What’s in Your (Digital) Wallet?

Ever since the launch of Apple Pay more than a year ago, mobile wallets have followed a pattern of recruiting financial institutions to enable their network-branded credit and debit cards to work in the wallet apps. But with their proprietary cards, retailers are getting in on this action, as well, and recent research shows why.

It turns out that store cards have stolen big chunks of store sales share in recent years, despite the Great Recession and a relatively weak recovery. At Kohl’s Corp. stores, for example, the proprietary card program accounts for fully 58% of sales, up from 44% in 2008. Recently, Kohl’s became the first retailer card issuer to complete a technical link to Apple Pay.

That’s the biggest store card share among seven merchants examined by Ryan Douglas, senior consultant at First Annapolis Consulting, in “The Resiliency of Retail Credit Cards,” an article in the November issue of the Annapolis, Md.-based firm’s “Navigator” newsletter.

Not too far behind are the store cards at Macy’s Inc., at 48% of sales, and Nordstrom Inc., at 42%. The Macy’s card program gained only 1 percentage point over the 7-year period, but Nordstrom’s cards picked up fully 13 points.

Other dramatic gains have been notched by Target Corp., whose RedCard debit and credit card program shot from 7% to 21% of sales, and Stein Mart Inc., where the proprietary program soared to 13% from less than 5%. At Target, the debit share alone now stands at 11.1%, but was negligible in 2008.

Another notable case is that of Best Buy Co. Inc. Its proprietary program now accounts for one-fifth of sales, up from 17% in 2008. The seven store card programs include private label, cobranded, and debit programs.

Not all proprietary card programs Douglas studied gained share. The Home Depot Inc.’s card program, for example, dropped from 29% of sales to 23%, he says. “There’s no real silver bullet,” he says in an interview with Digital Transactions, to achieve growth. Kohl’s has done it through credit events, smooth sign-up in stores, and heavy-duty in-store advertising, while Target and Stein Mart have gained via revamped loyalty programs, Douglas says.

At the same time, store card servicers like Synchrony Financial are also tying their systems to mobile wallets. Synchrony, whose major clients include J.C. Penney Inc., links to Apple Pay but is also working with Android Pay, Samsung Pay, and, not surprisingly, CurrentC, the wallet sponsored by the retailer-controlled Merchant Customer Exchange LLC. Best Buy is among 40 major retail brands that own MCX.

For now, Target’s RedCard is the only private-label option in CurrentC, but more are coming. “There’s tons of work under way to enable private label in that wallet,” says Carol Juel, chief information officer at Synchrony. “We learned a lot from the initial rollout of Apple Pay and we learned a lot from the launch of bank cards in the various wallets.”

Clearly, the growth merchants have wrung out of their store card programs makes them more attractive candidates for wallet sponsors like Apple Inc. But the retailers themselves stand to rack up even more gains by making their cards accessible via widely promoted mobile apps.

“As retailers and issuers look for growth opportunities and respond to changing consumer behaviors, they are investing in areas such as mobile wallets/payment solutions,” says Douglas in the article.

For both wallet providers and stores, it doesn’t hurt that store cards are typically held by retailers’ most loyal customers. “Retail credit programs are quite resilient—higher APRs are able to absorb economic shocks and mature programs tend to have a solid base of seasoned cardholders that are quite loyal to the brand and use the product to compartmentalize their spend,” Douglas writes.

Still, while wallets may make sense for some retailers, merchants are far from acting in unison, or with undue speed, on the matter. Many just don’t see a big first-mover advantage, Douglas says. “The fast-follower approach is where a lot of these retailers are playing,” he adds.

And a few have developed a proprietary wallet. Neiman Marcus Group’s wallet, for example, went live in February. “They would rather that the customer use their own wallet,” says Douglas. “They’re thinking, we can get better access to customer data.”

—John Stewart