Partnerships and Innovation as a Catalyst for Credit Card Growth

Navigator Edition: September 2015
By: Katherine Siegrist

Competition in the credit card industry is intense with the pullback during the recession in the distant background. In many ways it seems like old times – card partnerships are the rage, rewards programs are being launched or retooled at a rapid rate, and there is fair amount of debate on the threat of new entrants and/or different product types. For good measure, at the height of the digital revolution, direct mail solicitations in the U.S. will likely exceed 4.7 billion in 2015. However, it is interesting to take a look at certain card products and partnerships to see if and how value propositions are being enhanced to incorporate new features especially in light of the innovation occurring in mobile, FinTech, and other new businesses.

As credit card programs and their respective rewards constructs are reaching a tipping point in terms of the absolute value that can be feasibly offered, issuers are exploring unconventional partnerships to identify new value pools and other sources of differentiation. For example, issuers are increasingly leveraging partners to augment the ubiquity of their credit products’ value proposition. While partnerships have been a common practice in the airline and hotel sectors, where credit card agreements have a long history, issuers are collaborating with more non-traditional entities for access to their brand assets.

For example, American Express and Starwood, in light of recent extension of their card partnership agreement, re-launched the Starwood Preferred Guest Card from American Express. The new value-proposition includes not only extending perks at Starwood properties by way of complimentary in room internet, but also introduces a partnership with Boingo Wireless that grants cardholders access to hot spots while on the go. These latest enhancements seek to drive loyalty not only to the Starwood brand but also to American Express and Boingo Wireless. Similarly, both American Express and Capital One have looked to provide customers with value outside of traditional partnerships. Earlier this year, American Express offered certain new cardholders a free year of Amazon Prime, while Capital One is offering their Quicksilver cardholders 20% back on Uber rides.1  Non-traditional affiliations demonstrate issuers’ efforts to differentiate their products with unique value-propositions and drive loyalty among a combination of brands.

Outside of additional earn opportunities, issuers and networks continue to partner with third parties to demonstrate the incremental value of their ecosystems. For example, Citi and American Express through partnerships with various ticket and event venues, offer their cardholders exclusive access to music, sporting, dining and other types of events. Citi’s Private Pass® grants eligible cardholders the ability to purchase presale tickets, access preferred seating, and partake in certain VIP packages. Through a partnership with Ticketmaster, American Express offers cardmembers comparable benefits in addition to the ability to use Membership Reward points for a portion of the event purchase.

Other issuers are placing their bets elsewhere, in the form of security enhancements. In an environment where news of data breaches grace the front pages on a frequent basis, some issuers have focused on technology to bring consumers peace of mind. In 2015, Discover launched its Freeze ItSM feature, which acts as an on/off switch to temporarily block new purchases and other activity on an account. Freeze ItSM gives cardholders greater control over their accounts, and lets them do so in their preferred communication channel (e.g., from a mobile device, online or over the phone). Additionally, several issuers, including Discover, are providing customers with free access to their credit scores to allow customers to monitor activity and quickly diagnose issues that may arise from fraudulent actions.

While security is high priority, other issuers have sought to leverage technology and partnerships as a means of increasing consumer convenience. Through its Citi Price Rewind service, the issuer allows consumers to automatically track purchases made on their cards for a lower price. If a lower price is found within 60 days of purchase, the customer submits a copy of the purchase receipt and receives a statement credit for the price difference. These types of enhancements raise consumer awareness of an issuer’s product value and drive continued interactions separate of purchase activity.

Figure 1: Selected Recent Credit Card Enhancements

Fig-1_-Selected-Recent-Credit-Card-Enhancements1 The annual fee was raised to $95 from $65 when the changes took effect August 11. 2 This promotion was a limited time offer that is no longer available. Amazon Prime membership was a welcome bonus offer available to new Card Members who applied online, approved and spent at least $1,000 within the first 3 months. 3 The AT&T Access More Card is a new product to complement the AT&T Universal Card and has a $95 annual fee.
Source: Company websites and public releases.

With escalating competition, it is essential for credit card issuers to differentiate their product offering. As demonstrated by recent market activity, issuers have many options to pursue in this regard: (i) expand current credit card partnerships to leverage unique assets; (ii) form new partnerships to resonate with various consumer segments and prove relevancy; and/or (iii) address a specific customer need such as security, convenience, etc. The largest issuers have the luxury of being able to explore each of these paths, while smaller issuers still have an opportunity to compete but must be more selective to present customers with a distinct offering.

1 American Expresses Prime membership promotion has since been discontinued and was available to new cardholders only; Capital One and Uber’s 20% back offer is valid through April 2016.

For more information, please contact Katherine Siegrist, Senior Consultant,, specializing in Credit Card Issuing.

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