Connecting with consumers through credit
Shoppers are usually drawn to store credit cards because they have lower credit standards, which is especially attractive for consumers with no credit or damaged credit, said Ted Rossman, industry analyst at CreditCards.com.
Now that consumers aren’t shopping in-store at pre-COVID-19 levels, Matt Schulz, chief credit analyst at LendingTree, said retailers have made it easier for consumers to apply for store credit cards online. A few years ago, many retailers required consumers to apply for store cards in-store, and the application process was more complex, but now retailers have made these applications accessible via their main navigation on their website or part of the home page, Schulz said.
Rossman said store card applications typically spike around the holiday season. But with less in-store traffic, retailers could receive fewer referral fees from customer store card signups, which ultimately means less spending on the cards, Rossman said. Contradicting the CompareCards report, Rossman expects that store credit cards, which already make up a smaller share of the credit card market, will shrink more.
In response to the Federal Reserve reducing rates early on in the coronavirus pandemic, some retailers lowered their interest rates on store credit cards, Schulz said. According to CompareCards’ research, the average annual percentage rate has dipped from 25.4% to 24.2%
Store credit card costs
Tim Zawacki, a lead research analyst at S&P Global, describes the relationship between financial firms issuing store cards and retailers offering them as a symbiotic one. Both Zawacki and Rossman said retailers earn incentives from banks for consumers approved for a card. Banks decide which consumers are approved for store cards based on their underwriting criteria, not retailers, Zawacki said.
Store branded credit cards also offer retailers savings on interchange fees that they’d have to pay for general credit cards, Rossman said.