Americans use credit or debit cards for most transactions, making companies like Visa and Mastercard almost untouchable—but Target RedCard could be a surprising competitor.
Key Details
- Target RedCard covers all of the retailer’s branded card products. Customers can use these cards for 5% discounts on all Target purchases.
- In 2022, Target earned more than $100 billion in revenue, nearly 20% of which came from RedCards.
- The RedCard debit card connects directly to a customer’s bank account, allowing Target to bypass any interchange or swipe fees—saving it money.
- If Target were able to convince all customers to use the RedCard for all Target purchases, the company could potentially bring in an extra $2.2 billion in income, according to Andreessen Horowitz’s Alex Rampell.
- Target is not alone in its strategy to get customers to use a store-specific payment method. If enough businesses can convince customers to do the same, the credit card industry could have a strong competitor.
Why it’s news
Interchange and swipe fees that come along with accepting card payments are a frustrating problem for any retailer. Though the majority of shoppers prefer to pay with a card, every time they do, a retailer loses a small amount of potential profit. By following Target’s model, retailers could potentially cut out the middleman and bring in greater revenue.
For every high-frequency biller, such as Walmart, Costco, and Netflix, there is a potential money-saving aspect to offering an in-house payment system. Target offers a 5% discount on purchases as an incentive, but there are less expensive options available to entice customers. For example, a company could offer a one-time discount if a customer switches to the business’ in-house payment system. This would have a similar effect to drawing in a customer while costing the entity less money in the long run, Rampell says.
In addition to the money-saving benefits of this payment method, companies can use this direct access to a customer’s bank account to foster relationships with fintech entities, resulting in countless possible benefits to retailers and fintechs.
The company has already convinced enough customers to use the RedCard so that 20% of its overall sales are paid through the RedCard.
While this method may only make sense for some retailers, the potential savings and increased revenue for companies that use this method could be massive. Of course, companies will then have to gauge whether or not customers are fatigued by trying to pull out a different payment method for every store they shop at.
