Kohl's 13 million private-label accounts and offer cards to new and current customers. The Menomonee Falls, Wis., department store chain will continue to handle all customer service functions for the portfolio, as well as advertising and marketing.
JPMorgan Chase would not make executives available for interviews on the deal with Kohl's.
Though the banking company would not pay a premium for the receivables, Kohl's would receive additional monthly payments related to the profitability of the program.
On a conference call Monday, Arlene Meier, Kohl's chief operating officer, said the retailer had considered offers from several bidders, some of which were willing to pay a premium.
But the retailer "decided we wanted to look at a higher share of profits … rather than taking a premium up front," Ms. Meier said.
Kohl's believes JPMorgan Chase "will be a very strong partner from a marketing perspective" and would let the retailer "broaden our reach with people that we don't talk to today," she said.
Premium-free deals are not unheard of; last year Neiman Marcus Group Inc. agreed to sell its private-label card portfolio to HSBC North America's retail services unit for the face value of the receivables.
Steven Jacowitz, a managing associate at Auriemma Consulting Group in Westbury, N.Y., who ran Saks Inc.'s credit card program for six years, said that when choosing a partner, the most important factor - outside of cost - is chemistry between the two companies.
"You want to make sure you're dealing with people that you're going to be able to live with in the future and that share the same goals you have," he said.
Some industry experts said JPMorgan Chase's other announcement Monday was more surprising, because it is the first large banking company to let people get earned-income tax credits on prepaid cards without working through a large tax preparer.
To get a Chase Direct Benefit Card, people must file their taxes at one of the Internal Revenue Service's Volunteer Income Tax Assistance Program sites. These sites, generally located in community centers, libraries, schools, and shopping malls, offer free tax help to low- and moderate-income consumers.
Volunteers at the sites enroll eligible people through a JPMorgan Chase Web site, which provides a routing number to use on tax return forms. Within three to five days JPMorgan Chase sends the individual a card that must be activated by phone, and the IRS makes the funds available within 10 days after receiving the tax return. Usually, people must wait 30 days for an earned-income credit check from the IRS.
The card cannot be reloaded, but it can be used as an automated teller machine card or as a signature or PIN debit card. It is free for consumers who use the money within a month; others are charged $3 a month until the funds are depleted.
Brian Kibble-Smith, a vice president at JPMorgan Chase's treasury services unit, said in an interview that his company is working under the assumption that consumers will access all their funds during the card's first month.
Some analysts questioned the business case for the program.
"Most of the revenue derived from prepaid cards these days are actually fees rather than interchange," said Gwenn Bezard, a research director at Aite Group LLC of Boston. "A lot of the unbanked will actually withdraw the money from an ATM," instead of using the card at the point of sale.
Mr. Kibble-Smith said JPMorgan Chase is still learning about the card, which was introduced in January.
"We're going to find out a lot about how it works when the cards are in the field," he said. "We will try to emphasize use at the point of sale."
A number of tax preparers offer similar products, but those cards are not branded by the issuing banks.
For example, TaxWise issues a prepaid earned-income debit card through HSBC, and H&R Block Inc. issues a similar product through BankFirst of Sioux Falls, S.D., and Marshall & Ilsley Corp.'s Metavante Corp. But H&R Block customers can get a card only if they apply for a refund anticipation loan or check. The giant tax preparer also pilot tested a debit card with Bank of America Corp.
JPMorgan Chase is the first large banking company to launch such a program without a large tax preparer.
Linking financial services to the tax filing process is becoming increasingly interesting to banks, said Jennifer Tescher, the director of the Center for Financial Services Innovation, a division of ShoreBank Corp. in Chicago.
"Big banks are very interested in the earned-income tax credit," she said, particularly because starting next year consumers will be able to split their refunds and send them to three different accounts. (Currently consumers can send the refund to only one account.)
