Regulators Eye Interest Rates as Retail Cards Gain Ground

More than a quarter of consumers own a store card, defined as a card that exclusively features a retailer’s branding. While co-branded cards can be used across several retailers, store cards can be used only at a particular merchant.

The PYMNTS Intelligence report “The Role of Strategic Partnerships in Consumer Credit Cards” found that among the factors driving a consumer’s choice of credit or store card were loyalty and rewards programs, cost considerations and trust. Thirty-four percent of consumers with a store card cited this as their top motivation for obtaining it. Twenty percent of those with co-branded store cards said either low annual fees or low interest rates were their top reason for choosing the card, versus 27% for general-purpose cards.

Younger Consumers Flock to the Cards

The data showed that within the store card segmentation, 60% of individuals opted for cards with merchants, and more than two-thirds of individuals and households earning up to $100,000 had those cards. The percentage dipped a bit to just under 55% for higher earners above the $100,000 threshold. The average monthly spending on those cards is $1,181. Fifty-five percent of respondents with co-branded store cards paid their full balances off monthly, compared to 49% for general-purpose card holders.

Separately, a report published by Experian noted that retail card debt has been gaining ground in the mid-single-digit percentage points and stood at $126.9 billion. The average balance increase has been similar and was about $1,188. The credit reporting agency stated that balances are growing most quickly with younger consumers, which dovetails with PYMNTS Intelligence findings that Generation Z shoppers appear to be especially eager to make their next credit card a co-branded credit or store card, with 41% saying they will most likely apply for one of the two card types.

The Consumer Financial Protection Bureau issued research Wednesday (Dec. 18) that contended that 90% of retail cards examined had ceilings on their annual percentage rates above 30%, with an average of about 32.3%.

“[Over] half of the top 100 retailers offer some type of store card in partnership with a major issuer, and it is still the case that 1 out of every 4 credit card accounts (and closer to 1 in 3 for consumers with subprime scores) is a store card, with over 160 million open accounts in 2024,” the CFPB said.

The market is dominated by Synchrony Financial, Citibank, Capital One and Bread Financial, listed by the CFPB as “the primary issuers offering retail credit cards. These four banks combined issue over 80% of store cards and hold over 80% of market share by purchase volume and outstandings.”

November data from several of these issuers detailed charge-offs that were rising. Delinquencies are off their recent lows.

“Store card issuers charge consumers higher interest rates and greater fees than general-purpose credit cards, partially due to less restrictive underwriting and the lack of meaningful interchange economics on private-label cards,” the CFPB said.

Additionally, the CFPB found that store cards are generally held by consumers with lower credit scores — with 60% of the debt held by consumers with FICO scores below 720.

However, the report also said: “Financing large purchases like appliances or furniture may be cheaper with store cards than general-purpose cards when promotional terms apply. Consumers may benefit from the discounts and status that often accompany store cards if they pay their balance in full.”