Consumer credit financing is big business. If you don't believe so, check out the performance of MasterCard (NYSE:MA), which has more than doubled in the past year. Large companies such as General Electric (NYSE:GE) noticed this trend early on and have taken advantage by issuing credit cards of their own.



Bye Bye Cash
With more easily and accepted use of credit, cash really is not that important anymore. Like many people, I keep a little cash in my wallet, but it's just in case I happen run into one of those shops that does not accept plastic. Of course, companies would certainly rather you hand over cash, but since credit facilitates purchases, and in turn stimulates sales, companies are happy to accept it. The natural extension of this is for companies to offer their own consumer credit divisions, and General Electric has long been a big player in this area, with its GE Money consumer credit division.

Money In The Bank for GE
GE Money has deals and partnerships with companies all across the retail spectrum, from discounter Wal-Mart (NYSE:WMT) to agriculture player The Andersons (Nasdaq:ANDE) to internet auctioneer eBay (Nasdaq:EBAY). And its consumer credit department has been a big growth driver for the company.

In GE's third quarter, total segment profit grew by 10% to $6.8 billion from $6.2 billion a year earlier, while profit from the GE Money segment grew at 13.5% to $942 million from $830 million the previous year. This has been a very strong division of General Electric and with its strong foothold it should continue to help drive the company's profit growth moving forward.

Consumer Squeeze
With those positives in mind, it remains to be seen if the ongoing housing market's fallout and credit crunch could lead to a consumer slowdown in the months ahead. A decrease in consumer spending will have two offsetting effects: less purchases and bigger credit balances. (For releated reading see, Taking Advantage Of Corporate Decline and The Fuel That Fed The Subprime Meltdown.)

The United States is a country that likes to enjoy itself, and will take on debt to do so. The demand for credit services shouldn't take a dramatic hit even if there is economic slowdown. If anything I would expect some income smoothing from consumers, and therefore some bigger balances left on credit cards. Consumer credit services should continue to flourish in the U.S., and while growth may slow, I would argue that General Electric's many partnerships with leading retailers position it to continue to reap sizable rewards from this industry.




The Bottom Line
With the culture of debt and spending in the United States, credit is a large and important industry. While the major credit card companies make solid profit by lending at high interest rates, other companies have developed their own consumer credit facilities to issue credit cards and take part in the industry. The largest and most notable has been the GE Money division of General Electric. While growth may slow with an economic slowdown, I think GE is in a prime position to experience further benefits in the sector.

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Tickers in this Article: GE, MA, WMT, EBAY, ANDE

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