Consumers are finally saying no to costly retail credit cards

Retailers promised bonus rewards and other perks for signing up for their store credit cards, but Americans are no longer taking the bait.

According to the Consumer Financial Protection Bureau (CFPB), retail credit card originations fell by 16.5% between 2021 and 2022. By the end of last year, there were 27.9 million retail cards in circulation, down from 33.4 million the previous year and 44.1 million as far back as 2015.

Between 2015-2023, originations for generic cards increased by 33%.

In other words, Americans are still signing up for credit cards but are saying no to retail credit cards.

CFPB concluded that the decline in store credit cards was mainly driven by weaker consumer demand. It’s not hard to see why.

Retail credit cards charge more than 30% interest on purchases, much higher than the 21% average for general-purpose cards. It’s much more affordable to pay using a standard Visa or Mastercard than a fancy store credit card.

The pandemic also accelerated the shift from in-store to online shopping, reducing signups at the check-out counter. Stores like Target and Neiman Marcus have complained about this.

Then there’s the practical element: In an inflationary environment, consumers are choosing value over loyalty when they shop, so they are switching retailers when it’s more affordable to do so.

Retailers try to spruce up their card offerings

As The Wall Street Journal reported, several major retailers have tried to revamp their store credit cards to lure customers back in. Free shipping, interest-free purchases, and higher rewards are some of the perks offered this holiday season.

While attractive at the surface, experts warn that introductory offers should be carefully examined. For example, programs offering 0% interest or “special financing” often have low introductory deals—until you miss a payment. That’s when retroactive interest on your initial balance kicks in.

According to a recent report by Javelin Strategy & Research, store credit cards initially appealed to subprime shoppers because they provided easy access to credit.

But subprime borrowers are already falling behind on credit payments due to high interest rates and rising costs. Retailers could face a dead-end marketing to this demographic.

Retailers report higher Black Friday sales

CreditNews reported on Nov. 21 that retailers were extending Black Friday deals to boost sales. Discounts for most product categories were bigger this year as retailers tried to compensate for weaker consumer spending.

Data from Mastercard SpendingPulse—which measures online and physical store sales— showed that Black Friday sales increased by 2.5% from last year. E-commerce sales shot up 8.5% year-over-year, while in-store sales rose 1.1%.

Consumers this year are “shopping smarter, using all of their tools—from searching across channels to cross checking on apps and websites—to maximize value,” said Mastercard senior adviser Steve Sadove.

The Commerce Department will release its November retail sales report on Dec. 14. It will likely provide a more comprehensive look at Black Friday shopping trends.