Target Stores' pilot Visa card program ended abruptly last week when the Dayton Hudson unit pulled out of a deal with First Bank System Inc.
In the yearlong test, the 20th-ranked issuer of bank cards issued cobranded cards to customers of Target Stores in Indianapolis, Orlando, Tampa, and Louisville, Ky.
"From our standpoint, we had positive results in terms of card acceptance and profitability, but Target made the decision to end the program," said John R. Danielson, senior vice president, investor and corporate relations, of the $36.5 billion-asset First Bank in Minneapolis.
Last year was a busy one for banks and retailers, as Target, Sears Roebuck and Co., TJ Maxx, and Wal-Mart Stores Inc. entered the cobranded fray.
J.C. Penney Co., though not a cobrander, recently agreed to sell its entire Visa and MasterCard portfolio to Associates First Capital Corp. There is some speculation the retailer may agree to enter a cobranded program with Associates.
"We would like to focus our energy and attention on the Guest Card, our private-label product," said Lisa Woodward, spokeswoman for Target Stores in Minneapolis.
The Target Rewards Visa offered a 3% rebate for every $1 spent on Target purchases and a 1% rebate for other purchases. The fixed interest rate ranged from 16% to 18%, and an annual fee of $20 was waived if the card was used at least three times a year.
Even though industry observers don't foresee a series of bank card castoffs in the cobranding industry, Target's desertion seems unusual.
Both parties "may have established a one-year window period where they allowed each other to get out, and Target may have had to pull out now and move forward or be stuck in the contract," said Anita Boomstein, partner with Hughes, Hubbard & Reed in New York.
Target's proprietary card is two years old, and some analysts expressed surprise that they had even entered the cobranded market.
"It makes more sense to concentrate on their private-label card," said Edward Weller, a retail analyst for San Francisco-based Robertson Stephens. "I don't think their mission in life was to build balances, but to use the card as a customer convenience and a marketing opportunity."
Target's private-label card may be doing quite well in the hands of the consumers the company wants, Ms. Boomstein said. "I would bet that (Target's pullout) had to do with the overall profitability of each of the programs."
Though out for the count in this round, First Bank said it is eager to jump back into the cobranding ring.
"We have other plans in the works to reenter the retail market," said Mr. Danielson.
First Bank has not decided how long Target cardholders will continue to earn rebates, but it intends to offer them other First Bank card products. Its other major cobranded programs are with Northwest Airlines and Amway.