What happens when you combine merchant needs for sales lift,concerns about card acceptance costs, and a private label creditprogram?Target’s new discount-based card program.
As we discuss in our recent report, “Co-branded Consumer Cards2010: Mature Products Ripe for Change”, Target shook up theco-branded world this year by first announcing it would ceasemarketing its co-branded Visa card, and then by announcing therollout of a new discount-based reward program for its privatelabel card.The value proposition for this rejuvenated private labelcard is simple: 5 percent discount on all purchases when the cardis used at a Target store.How was this engineered?Since Target ownsmost of the pieces of the payments value chain, the followingelements must be in play:
- The 5 percent discount will drive a lift in sales andfrequency of spend
- The program will drive new revolving outstandings andinterest income
- Capturing a higher proportion of in-store sales on theprivate label card will reduce the overall costs of paymentacceptance
- Potentially lower issuing costs of private label overnetwork branded cards
Just to make things more interesting, Target’s program extendsto its decoupled debit card (which includes all of the aboveelements in play, except interest income).And of course, Target isa true leader in in-store account solicitation and opening,increasing the odds of successfully achieving critical mass.
Major retailers will certainly be watching to see if thisconvergence of motivations drives the desired financial outcomes.Inthis new era of merchant influence over payment acceptance, thepotential power of on-us payment programs must receive strongconsideration by large scale-driven retailers.
