You may have noticed recent headlines about Canadian Tire, your go-to hardware and home store, being on the hunt for a partner in the banking sector. the retail giant wants a credit card partner to share the wealth, and the risk, of its rapidly growing financial arm, which it says makes up $4 billion of its portfolio - more than 8% of its total revenue. Now, Canadian Tire wants to cut its vulnerability and find a financial partner.
“As a result of that work, we are now well-positioned to explore an arrangement that would allow us to increase our financial flexibility while continuing to enjoy the substantial contributions of our financial services business,” Chief Executive Stephen Wetmore said in a statement.
Canadian Tire And The Bank Business
The Canadian Tire Financial services story starts in 1961 when it was called Midland Shoppers Credit limited. The company processed credit transactions for local retailers. Eventually, Canadian Tire bought them in 1968 and, in 1995, launched their own Mastercard. In 2003, Canadian Tire bank was classified as a Schedule 1 bank, just like any big bank you know today.
Why Would They Want To Share Profits?
This financial arm of Canadian Tire’s business has been quickly growing and becoming a significant source of profit. So why would they want to partner with anyone and share these earnings? It comes down to risk and how much Canadian Tire is willing to take. If they buddy up with a financial institution, they can continue to expand comfortably knowing they are only taking half the risk. More management will also help with the integration of its financial services and retail operations.
What Could Change For Consumers?
Canadian Tire says nothing would change including its staffing situation as a result of a new banking partner. They will continue to provide the financial services that they always have. However, that has not always been the case with other financial mergers. For example, RBC scrapped the hugely popular high-interest savings account when it bought Ally Bank,. On the other hand, ING being bought by Scotiabank has had no impact on the no-fee bank that continues to offer the same products, in the same no-frill style.
Why Do Retailers Want To Be In The Banking Space?
Retailers know there's big money to be made on credit card transaction fees and interest on the debt. By getting into this space they can also partner up their own retail promotion with the cards they offer. Retailers like, Loblaws, Wal-Mart all have financial arms. Recently Costco in the U.S. went a step further and started offering mortgages. The need for a one-stop-shop is also driving this change as most consumers don’t want to travel to many places to get their errands done. The Canadian Tire partnership is not complete yet, but it will be interesting to see who they partner with and how that changes the overall shopping experience at one of Canada’s most popular retailers.