NEW YORK–Even as consumers are headed to retailers’ physical stores and websites this holiday season, they are moving away from store credit cards for purchases, according to a new report. And that’s not good news for retailers, but should be for credit unions.
“The cards, which typically can only be used at a particular chain, have been a lucrative source of revenue for retailers as merchandise sales have slowed,” the Wall Street Journal reported. “But the stream is drying up as Americans carry fewer cards and increasingly finance purchases with buy now, pay later providers. Interest rates surpassing 30% on some retailers’ credit cards aren’t helping, according to analysts.”
As CUToday.info reported, U.S. retail sales on Black Friday rose 2.5% over 2022, according to Mastercard SpendingPulse data.
Citing CFPB data, the Journal reported private-label card originations fell 37% last year compared with 2015, while over that same period originations of general purpose credit cards grew 33%.
Revolving balances on private label credit cards and general credit cards are moving in a similar pattern, the report added.
Lower Demand
The CFPB concluded in a recent report that the decrease in private-label originations was likely due to less consumer demand.
“Rising interest rates have made store cards—which tend to charge higher rates than traditional cards—even less attractive for consumers,” the Journal noted. “The average interest rate for retail cards is 28.93%, compared with 21.19% for all credit cards, according to Bankrate.com.”
The report noted retailers have been trying to make their store cards more attractive by tying card use to loyalty points and giving cardholders other perks such as free shipping, but that loyalty is less of a draw than it once was, particularly with rising prices.
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