MINNEAPOLIS, Minn. National retailer Target is fabled for its sophisticated use of customer spending data and has emerged as a leader in store-branded debit cards.
Consumers who have a Target debit card increase their spending by an average of 52%, according to a presentation the company made last year. Now, the company reports, during Q2 sales on the debit cards surpassed sales on Target's credit cards for the first time.
"It is the right product for a large set of guests who simply do not want another credit card in their wallet," Target Chief Financial Officer John Mulligan told analysts earlier this month.
Because of Target's strength in analyzing data, the company may be better positioned than other retail chains to profit from issuing its own debit cards, says Steve Heusuk, a senior manager at CUNA Mutual Group, which provides financial products to credit unions.
Target is an industry leader in using its customers' purchase histories to send them offers that are relevant to their personal circumstances whether it is maternity clothes for expectant moms or cheap furniture for college freshmen.
"I am not sure that that capability is widespread throughout the retail industry," Heusuk told American Banker, an affiliate of Credit Union Journal.
But some experts believe that store-branded debit cards will be part of the strategy employed by the Merchant Customer Exchange, or MCX, the fledgling consortium of retail chains that is looking to challenge the traditional electronic payments system [CU Journal, Aug. 12].
Target is participating in MCX, and so are certain gas station and convenience store chains, including QuikTrip and Shell, that have experimented with store-branded debit cards.
Retailers participating in MCX are "going to be trying to promote payment vehicles that attach the consumer to them," says Eric Grover, a payments industry consultant. He predicts that store-branded debit cards will be part of MCX's strategy.
Store-branded debit cards, which sometimes are referred to as decoupled debit cards, generally are linked to consumers' existing bank accounts. Usually they can be used only at one particular retail chain. When the cards are swiped at the cash register, they trigger an electronic transfer of funds, which is cheaper for the merchant to process than a debit card authorization over the Visa or MasterCard system.
