Ikea is launching a new store credit card that will offer 5% cash back on Ikea purchases and 3% cash back on restaurant, grocery store and utility charges, but the rewards can only be redeemed at Ikea stores, according to a Marketwatch report.
The Ikea Visa card, issued by Comenity Bank, will not charge an annual service fee, but will carry a higher-than-average interest rate of 21.99%, although it won’t offer deferred interest on purchases.
To promote the new card, Ikea is offering a $25 bonus for sign-up that card users can apply to their first purchase, as well as free standard shipping on in-store purchases for U.S. customers until the end of August.
Ikea’s new card arrives at a time when private-label store credit cards are rapidly evolving. More retailers who hadn’t offered their own cards, such as Lucky Brand, are getting into the game, while retailers with established credit cards, such as Amazon, are mulling over the notion of adding to their card offerings.
Also, credit cards are increasingly being more deeply integrated with loyalty programs and offering cash back on purchases, among other rewards. These loyalty tie-ins and bonuses lend more value to traditional store-branded credit cards at a time when their viability is being challenged in the market by the emergence of mobile payments and mobile loyalty and rewards apps and features. Even cash back is becoming an increasingly popular feature of mobile apps like RetailMeNot.
In that environment, it’s a good idea for retailers to expand the cash back offer through their store cards to include purchases made elsewhere, and Ikea is not the first retailer to do so. However, it is either the first or among very few retailers to limit redemption of those cash back rewards to its own stores.
The idea of limiting where and how customers can redeem their rewards is risky, and leaves an opportunity for customers to question whether or not they really want to use the Ikea card for a given purchase, something made abundantly clear in MarketWatch's report. However, it's also a logical idea — why should an Ikea-branded card help you earn rewards you can spend at a different store? Plus, it puts other merchants — restaurants and grocery stores, for example — into the service of helping card users earn money they will go back and spend at Ikea.
As payment options continue to expand, and loyalty and rewards programs become more sophisticated, retailers that want to be in the business of offering their own traditional payment card had better bring something new to the table. Ikea has some new thinking about how to make sure cash back rewards are coming back through its own checkout lines, and while there are some clear risks, it may be an idea worth a look by other retailers.