How COVID-19 could disrupt store credit cards

With banks generally accepting the majority of the risk associated with approving store cards, retailers see the arrangement as a chance to increase sales and build relationships with their frequent customers, Zawacki said, adding that data collected on these cards gives retailers insight into spending patterns. The discounts can be seen as marketing expenses for attracting new consumers and driving consumer spending. For the more successful store credit card programs, shoppers can spend a disproportionately high amount of sales transacted on their branded cards relative to overall sales, meaning that a retailer could have close to or more than half of its sales made via their branded credit cards, Zawacki said. 

“Retailers can view [these incentives] as a marketing expense, as a cost of acquiring a customer. And the benefit is that is that it’s tied to a purchase, so you’re only paying that out if somebody buys something,” Rossman said. 

The CompareCards report notes that retailers have been introducing tiered rewards programs and offering other perks for consumers who spend more at their stores. Retailers have also been introducing tiered rewards to suit their customers’ needs and incentivize more spending despite high interest rates, Schulz said, adding that the private label card rewards haven’t been as competitive as general cards, but they have improved over time. 

“The formula for figuring out how to do rewards the most profitably has been something that the entire credit card industry has been wrestling with for years,” Schulz said. “You have to make sure that you’re not spending so much creating a rewards system that you make that rewards system unprofitable. Otherwise, you’ve defeated the purpose of the whole thing.” 

Reigning in credit limits

According to CompareCards’ report, almost half (49%) of store credit cardholders currently have debt on that card, and more than half (56%) of consumers with store cards said they regret opening one, up from 46% last year.