Target Corp.’s recent decision to stop marketing its cobranded Visa cards to new customers may be the latest sign of trouble for broad cobranded card programs.

The Minneapolis-based retailer says the results of tests it has conducted over the past several months suggest customers with private-label Target credit cards visit the store more frequently and buy more Target merchandise than do customers with a Target Visa card.

As a result, beginning April 29 Target no longer will offer Target Visa cards to new card applicants. The merchant expects the decision to produce greater retail sales for the company and reduce the amount of receivables the company funds, a Target spokesperson says.

Existing Target Visa cardholders are unaffected by the decision and will be able to renew their cards when they expire.

The move will reduce Target’s need to fund credit card receivables under the theory that, while Target private-label cardholders may spend more inside Target stores, they will spend less overall, reducing Target’s overall card receivables over time, the spokesperson says. Target Visa cards are accepted everywhere Visa is accepted, but Target private-label cards are accepted only inside the retailer’s stores and on its Web site.

Visa cards account for approximately 95% of the receivables in Target’s overall credit card portfolio, and some 70% of Target accountholders have the Visa cobranded card, which it launched in 2001, a Target spokesperson says.

But that may change as Target beings to emphasize only its private-label cards.

Target’s decision is a paradigm shift for the retailer, Steven Jacowitz, director of alliance development at Auriemma Consulting Group, tells PaymentsSource.

“Target is saying it wants to focus only on transactions that are most profitable for it, which means those that occur inside its store and on its own card,” he says. Target’s move also suggests “private-label card programs are not dead, as some have suggested.”

Target’s decision to no longer offer Visa cards underscores the challenges card issuers face in crafting cobranded card programs that “resonate” with consumers, especially given the increased profitability pressure card issuers face, says Scott Strumello, Auriemma managing associate.

“Cobranded card programs that don’t have a rich value proposition for transactions that take place outside of the cobrand partner’s roof may not be as effective overall anymore,” he says. “Cobranded travel card programs continue to be successful because customers clearly understand the value proposition.”

Target has struggled with its card portfolio, which throughout the last year has endured a charge-off rate of 14% to 15%, according to Moody’s Investors Service. The average charge-off rate for general-purpose credit cards issued by major banks in 2009 was 10%.

In May 2008, Target inked a $3.6 billion deal with Chase in which Chase agreed to fund 47% of its portfolio. Target has said it is open to selling all or part of its card portfolio as long as it can retain management and control over it, the spokesperson says.

Target last October began a test in which it offered its private-label card to new customers that would have qualified for a Visa card and compared the results with those receiving a Visa card (see story).

Target’s decision to stop offering the Visa card is not a plus for Visa, which recently was replaced by American Express Co. as Macy’s Inc.’s cobrand partner for cards Citigroup Inc. issues (see story).

“We respect Target’s business decision to move ahead promoting their proprietary cards, and we look forward to working with Target to provide existing Visa Target cardholders with the value they have come to enjoy with a product that can be used both in Target stores and at millions of merchant locations worldwide,” Visa said in a statement.

Another high-profile cobranded card bit the dust last month when JPMorgan Chase & Co. parted ways with Starbucks Inc., ending its seven-year-old Starbucks Duetto cobranded Visa card (see story).

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