8 ms·
Anatomy of a Co-Branded Credit Card
- pjg 11y agoNice article! Anybody who's been in the Credit Card business - either from the issuing side or from the Merchant or Network side knows this stuff. The author has done a good job summarizing the details without disclosing information that may be considered confidential
- minouye 11y agoInteresting info and highlights how powerful Costco has become. They continue to capture revenue streams outside of margin from actually selling goods (credit card bounties/rev-share, membership fees, etc.) and they presumably were able to get Visa/Citi to lose money on this deal. Visa set interchange fees at less than 0.4% (vs. 0.6% I believe for the old Amex deal). http://www.bloomberg.com/news/articles/2015-04-17/costco-seen-paying-almost-zero-to-accept-cards-in-citigroup-deal http://www.bloomberg.com/news/articles/2015-04-17/costco-see...
- deleted 11y ago[deleted]
- Havoc 11y agoThese cards are also quite powerful from a psychological point of view. e.g. I've got an assortment of cards on my - including some snazzy ones. Yet given a choice I use a british airways amex because there is a direct quantifiable link to something I can use (points for flights). Sure I know on a logical level those points are worth uhm not much but still the effect is strong. >It means that Costco will also accept other Visa cards. They didn't before?
- deleted 11y ago[deleted]
- tclmeelmo 11y agoIn the US Costco, for credit card payments in the store or fuel pump, only accepts American Express. Cash, checks, and (I believe) debit cards are also acceptable in the store.
- Havoc 11y agohaha. Yeah its the exact opposite in Europe. Everyone accepts Visa & Mastercard but Amex is hit & miss like 50/50. And it mostly comes down to trying because the clerks don't even know if the PoS machine accepts it.
- saryant 11y agoIt's also the exact opposite virtually everywhere in the US. Only accepting Amex is extremely rare here. Much rarer now that Costco is switching to Visa.
- gburt 11y agoI would be eager to find an analysis of how Amex lost the Costco account. What a painful loss that must be...
- tclmeelmo 11y agoThis article might be a good starting place: http://www.bloomberg.com/features/2015-how-amex-lost-costco/ http://www.bloomberg.com/features/2015-how-amex-lost-costco/
- Matt3o12_ 11y agoThat is because AMEX charges much higher fees. At my dad's shop, it's about 3% while visa/master card is only 1.5%.m (I'm not 100% sure though). Since my dad mostly has high volume purchase (and only one or two a day) the 1.5% can mean a lot. He also says doing business with AMEX is hard (if there was an error) because he gets ridiculously few purchase and they don't consider him valuable enough. And everybody who has a AMEX CC in Europa has a Visa or master card as well.
- Havoc 11y ago>That is because AMEX charges much higher fees. That does seem to be true mostly. Shop near has the opposite though - Amex card use is free but for Visa & Mastercard there is a surcharge. Thought that was a bit weird.
- twoodfin 11y agoIt depends on what you value. I use my BA Chase card exclusively, because with ~$100,000 worth of spending you can get a pair of RT BA First trans-Atlantic tickets for about the price of coach. Are those "worth" the $10,000-$20,000 fare difference? Surely not, but to me they're worth more than the ~$2,000 I'd get from the best cash back cards. These partner cards really are marketing genius, and a great way to capture more attention, dollars & loyalty from your best customers.
- modoc 11y agoI have had almost no luck finding routes/dates that am ALLOWED to use my 500,000 Avios BA Chase points on:( Or my free companion tickets. And that's also not counting the insanely high Heathrow taxes/fees for all flights routed through London. Any suggestions?
- csoghoian 11y agoPay an award booking service to find you the best flights possible. There are several out there, and they know a lot more than you about how to find obscure flights/routing. it's worth the $150.
- allworknoplay 11y agoI interned at MBNA, which was the independent credit card issuer (later acquired by BofA) known for its early, strong successes with "affiliate" cards, what are called co-branded cards here. The company's explanation for its success with these cards was the combination of an exceedingly low default rate with a relatively high usage rate. The company's koolaid anecdotes included stories about people who would literally default on their mortgages before failing to make the minimums on their Dale Earnhardt card, and who were consistently indifferent to interest rates or annual fees relative to competing, non-affiliate cards they might have.
- marincounty 11y agoI'm not sure if MBNA still has mandatory non-arbitration clauses in their TOA, but if they are; go to another CC company. They use these non-arbitration clauses, and they are always right.
