Why do so many stores have their own credit cards? What’s the benefit for the retailer?
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You will buy more if you can pay it off over time. Also more likely that you will return to them vs a similar retailer of you already have a card open with them
By having a card with excusive discounts or rewards tied to it, the average shopper will spend more with the store. The stores know this. The average shopper will not pay off their credit card balance in whole monthly, so the store will then make boatloads of money off the interest fees, creating an entirely new revenue stream. They also are then able to build a comprehensive profile of you as a customer and potentially target you for peronsalized offers that will get you to spend more.
Basically, imagine if you have signed up for a Kohls credit card, and you want a new pair of shoes. Your options are to go to the mall and spend $100 on new shoes at Macy’s from your checking account, or go to Kohls where you will get 10 percent off and have a credit card already. It greases the skids for you to buy more from Kohls.
They hope to make money off of them from fees and interest. Don’t get them. They are scams mostly. Unless you’re using a low or no interest to get something big and necessary like appliances. But then always make sure to pay on time and in full by the end of the promotion period. Don’t mess around with these. I paid off my card with a few days to spare on one of these. But they added a convenience fee back onto the card rather than roll it into my final payment. Thus we “didn’t pay the card off in time” and they tried to get us for all the accumulated interest.
The store usually isn’t the credit card issuer, but a bank (for example Synchrony for many of them). The store gets a kickback for every customer that signs up, while the company doesn’t actually have to supply any product. So for the retailer it’s like a bonus on top of the regular sale. Meanwhile, the card often has a store-specific benefit that incentivizes the customer to return. The issuer makes money in the usual way, by charging interest on purchases.
It’s basically a loan. They let you buy something in their store with their credit card with no money out of pocket and then they get to charge you something absurd like 25% interest on it each month. If you don’t pay it all off the next month, they make money on you each month from a single purchase.
There are a lot of companies that putatively make a certain product, or sell a certain service, but make more money of their financing arms than their “core” business.
For example, General Motors is a car company, but GMAC, their finance arm makes a better profit. [Seven times a much. ](https://thedailyrecord.com/2004/03/23/general-motors-earns-seven-times-more-from-finance-than-cars/)
If you sign up for a credit card, it’s good for the overall bottom line.
I worked for one of the few companies that issued their own card (the parent company of Kay Jewelers and Jared and 10 other brands. Not sure if they still run it in house). Not only did we profit in interest and late charges we were also able to offer special terms like 18 months interest free. It also seemed like many customers thought of it as a way to keep their “main” credit card open while putting jewelry on their jewelry credit card
There are many layers to this answer:
1) reduced costs. If a shopper wants/needs to use a credit card, the store will pay a fee for that transaction (let’s say 2%). If you use a store card, you still get to use a credit card, but now their fee is the overhead they have with their bank servicing the card, and they get to set the terms and have more protection themselves
2) instead of you paying interest to your credit card company, when you carry a balance, they’re collecting the interest (often higher too)
3) it entices you to shop there more frequently
4) going back to #1, they can use the savings to offer you a discount, strengthening #3
5) data mining – they can further analyze shopper habits to better market towards you and to sell that data
6) perceived goodwill – if your shoppers are signing up for your merchant card, that shows loyalty to your brand and increases the value of the brand’s good will, so shareholders are happy
There’s another piece to this, and it ties to why stores have rewards programs. Stores want data. They want to know about what products are bought the most with each other, in what markets, by what demographics, etc. If you just have receipt information, that can give you some of that trend. But, by linking it to customer demographics, either by having access to the credit card information or the rewards program, they can get far more granular details. This helps them determine what markets to run certain products in, where to stage certain things, what goes in as impulse buys at the register, etc.
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