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Store-branded credit cards great for retailers -- not consumers

by Peter Andrew

A few weeks ago, we at IndexCreditCards.com posed the question Why Do Private Label Credit Cards Still Exist? ("Private-label" cards are also known as "store" or "store-branded" cards.) We concluded that they're still around because retailers find them valuable and invest heavily in promoting them in their outlets. In particular, large discounts on that day's shopping are frequently used as a hook to lure consumers, who are often reeled in using high-pressure sales pitches by clerks at points of sale.

Credit card rates higher on store cards

Three key ways in which mainstream credit cards are much superior:

  1. They're more flexible. You can use them anywhere; not just in the store whose name is on the plastic.
  2. They're nearly always cheaper. Credit card rates on proper plastic are on average much lower than on store cards.
  3. Rewards credit cards can often match or beat the loyalty bonuses and other perks offered on private label plastic.

Benefits for retailers confirmed

Store cards (this writer just mistyped that as "sore cards," and was tempted to let the error stand) might not benefit consumers much, but research by GE Capital Retail Finance (GECRF), published Feb. 19, confirms just how valuable they are to retailers. It's worth noting that GECRF, a unit of the General Electric Company, provides "customized credit programs to retailers," including store-card offerings.

However, in spite of the company's clear -- and properly declared -- vested interests, GECRF's study sounds impressive. It covered a two-year period, and brought together extensive data from five big retail chains. And, at least if you're a retailer, it's findings were impressive, suggesting that store cards:

  1. Build customer loyalty. Those customers with a private-label credit card are 72 percent less likely to stop visiting the retailer's outlets than other customers.
  2. Increase traffic. On average, store cardholders visit an outlet on four more occasions each year than other customers.
  3. Boost revenues. Those with these cards tend to spend on average anything from 39 percent to 86 percent more than customers who pay using mainstream credit cards, debit cards, cash or other payment methods.
  4. Permit the collection of better customer data. A retailer knows much more about those of its customers who have one of its cards than others. And it can use that information for marketing purposes.
  5. Save retailers money. Merchants have to pay an "interchange" or "swipe" fee of 2-4 percent every time they process a mainstream credit card. With private-label cards, that's virtually eliminated.

Stick with mainstream credit cards

If you own or manage a chain of stores, these benefits may well have you salivating. If you're a consumer, much less so. Isn't it time retailers shared with their customers significantly more of the very considerable value they derive from these inflexible and over-priced products?

Published 02/27/13 (Modified 11/19/13)

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