- jbapple 11y ago> They use these non-arbitration clauses, and they are always right. What do the clauses look like? What does it mean that they are "always right"? What is the consequence of this rightness?
- chris11 11y agoI don't have any personal experience with MBNA, but I assume it means the agreement you sign forces you to use binding arbitration in place of suing MBNA. And being always right just means that basically MBNA will always in in arbitration. So you are stuck in a contract with a company you can't sue or win against if they break the contract.
- dclowd9901 11y agoThat can't possibly be a legal contract. There are laws protecting people from fraud. Are you saying that the card company could perform neglectful or fraudulent behavior but not expose itself to suit? That would be laughed out of a traffic court.
- tclmeelmo 11y agoSince it features heavily in the article (N.B., from 2015), more information on the Costco/Citibank card just came out the other day: https://www.citi.com/credit-cards/creditcards/citi.action?ID=citi-costco-credit-card-conversion https://www.citi.com/credit-cards/creditcards/citi.action?ID...
- DanBlake 11y agoI have been contemplating creating a new credit card the last few years. Most likely under the Visa or Mastercard line. The thought is, create a reward card specifically for high-value/vips that has the best rewards/cashback program on the market. Currently the best card is the SPG card from Amex which gives points that can be transferred to a plethora of partners and are among the most valuable points of all cards (around 2.9cents per point). What surprising is the cards currently for high-worth users have terrible rewards programs, ie the amex black card. If you created a new card, the hope would be that you could offer more rewards to transfer partners by upselling 'these are vips' you should compete to get them. The challenge is in figuring out how to make it all work. Credit cards make money 2 ways as far as I can tell- The 2.9% + 30cents on every transaction, as well as the interest paid on their bill. So you should ideally have at least 3% of every transaction to give back to the user in rewards while living off of the 30 cents per transaction. Hopefully the interest paid on debts breaks even with the defaults.
- smt88 11y agoCC fees cart wildly per merchant. How would you deal with that uncertainty?
- deleted 11y ago[deleted]
- saryant 11y agoI expect there's a reason that Amex's high-end credit cards are light on rewards and heavy on benefits: people in those income brackets don't really care about getting an extra percent back on their credit card bill.
- jhall1468 11y agoI doubt it's because they don't care, more like the cost of a concierge service/personal shopper, free airline tickets, etc all end up being MORE than 1% of their credit care bill. And they are probably buying those things either way.
- caseysoftware 11y ago
- Cyph0n 11y agoIs it normal in the US for a business like Costco to accept only one type of credit card? Here where I live there are branded cards but businesses still accept cards from all issuers.
- saryant 11y agoNo. Costco was unique in that.
- secabeen 11y agoCostco did accept MC/Visa-branded debit cards.
- donarb 11y agoThey still do, at least here in Seattle.
- adrr 11y agoInterchange on most debit cards is 0.05%. Only small banks have higher interchange.
- arielpts 11y agoActually the interchange does not vary per issuer. It can vary per card type (pre-paid, debit or credit), card level (basic or signature/elite, etc.), type of transaction (CNP or present), Merchant type (supermarket, airlines, etc.) and some other rules, depending on the scheme and the region (US, Europe, etc.). For instance the Interchange (to be paid to the Issuer) when a US issued MasterCard Debit Card is used in Gas Station is 0.70% US$ + 0.17 with a cap of US$ 0.95, but when used in a Restaurant is 1.19% + US$ 0.10 without caps. Visa: https://usa.visa.com/dam/VCOM/download/about-visa/visa-rules-public.pdf https://usa.visa.com/dam/VCOM/download/about-visa/visa-rules... MasterCard: https://www.mastercard.us/content/dam/mccom/en-us/documents/MasterCard_Interchange_Rates_and_Criteria%202015-16.pdf https://www.mastercard.us/content/dam/mccom/en-us/documents/... What can vary from issuer to issuer is the processor/network costs.
- dawhizkid 11y agoI'm a huge fan of credit card points hacking. I've probably redeemed over $100k in free travel in last 4 years between flights and hotel stays. The avg user acquisition cost for these issuers must be over $800-$1000
- ikeboy 11y agoSome people do millions in manufactured spending a month. (Source: http://www.travelcodex.com/2016/02/how-much-manufactured-spend-is-too-much/ http://www.travelcodex.com/2016/02/how-much-manufactured-spe...)
- chris11 11y agoHow do they get away with it? I've seen credit card agreements where the company reserves the right to close the account and remove accumulated rewards. I'd think it be really easy to flag those accounts and have the customers banned. Edit: the comments talk about it more and it looks like those people were probably using multiple cards spread across multiple family members, or also using smurfs.
