KEY POINTS

  • Store cards, also known as private-label cards, were the original payment cards. Before general-purpose cards emerged in the 1950s, merchants originally issued their own separate cards to consumers. These cards, called private-label cards, function similarly to other payment cards, but can only be used at specific retail locations. 
  • 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 offer a number of advantages for retailers and consumers. Merchants can extract bigger sales from their most loyal customers, while customers can unlock merchant-specific deals that aren't accessible via general credit cards. Merchants can also avoid paying costly interchange fees.  
  • Private-label cards have been hugely 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. These accounted for 21% of total store sales in 2014. Meanwhile, 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. All the major mobile wallet providers, from Apple to Samsung to MCX, are now announcing compatibility with these cards, likely for the very reason that they could catalyze adoption.  

Introduction

Before general-purpose payment cards emerged in the 1950s, merchants originally issued their own separate cards on metal sheets called charga-plates. The personal information engraved on the charga-plate was imprinted onto paper slips that would record transactions and tie them back to the purchaser. This system was innovative at the time, but as these store cards proliferated, it became tedious for customers to hold metal sheets for multiple stores. Once general-purpose credit cards were invented, store cards fell out of favor. 

Fast forward half a century, and store cards — referred to in this report as 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 [...]