Store cards are driving loyalty at big brands and hitting mobile wallets next

• Evan Bakker, BI Intelligence
 
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• Oct. 8, 2015, 9:15 AM

BI Intelligence

Over half a century after they fell out of favor to general credit cards, store cards — or private-label cards — are still an important component of the payments landscape.

For many merchants, they represent a significant portion of sales. This is because private-label cards offer unique advantages for consumers and merchants that distinguish them from general-purpose cards.

Now private-label cards could play a crucial role in propelling the adoption of mobile in-store payments among US consumers.

Samsung's wallet, Samsung Pay, now supports private-label credit cards. Apple Pay users who have upgraded to iOS 9, released in September, can sync Apple Wallet with store cards. These cards, which include unique loyalty programs that often reward frequent usage, could provide an incentive for consumers to adopt mobile wallets.

In a new report from BI Intelligence, we size the private-label card market, explain how a private-label system is integrated, map out how a private-label credit-card transaction works, illustrate private-label's impact at two major retailers, and show data that suggests these cards could be a major driver of mobile-wallet adoption.

Here are some of the key takeaways:

• Private-label cards have grown steadily in terms of purchase volume. We estimate that private-label credit and debit cards generated $218 billion in purchase volume in the US in 2012. Volume increased 17% over the next two years, reaching $254 billion in 2014.
• Private-label cards work within existing payment environments on a partitioned network. This gives merchants the ability to integrate private-label programs without a massive overhaul of their point-of-sale systems.
• Private-label cards have been successful for big-box retailers like Target and luxury retailers such as Neiman Marcus. Target has an array of store-card products bundled under the REDcard brand, which accounted for 21% of total store sales in 2014. The Neiman Marcus Group, which includes Neiman Marcus and Bergdorf Goodman, captured 40% of its sales through private-label credit cards in 2014.
• These types of cards could ultimately boost mobile-wallet adoption. A number of surveys suggest that rewards-laden private-label cards might give customers a more compelling reason to adopt mobile wallets.