- paulhart 11y agoI find it interesting that they've chosen to partner with different vendors (and different card networks) in other jurisdictions - here in Canada, the new Costco card is a MasterCard in partnership with Capital One.
- encoderer 11y agoMy wife and I flew business class from SFO to Greece last year, airfare that would've cost $25k to book cost us $2k cash and the reward points from about 18 months worth of spending. In this case, it was on British Airways co-brand card that gave us 100k mile bonuses (to each of us). One $11.5k business class ticket ran about 190k miles, and we earned a companion pass for spending $30k on the card in a year. (The flight was great, and combined with the BA lounges saved us from the schlep). Most of our spending is on cards that earn cash (or cash-redeemable) rewards but I love to take advantage of big bonuses on co-branded cards. We also earned 250k AA miles, 100k from a bonus on a new card, and the rest from US Airways cards that Barclays was giving away to burn thru their cache of prepaid miles ahead of the AA merger. I cancel the card the following year before the annual fee hits -- or not, because often it's waived for a second year. Don't get crazy and it doesn't impact your credit.
- dfc 11y ago"Many folds"? The benefit to the co-brander is "many folds"? I'm not familiar with this term and nothing in the dictionary made sense. Is this industry lingo or the author's inability to bother editing and reviewing the piece?
- maxerickson 11y agoReads like an individual quirk to me, a bastardization of many fold. (It still doesn't read very sensibly, but it isn't a huge leap from many folds->many fold->there are several)
- dfc 11y agoManyfold, is one word, no space between many and fold. I bet you are right about the author's intent. I know you are right that it does not read sensibly. Thank you for responding, for some reason "manyfold" did not come to mind when I read the article.
- oceanofsolaris 11y agoIt's simply a misspelled version of "manifold", isn't it? And if you replace it by "manifold", the sentence makes perfect sense.
- dfc 11y agoThe question was "what are the benefits?". I do not think an answer that describes the number of benefits makes perfect sense.
- joncalhoun 11y agohttp://lmgtfy.com/?q=Manyfold http://lmgtfy.com/?q=Manyfold I believe the author speaks English as a second language. Googling his name brings up a page describing him as an immigrant and his writing supports this theory in certain places. I suspect you could have pointed the mistake out in a more tactful way. He knew what he wanted to say and he used two valid words, he just didn't know to make it a compound word and this would be easy to miss when self editing.
- bradwschiller 11y agoOne of the big issues with the credit card business is fraud. Fraud is around 1% of all credit card transactions. Fraud tends to be higher on online payments where the "card not present" rate that merchants pay is higher than the "card present rate" enjoyed by brick and mortar stores. In addition to fraud, credit card companies have to contend with the purchasing power of large companies (e.g., the Costco example ditching Amex) and also their own expenses as many people like concierge services and other "perks" that cost money and are becoming more standard on cards for people with higher credit and income. In practice, it's fairly difficult to offer much of an incentive beyond 2% cash back (which Fidelity Amex and the Capital One Visa Spark Card offer). However; these cards are closer to being loss leaders for their institutions as they want to incentivize you to do your banking with them as well (Fidelity does this fairly well as the cash back must be deposited into a Fidelity account). Charles Schwab was the first to have a 2% cash back card many years ago and they discontinued it, likely because they lost money on it. Travel-based rewards cards can get away with offering seemingly better incentives because of their margin. Starwood is a perfect example of this as hotels have a high fixed cost base and low variable cost base. The variable cost to stay at a high-end hotel is something like $50-60 per night if the room is vacant. So while Starwood seems to be paying out 2 cents on the dollar (e.g., 10,000 points for a $200 room), they are really only paying out 0.5 cents on the dollar. This is why the Starwood Amex is seemingly the best Credit Card. It's all about the economics of the company that brands it.
- Scoundreller 11y ago> Travel-based rewards cards can get away with offering seemingly better incentives because of their margin. They also de-value the points/miles on a regular basis and often expire them as well.
- the_mitsuhiko 11y ago> One of the big issues with the credit card business is fraud. Fraud is around 1% of all credit card transactions. Fraud tends to be higher on online payments where the "card not present" rate that merchants pay is higher than the "card present rate" enjoyed by brick and mortar stores. These are things that will change over time. 3DSecure is standard in Europe because the EU pushes transaction fees so low that credit card companies need to reduce fraud because they cannot afford it any more.
- deleted 11y ago[deleted]