Target will sell its entire consumer credit card business to TD Bank Group.
The sale price will be equal to the gross value of what cardholders owe Target. Currently, that's about $5.9 billion.
Edward Jones analyst Brian Yarbrough said the deal allows Target to focus more on its retail operations.
"At the end of the day, Target is a retailer and retailing is their core competency and credit card portfolios are not," Yarbrough said. "Number two, the credit card business is much more volatile. It tends to depress earnings during economic downturns as people struggle to pay bills. And the credit card business typically has lower returns than retail."
Target will keep earning a portion of the profits generated by the credit cards. Customers using Target's so-called REDcards will continue to receive 5 percent discounts on Target purchases. The cards now account for about 13 percent of the retailer's sales.
Target says the transaction is designed to have minimal impact on cardholders, customers and employees involved in financial products.
Terry Scully, president of financial and retail services for Target, said shoppers using Target-branded credit and debit cards will still get discounts on their purchases from the retailer.
"There will be no impact on our existing RedCard guest for the credit card, our debit card. So, 5 percent off with the RedCard is going to be maintained. There'll be no changes to that reward proposition."