Synchrony buying health care-focused installment lender

Synchrony Financial is ramping up its point-of-sale financing business with a deal to buy a health care-focused consumer lender.

The $95.6 billion-asset Synchrony said Tuesday that it will buy Allegro Credit in a deal expected to close in the first quarter. Synchrony did not disclose financial terms of the agreement.

Allegro, of Burlingame, Calif., specializes in financing audiology equipment, such as hearing aids, dental services and musical instruments. Its merchant network and base of customers will be folded Synchrony’s health and wellness division, CareCredit, while its much smaller music financing unit will join Payment Solutions, a business unit that also offers point-of-sale financing for musical instruments as well as other big-ticket items, such as furniture.

Synchrony, of Stamford, Conn., said it’s hoping to capitalize on the rising popularity of point-of-sale financing and a need for more financing options in health care — especially as more Americans turn to high-deductible plans.

“We’re always looking for long-term growth across the board, and this plays very well into our strategy of diversification,” said Alberto Casellas, the executive vice president and CEO of CareCredit. “Growing CareCredit is one of our imperatives at Synchrony.”

Point-of-sale finance has exploded in recent years, largely because of improvements in technology and millennial consumers’ preference for more fixed and predictable financing options than credit cards.

Synchrony, Wells Fargo and Citigroup have historically been some of the biggest players in point-of-sale lending. Citizens Financial Group in Providence, R.I., has also developed a specialty offering point-of-sale lending with retailers like Apple and Microsoft and said it would announce a new partnership soon. Visa and Mastercard recently launched installment loan products.

Mainstream lenders’ heightened interest in point-of-sale lending has been spurred largely by competition from fast-growing nonbanks, such as Klarna, Afterpay and Affirm, that offer “buy now, pay later” services at the point of sale. San Francisco-based Affirm went public this month and raised roughly $1.2 billion on its first day of trading.

Incoming CEO Brian Doubles, who will succeed Margaret Keane on April 1, said recently that Synchrony isn’t threatened by the buy now, pay later trend and that one of his priorities would be refining its installment lending.

Synchrony acquired CareCredit in 2002, when it was then operating as General Electric Capital Retail Finance. Under Keane, the company rebranded as Synchrony and is now the largest issuer of private-label credit cards in the U.S.

CareCredit initially financed dental services, but later expanded into veterinary, vision, chiropractic and other types of health services. Over 240,000 providers and retailers nationwide accept CareCredit, which essentially functions as a credit card.

A typical borrower might initially apply for CareCredit to cover laser eye surgery or hearing aids, which can run well into the thousands of dollars, and later use that card to cover an unexpected veterinary expense. The borrower then has a set period of time — say, 12 or 18 months, depending on the agreement with the providers — to make interest-free payments toward that purchase.

High-deductible health care plans and the out-of-pocket costs they often entail have fueled some of CareCredit’s growth in recent years, Casellas said.

Still, CareCredit is the smallest of Synchrony’s three major business lines, with about $9.3 billion of loans on its books as of Sept. 30, or about 12% of Synchrony’s total loans.

Synchrony did not disclose Allegro’s current loan volumes or number of borrowers. It has offered positions to all of Allegro’s 100 employees.