Icon arrow left
September 25, 2023

The Hidden Advantage of Branded Payments

Three panel image illustrating Solo Pay

If you read Target’s quarterly filings, the retailer reveals a few details about the value of its RedCard program in a four-sentence footnote. It begins: 

“We monitor the percentage of purchases that are paid for using RedCards because our internal analysis has indicated that a meaningful portion of the incremental purchases on RedCards are also incremental sales for Target.”

Target, in other words, finds their branded payments program so successfully gets their best customers to buy more that they feel compelled to report on its penetration to Wall Street. They don’t quantify that incrementality, but we crunched some numbers, have a guess, and explain what that means for the business. 

30% of Target’s EBITDA is Generated by RedCard Products

In their quarterly filings, Target notes that roughly 20% of all purchases are made using RedCard products (including both Target’s branded credit card and debit card products). 

Target generates ~$25B in revenue each quarter, so that means $5B runs through the RedCard program each quarter. Mind blowing scale, yes; but that’s not the most interesting part.

Here’s what is: We estimate that Target’s branded payment program accounted for $560M of the $1.9B EBITDA generated last quarter. That’s 30% of their profit.

What is Target’s RedCard Program?

Target’s RedCard Program is the retailer’s branded payment method—a solution held closely by enterprise brands as a way to get their best customers to spend more.

Target offers a branded credit card and a branded debit card to customers. Using it unlocks a 5% discount on nearly all purchases, provides free two-day shipping (without a minimum purchase amount) and extends a customer’s return window by 30 more days. 

Target isn’t alone in using this solution. 

Nearly every single one of the top 50 retailers in the US offers a branded payments program similar to Target’s RedCard because they’re proven to increase sales, reduce processing fees and generate revenue from the banks with whom they partner.

So, how’s Target generating all that extra profit? 

$1B in Incremental Revenue From RedCard

Tandym offers the same enterprise-grade payment methods for scaling brands, so we understand the type of incremental lift these products provide. When we measure this at Tandym for our brands, we routinely see branded payment programs driving a 25% lift for the customers who adopt.

Assuming similar for Target, that’s $1B in incremental revenue from the program each quarter, worth ~$285M in earnings.

$100M in Processing Fee Savings

Though less headline grabbing than incremental sales, branded payment methods also allow retailers to skip traditional network rails when running those payments. 

So, when Target RedCard holders use their branded credit cards and debit cards, Target doesn’t have to pay the traditional processing fees to Visa, MasterCard, American Express., etc. They get a much lower rate.

At Tandym, our brands pay less than 1% processing fees on branded payments, saving them 70% of traditional processing fees. For Target, that converts into a $100M savings on those swipes.

$175M in Revenue Sharing

To run the RedCard program, Target partners with TD Bank. 

You may not realize it, but branded payment programs are white-labeled solutions powered by some of the largest issuing banks in the country. The retailers and brands running these programs partner with banks—TD, Synchrony, Capital One, etc—to run these programs. Because they’re so lucrative to banks, they build revenue sharing into the deals as a way to incentivize brands to encourage more cardholders. 

Though terms of Target’s revenue-sharing structure with TD Bank aren’t public, Target does disclose the amount they make from that arrangement: About $175M per quarter.

$285M + $100M + $175M = $560M

Add it all up and you quickly realize why Target tells Wall Street about this. Their branded payments program earns them $560M in earnings per quarter. That's 30% of their total EBITDA, and a key part of what makes them appealing to investors.

Tandym: Enterprise-Grade Branded Payments for Scaling Brands

Want the same advantages Target gets from its RedCard program? You won’t find it talking to TD Bank, Synchrony or Capital One. The traditional players won’t even return your call until you’re doing at least $1B a year in revenue.

That’s why we built Tandym.

Tandym is an enterprise-grade branded payment program for scaling brands. We deliver immediate value by slashing processing costs while building deeper relationships with your best customers and creating the same profit sharing opportunities Target has. 

Tandym brings accessibility and transparency to branded payments, helping brands: 

  • Lower processing costs to less than 1%
  • Increase Customer LTV by 25%
  • Unlock a new revenue stream with our revenue share program

If you’re scaling, you’ve already broken through the noise of DTC competitors. You’re battling the big brands now. Tandym helps you take away one of their most closely-held advantages.

Level the playing field with Tandym. Interested in learning more?