Branded Store Credit Cards: A Strategic Avenue for Retail Revenue Growth

In this article, we explore the benefits of branded credit card programs and dissect how technology plays a pivotal role in effectively managing the associated revolving receivables.

Retail store credit cards are a strategic opportunity for executives aiming to boost revenue streams and cut expenses. Branded credit cards enhance customer loyalty by offering promotional financing incentives to customers as a competitive differentiator.

What are the benefits of store credit cards to retailers and their consumers?

To start, branded store credit cards directly benefit the retailer’s bottom line. Retailers can earn reoccurring revenue from the interest rate charged on top of monthly payments or outstanding account balances. Some retailers choose to co-brand their store credit cards with a financial institution to mitigate some of this risk while offering customers greater access to reward incentives offered by major card issuers.

Store credit cards significantly reduce credit card swipe fees while still allowing customers to leverage credit card payments. According to NerdWallet, the typical rate of traditional credit cards issued by banks or financial institutions is “1.5% to 3.5% of the transaction.” When customers use a branded credit card for purchases, the retailer saves on these transaction fees. These savings can add up and contribute to improved profitability and greater cash flow accessibility.

Cardholders enjoy store credit cards for their special perks, such as exclusive discounts on purchases or no-interest-bearing periods. Retailers may also run promotional financing offers targeted to new applicants with attractive sign-up offers. Store credit cards are also a great way for customers to build their credit score.

Branded credit cards also foster retention and higher average ticket values. Visually, the card serves as a constant reminder of brand affiliation. Perks also incentivize customers to shop more frequently at the retailer’s stores, fostering loyalty among cardholders. These incentives also encourage customers to make larger purchases or buy items they might have otherwise deferred.

The Role of Technology in Managing Store Credit Cards

Central to the success of any branded credit card program is the efficient management of its associated revolving receivables. Revolving credit allows borrowers to repeatedly access funds up to a predetermined credit limit. Borrowers can borrow, repay, and borrow again as needed, with interest accruing on the outstanding balance.

Software that offers point of sale, accounting, and financing features helps retailers easily manage all aspects of revolving receivables from a central platform. Functions range from creating tailored finance plans to seamlessly cycling payments and managing collections.

Technology is critical to managing all facets of a store credit card program.

1. Seamless Application and Approval Processes

Technology streamlines credit card application and approval processes, ensuring a frictionless experience for customers. Automated authorizations can swiftly assess creditworthiness, expediting approval timelines. This can include offering instant approvals, where applicants receive a decision on their credit card application within minutes of applying online or in-store.

2. Integration with Credit Bureaus

Software seamlessly integrates with credit scoring systems and underwriting platforms to determine eligibility for revolving plans. A quick decision is based on an automated evaluation of the applicant’s creditworthiness, based on data provided by a credit bureau. Software can send data files via Metro2 reporting, a standardized method used by credit reporting agencies to collect and share consumer credit information consistently. This data is sent to reporting bureaus such as Experian, Equifax, or Transunion to guide retailers in making credit authorization decisions. Integrated solutions enable real-time verification, mitigating the risk of fraudulent applications and enhancing overall security.

3. Creating Plan Options

Software aids retailers in creating and managing the revolving plans they offer. This includes defining parameters such as interest rates, minimum monthly payments, and promotional terms. Software will automate complex calculations and ensure compliance with regulatory requirements. This reduces manual errors and accelerates the plan creation process, enabling retailers to offer competitive financing options quickly. Retailers can analyze key metrics such as plan utilization, delinquency rates, and profitability, enabling data-driven decision-making and strategy refinement.

5. Automated Payment Cycles & Minimum Monthly Payment Management

By automating payment cycles, retailers can optimize cash flow. A payment cycle is the timeframe between the closing date and the payment due date for a billing period. The payment cycle typically ends on the closing date, after which the cardholder has a certain number of days, usually around 21 to 25 days, to make the minimum payment or pay off the entire balance without incurring interest charges.

Calculating minimum monthly payments for branded store credit cards is an important role of software. Integration with payment gateways facilitates secure and efficient processing of monthly payments. The software tracks when payments are made and recalibrates account balances and credit limits. This visibility also proactively manages delinquencies and supports timely resolution of payment issues.

4. Customer Self-Service Options

Some software solutions offer self-service portals where customers can view and manage their revolving plans online. This enhances customer satisfaction by providing transparency and convenience, allowing customers to make payments, update account information, and access promotional offers effortlessly.

6. Fee Calculations

Software can also automatically amend associated fees to a customer’s minimum monthly payment without impacting balances or interest. This can include a fee for requesting a paper statement. Waiving this fee entices customers to go green regarding their financial documents. This can also calculate an appropriate convenience fee for enabling payments to be made with a major branded credit card.

7. Managing Open-to-Buy

In credit card terms, “open-to-buy” refers to the amount of credit available for a cardholder to spend at any given time. In revolving lines of credit, the customer’s open-to-buy is variable. It represents the difference between the credit limit on the card and the current outstanding balance, taking into account any pending transactions or payments that have not yet been processed. Software will automate the calculation of open-to-buy limits protecting retailers from customers overextending their credit limits.

8. Proactive Collections Management

In the event of delinquencies, technology plays a pivotal role in facilitating proactive collections management. Notification of pending defaults enables retailers to communicate with customers in a timely and personalized manner, thereby reducing churn and preserving customer relationships.

Offering a branded credit card program represents a strategic avenue for retail executives seeking to diversify revenue streams and foster deeper customer relationships. By leveraging technology to effectively manage revolving receivables, retailers can unlock the full revenue potential of their credit card programs while offering competitive financing options and delivering unparalleled value to customers.

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