Target Corp. on June 3 announced a new rewards program designed to drive more transactions to its branded payment cards. Customers paying with a Target credit or debit card will receive a 5% everyday discount at the point of sale on all purchases.

The program, set to begin this fall, is the first of its kind among major U.S. retailers and grew out of a similar test Target launched last fall that helped drive more store sales. In a move related to that test, Target in April ceased offering its cobranded Target Visa card to new customers (see story

Target says it will continue to support its Target Visa accounts, which comprise 95% of its credit card portfolio. But observers say the retailer’s goal is to shift more customers to its private-label credit and debit cards.

“Through attrition and through this new type of rewards program, Target is likely to see more customers gravitating now to its private-label credit card,” Brian Riley, a research director with TowerGroup, tells PaymentsSource.

 Target since 1995 has offered a private-label credit card, and in 2001 it introduced a cobranded Visa card. Its private-label Target check card, offered for several years, deducts purchases from cardholders’ checking accounts via the automated clearinghouse system.

The new card-discount program will replace the retailer’s existing rewards program, in which all Target cardholders earn points with each purchase toward 10% off on one day of shopping at the store. Target has not specified when the new rewards program will begin.

Besides driving more in-store sales, one of the goals of the new program is to reverse the decline of its credit card receivables, Target says.

“Our gross receivables have been declining for some time due to a variety of factors, including the economy and tighter underwriting standards,” a Target spokesperson tells PaymentsSource. “With this new rewards program, we expect to see a significant increase in new card applications and more card usage and store sales.”

Target is one of the first major retailers to offer on-the-spot rewards for paying with a credit or debit card, although the trend is gaining some steam in Europe, analysts say.

“This is a fairly innovative move for Target,” Megan Bramlette, managing associate with Auriemma Consulting Group, tells PaymentsSource. “Credit card receivables are down for the entire industry, and with this move Target is doing something about it.”

Target has struggled to determine a direction for its credit card portfolio in recent years. Its charge-off rate has hovered at 15%, well above industry averages. Some shareholders in recent years clamored for Target to sell off the portfolio, and in 2008 the company inked a $3.6 billion deal with JPMorgan Chase & Co. to fund 47% of its card portfolio.

Recently the card has seen improved results. Last month, Target said its credit card portfolio profits for the first quarter ended March 31 surged 185%, to $111 million from $39 million during the same period a year ago (see story)

Target tested the 5% discount rewards program beginning in October in Kansas City, Mo., and participating customers visited the store more often, resulting in higher overall sales, a spokesperson says.

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