With all eyes on Wal-Mart Stores Inc. as a potential disruptive force in the banking world, some might overlook major recent innovations coming out of the No. 2 retailer, Target Corp.
The Minneapolis-based retailer has gotten more attention in recent years for the card programs it has dropped than the ones it's championed. Recently, however, the company has taken on a new role in the payments world as a laboratory in which new payment systems can grow.
In February 2011, Target and American Express Co. began testing a prepaid card that is at the center of Amex's initiative to expand its customer base to people who would not qualify for its traditional cards. The new card includes no monthly fee and a $3 fee for in-store reloads. That is a sharp contrast with a product category in which cards are often criticized for high fees. The partners tested the product at 100 stores initially and by November rolled it out to over 1,000 Target outlets.
"Partnerships have always played a key role in expanding our prepaid franchise," says Stefan Happ, a senior vice president and general manager of global payment options at American Express, in an email. Target did not make an executive available for comment this week.
Target was also a key participant in the expansion of a mobile payments app offered by Starbucks Corp., which itself has had more traction in mobile payments than have many dedicated payments companies. Starbucks has boasted success with a mobile payment app tied to its closed-loop prepaid card.
In 2009, before Starbucks began working with Target, it tested at 16 stores a payment app in which customers scanned a bar code at the point of sale. It then expanded it to about 1,000 Starbucks locations within Target stores, where technology was already in place to support the app.
By the start of 2011, Starbucks committed to taking this mobile-payment system nationwide, adding 6,800 company-owned stores to the list of those that accepted its mobile-payment app.
Target's role has had some payments flops along the way. Last year it dropped a decade-old program of issuing new cobranded Visa cards and instead switched to promoting its own private-label card, which was initially launched in 1995, and a debit card. Target has been trying to sell its receivables for both the private-label and the co-branded credit product.
The Visa partnership also involved a chip-card — a rarity in the U.S. even today. The cards are more secure than magnetic-stripe cards, but have had almost no support from U.S. banks and merchants.
Target's chip-card experiment "was more of an embarrassment than anything else," says Brian Riley, a research director in the bank cards practice at Towergroup. "It was Starship Enterprise stuff that just kind of fizzled."