Blog Title: The Changing Landscape of Store-Branded Credit Cards
In recent news, a new rule from the Consumer Financial Protection Bureau is set to shake up the world of store-branded credit cards. Department stores like Macy’s and Kohl’s have long relied on these cards to drive purchases and boost their bottom line. However, starting this spring, these cards will become less lucrative for retailers.
Under the new rule, late fees for customers will be capped at $8, significantly lower than the industry average of around $32. While this change is beneficial for customers with overdue balances, it will undoubtedly impact retailers’ highly profitable business of making money from credit card swipes, interest, and late fees.
According to retail analyst Jane Hali, CEO of Jane Hali & Associates, department stores will feel the pinch the most as their revenue is already under pressure. For example, in fiscal 2023, credit card revenue totaled $619 million for Macy’s and around $475 million for Nordstrom. Similarly, Kohl’s reported $924 million in “other” revenue, with the majority coming from credit cards.
Store-branded credit cards have long been a valuable tool for retailers, providing insights into customer behavior and fostering brand loyalty. However, retailers are facing increasing challenges in an ever-evolving market. Shoppers are now opting for alternative payment methods like buy now, pay later, and credit card interest rates are on the rise.
As a result, retailers can expect to see dwindling credit card revenue, with companies like Macy’s and Target already reporting declines. To offset these losses, retailers are exploring new strategies, such as introducing co-branded cards that can be used for a wider range of purchases.
Kohl’s, for instance, is actively working to convert private-label cardholders to co-branded Capital One cards to offset the impact of the late fee cap. This strategic shift is part of a broader turnaround effort led by CEO Tom Kingsbury, aimed at driving growth and increasing customer spend.
In conclusion, the landscape of store-branded credit cards is evolving rapidly, presenting both challenges and opportunities for retailers. By adapting to changing consumer preferences and exploring innovative solutions, retailers can navigate these changes and drive long-term growth in an ever-changing market. Stay tuned to Extreme Investor Network for more insights and analysis on the evolving world of retail finance.