Many online retailers in the US were dealt a blow when the Supreme Court ruled in South Dakota v. Wayfair that states had the right to force retailers to collect sales tax on purchases to customers in their states even when retailers do not have a physical presence there.
In addition to creating a new set of accounting and compliance headaches, the ruling meant that numerous retailers will eventually lose a potentially significant advantage — that of being able to offer many of their customers sales tax-free purchases.
But instead of lamenting the fact that it would soon likely have to charge many of not most of its customers sales tax, one retailer found in the Supreme Court ruling inspiration for a new store credit card.
Last week, B&H, a New York-based multichannel retailer that sells audiovisual and electronics products, announced the launch of the Payboo Card, which offers customers in eligible states an instant reward that is equivalent to the sales tax they pay on their B&H purchases.
For example, if a customer in a state that requires B&H to charge sales tax makes a B&H purchase that includes $300 in sales tax, paying for the purchase with the Payboo Card will result in an immediate reward that reduces the customer’s total by $300, effectively offsetting the sales tax as far as the customer is concerned.
The Payboo Card is issued by Synchrony Bank, has no annual fees and the dollar amount of rewards that can be received is not currently capped. Because it is a store card, it can only be used to make purchases from B&H.
When a customer checks out on the B&H website and uses the Payboo Card, B&H recognizes that the Payboo Card is being used and accounts for the reward when calculating the order total. The amount of the reward is displayed as “Payboo card savings”.
A novel twist to an old financial product
Store credit cards have been around for a while — in fact, the history of store credit dates back to department stores in the early 1900s — but a variety of factors, including their generally higher interest rates, the abundance of rewards credit cards and growing disloyalty among customers, make convincing customers to take these cards out increasingly challenging.
With the Payboo Card, however, B&H appears to have a novel approach for enticing customers to utilize store credit. Instead of offering an initial promotion and/or periodic discounts for purchases made using store credit — a common tactic employed by retailers to promote their cards — B&H is offering customers a way to effectively restore the sales tax-free purchases they were used to, something B&H often had used extensively to differentiate itself from competitors prior to South Dakota v. Wayfair.
Of course, some are likely to ask: how can B&H afford to do this?
First, because the Payboo Card is a store credit card and not a regular credit card, B&H doesn’t have to pay the typical credit card processing fees it incurs when customers pay with credit cards associated with networks like Visa, MasterCard and American Express. This means it almost certainly realizes
slightly higher margins on Payboo Card purchases.
Second, and perhaps most importantly, retailers like B&H can generate significant revenue from store credit card purchases when customers don’t pay off their statement balances in full. With a purchase APR of 29.99% — well above the national average for regular credit cards — it’s entirely possible that
B&H will more than offset the rewards it issues customers even if only a small fraction of Payboo Card holders carry a balance and pay interest.
Of course, such a high interest rate, typical of store credit cards, will rub some people the wrong way, but this is the nature of the beast and customers who use B&H’s store credit card responsibly can gain a benefit that was lost with minimal effort and at little to no cost.
To be sure, Payboo Card doesn’t represent a total reinvention of store credit, but B&H has created a clever new way to package store credit that is likely to appeal to customers who might otherwise never have considered it. That’s worth noting, especially in light of similar innovations that are helping retailers attract customers, increase conversions and boost average order values (AOVs).
Many of these innovations relate to point-of-sale financing, a booming segment of the fintech market that is attracting huge investment and the interest of large financial institutions like Goldman Sachs.
While many retailers are partnering with third parties like Affirm and Klarna to offer their customers the ability to finance purchases when they check out, B&H’s Payboo Card is a reminder to retailers that there are numerous opportunities to use new kinds of financial services to improve sales and build closer relationships with customers.
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