Instacart shopper debit card – Photo: @TonyTheTigersSon via Twenty20
Can own brand credit cards drive loyalty for Instacart and DoorDash?
Instacart, the nation’s leader in grocery delivery, and DoorDash, the largest restaurant takeout delivery platform in the U.S., are both planning to launch their own credit cards. The Wall Street Journal first reported on the developments.
Both platforms saw explosive growth last year as delivery took off during the pandemic. Both scaled operations, cemented their positions as leaders in their respective channels and were rewarded with lofty valuations by Wall Street.
Instacart is estimated to account for about half of the online grocery delivery market.
According to Second Measure, DoorDash captured 55 percent of U.S. consumer meal delivery sales in February, followed by Uber Eats, 21 percent; Grubhub, 16 percent; and Postmates, six percent.
The credit cards are expected to help the companies hold onto those pandemic-driven gains, including incentivizing sign-ups for each platform’s membership program. With its DashPass program, DoorDash offers free deliveries for about $10 a month while Instacart Express offers free delivery on orders of $35 or more, also for $10 monthly.
The credit cards can also be used to retain the many new members that tried delivery during the pandemic. Delivery will likely moderate as COVID-19 vaccinations support more visits to restaurants and grocery stores.
Finally, a strong rewards-based credit card reinforces each company’s position as a go-to delivery platform and provides leverage against efforts by restaurants and grocery stores to lower commissions.
As reported by the Journal last December, grocers have been grumbling about commissions from Instacart that can amount to more than 10 percent of every transaction. Other complaints include Instacart exercising too much control over customer interactions and its advertising that competes against grocers’ own co–op programs.
DoorDash and similar takeout delivery platforms have received even more criticism for charging fees to restaurants ranging from 15 to 30 percent per order.
Cards can also be a source of data, although they come with exorbitant interest rates for consumers. According to a recent analysis by CNBC Select, the top-five store credit cards based on rewards, special financing offers and free shipping perks are Target RedCard, Walmart Rewards Card, Amazon Prime Store Card, Costco Anywhere Visa Card by Citi and Lowe’s Advantage Card.
- Instacart and DoorDash Plan to Launch Their Own Credit Cards – The Wall Street Journal
- DoorDash and Instacart look to dive into the credit card space – Business Insider
- Instacart Looks to Credit Card Offers to Spark More Business – Progressive Grocer
- DoorDash Plans To Launch Its Own Credit Card – 1851 Franchise
- Instacart Said to Ink Card Deal With JPMorgan Amid Lockdown Boom – Bloomberg
- Instacart Announces $265 Million In New Funding From Existing Investors – Instacart
- Instacart raises $265 million, more than doubling its valuation to $39 billion. – The New York Times
- Instacart’s valuation doubles to $39 billion – CNBC
- Which company is winning the restaurant food delivery war? – Second Measure
- Has the pandemic proven Instacart’s business model? – RetailWire
- Chipotle battles escalating delivery costs – RetailWire
- The best store credit cards of April 2021 – CNBC Select
Discussion Questions
DISCUSSION QUESTIONS: Do own brand credit cards make sense for Instacart, DoorDash and other delivery platforms? What competitive threats, if any, do you see for the retailers and restaurants they serve?
Poll
BrainTrust
Dave Bruno
Director, Retail Market Insights, Aptos
Gary Sankary
Retail Industry Strategy, Esri
Do I really need another credit card? It might appeal to some sector of the population but this is not something I need nor from which I would derive significant benefit.
Do I really need another credit card? Unless they give me a significant discount on my order, I prefer to keep my life simple. Use one. Pay one.
The marketer in me really wants to like this idea for all the reasons Tom outlined in his article. But I am just not convinced consumers want another piece of interest-accruing plastic in their wallets. Nor am I convinced that large numbers of people are just waiting for some dicey credit card offer to sign up for the monthly subscription plans.
Agreed!
It all depends on what kind of rewards they offer heavy users of the service. If it is a lucrative cashback offer that exceeds what I get from my general use card or another dining specific offer (American Express) then yes, it will make sense.
My sense is that people are consolidating credit cards. I certainly don’t want another credit card in my wallet or on my financial records. I would challenge their statement that the purpose of these cards is to feed loyalty programs. Ordering for delivery online, customers already provide all the data these companies need for a very robust loyalty program.
I would say no – I have a card tied to the apps already or use Apple Pay. I really don’t want another card unless there is a benefit for acquiring one.
Only people who are already Instacart and DoorDash die-hards will be enticed by this. The cash back better be well over 5 percent, otherwise consumers will be able to find the same perks via the major credit card providers who bonus favorably against restaurant, grocery, and related MCCs.
That said – I think there is more upside for DoorDash, between the frequency, vendor data, and the creativity they can have with cycling promotions.
Many customers use a REDcard when shopping at Target or target.com. Others use their Prime card when shopping on Amazon or in Whole Foods. I would imagine that frequent users of Instacart and DoorDash would consider those cards if the rewards were deemed significant.
Instacart and DoorDash will need significant benefits for card holders. Few people are interested in adding a card to an already full wallet. But it’s a smart move by Instacart and DoorDash and one more step to pull shoppers away from retailer engagement.
“With its DashPass program, DoorDash offers free deliveries for about $10 a month while Instacart Express offers free delivery on orders of $35 or more, also for $10 monthly.”
I wouldn’t underestimate the power of this benefit. If it’s paired with a $0 annual fee, this could be a very-compelling card for a large swath of Millennials. The Uber Card launched in late-2017 and was an instant hit. Granted, part of it was a generous 4 percent back on restaurants and $0 international transaction fees, but I think it’s clear that strong benefits appeal to a large segment of customers in the sharing economy.
With the rise of mobile wallets like Apple Pay and PayPal and social payments (i.e., Venmo), I don’t see own brand credit cards driving loyalty among the mobile-first consumer. The benefits would have to outweigh the convenience and hefty interest rates for many consumers to sign up.
I would think a great benefit of a successful store-branded card is visibility. It provides Instacart a 360-degree view into their customers’ spending habits outside of Instacart — who they shop with, for what, and how much they pay. That data can help them develop more relevant services and have their customers move more of their spending through Instacart.
If the various incentive programs were restricted to (only) card holders, then it might have some advantage; but of course that’s not likely to be the case. So, no, I don’t really think it’s a great idea.
Instacart and DoorDash are on the right track for their business. This has nothing to do with credit cards and everything to do with loyalty cards. The business option here for both companies is enabling a way to incentivize loyalty and make it even simpler for customers to pay online for their services. The card data would be stored, and payment may come from a single payment source anyway. Customer would receive perks and discounts on their delivery fees. This is completely a mechanism to hold onto their customers who grocers and restaurants will be taking back. I’m still wondering how you’d be paying an Instacart fee offline?