In the world of plastic, store-branded credit cards have historically played a supporting role to other, more versatile cards: Typically, store cards could be used at only one merchant. But today, such cards are often widely accepted, richly rewarding and auditioning for a lead role in your wallet.
Consider the Costco Anywhere Visa® Card by Citi. Over 70% of sales made on the card occurred outside of Costco warehouses, says Val Greer, head of co-brand partnerships at Citi Cards, in an email to NerdWallet. The popular card, launched in 2016, is “open loop” — that is, you can use it wherever credit cards are accepted — and offers bonus categories for not just Costco, but also travel, restaurant and gas purchases. Other merchant cards, including those from Amazon, Starbucks, PayPal, Uber and Ikea, are also encouraging consumers to use them for purchases beyond their brand.
“Increasingly, you see the transformation of the store card from a limited-use card into a card that you can use for everyday spend,” says Mike Abbott, the North American digital lead for Accenture Financial Services.
For consumers, good news
As store cards push to be top-of-wallet, they’ve not only become more broadly accepted; they’ve also started offering better terms.
More rewards and benefits. In 2010, Target made a splash when it began offering 5% off nearly all in-store purchases with its REDcard products. “It really set the bar at 5%” for store cards, Abbott says.
Now, open-loop cards are offering similarly rich rewards in multiple categories — although the flexibility and ease of redemption can vary greatly, so be sure to read your card agreement. Consider these branded offers that launched in the past year:
- The Ikea Visa credit card, launched in May, offers 5% back on purchases made at Ikea and 3% back on dining, grocery and utility purchases.
- The Amazon Prime Rewards Visa Signature Card began offering 5% back at Whole Foods in February, in addition to its 5% back rewards at Amazon and 2% back rewards on restaurants, gas stations and drugstores.
- The PayPal Cashback Mastercard debuted at the end of August 2017, offering 2% back on everything.
- The Uber Visa card launched in October, offering 4 points per dollar spent on dining, 3 points per dollar on hotels and airfare, and 2 points per dollar on online purchases, including Uber.
In-store benefits on store cards are also improving. A few decades ago, the benefits on these cards were limited to occasional coupons. Now, some offer more value. For example, the $49-annual-fee, open-loop Starbucks Rewards Visa card, which launched in February, promises cardholders eight Barista Picks (that is, selected free food and drink items) annually, among other benefits.
Future improvements. The contract for a branded-card deal between an issuer and a retailer typically lasts for seven to 10 years, says David Robertson, publisher of The Nilson Report, an industry newsletter. For cardholders, this is a good thing.
“When [co-brand deals] go out to bid, the perks to the cardholder always improve,” Robertson says, noting that the current Costco card has richer rewards than its previous version. “That’s where we are now.”
Perks for retailers
For retailers and service providers, offering an open-loop branded card can be a keen business move. Here’s why.
Data. When stores offer open-loop branded cards, “it potentially gives them access, frankly, to a rich set of data about their customers that they wouldn’t otherwise have,” says Edward Niestat, head of the comparative analytics and data business at Novantas, a financial services advisory firm. If merchants get access to this data based on their agreement with the issuer, he says, it could give them insights about their customers’ shopping behaviors, even with competitors.
A cut of the earnings. “Depending on the arrangement they’ve cut with their issuer, [stores] may get some initial bounty for people who join,” Niestat says. In addition, the store will get a cut of the interchange — that is, a part of the swipe fees paid by merchants to process cards that go to the issuer.
Brand loyalty. Stores want your loyalty. And if you love the perks on a certain store card, you might feel warmly toward the brand in general.
“The retailer is going to do everything it can to have you feel positively toward it,” Robertson says.
Using a store card every day? Do this
Store-branded cards can be incredibly rewarding — but if you’re using one regularly, beware of the pitfalls, such as high annual percentage rates or confusing deferred-interest offers. By paying in full and on time every month, it will be much easier for you to come out ahead in rewards.
Information related to the Target REDcards, the Ikea Visa Credit Card, the Amazon Prime Rewards Visa Signature Card, the PayPal Cashback Mastercard®, the Uber Visa card and the Starbucks Rewards™ Visa® Card has been collected by NerdWallet and has not been reviewed or provided by the issuers of these cards.
This article was written by NerdWallet and was originally published by Forbes.