(New York, NY): For the past several years, there has been an unprecedented level of activity in the U.S. co-brand marketplace, with many of the country’s largest programs coming to the end of their existing issuer and network contracts. That growth will continue, but in new pockets of the industry, according to Auriemma Group, a boutique management consultancy focused on the consumer payment industry.
Recently, many marquee retail and T&E programs, such as Amazon, American Airlines, Costco and Cabela’s, conducted competitive selection processes that received an extremely high level of interest from potential issuing partners. With few deals of that size expected to hit the market in 2017, Auriemma anticipates co-brand expansion will come from several less-explored areas.
“The U.S. co-brand market has been extremely active for the past few years and while a few major programs did shift partners, the overall landscape did not change that dramatically,” said Gary Rezak, Director of Partnerships for Auriemma. “Most of the leading issuing banks and payment networks still have the desire to grow, and they are actively seeking new partnerships.”
More online/mobile-only companies will start co-brand programs. As consumers continue to shift their spending away from traditional brick-and-mortar locations, the co-brand issuing community is starting to look online as well. “Some of these less traditional retailers are generating large volumes of traffic and revenue,” says Rezak. “These newer companies need additional tools to generate loyalty and for many, a co-brand card is an ideal solution.” And while issuers might not have been that interested in these types of partnerships a few years ago, they certainly are today. Companies that cater to a difficult to reach audience, such as millennials will be particularly attractive.
Issuer interest in de novo programs will extend to more established companies. With credit card portfolios remaining lucrative for issuers, there will continue to be a strong push to increase assets. And while banks continue to actively acquire customers for their proprietary card products, competition for customers is intensifying, with costs for rewards and acquisitions escalating. Co-brand will become an increasingly attractive option. “Co-brand partnerships enable unique value propositions and exclusive marketing channels,” said Rezak. Auriemma anticipates new co-brand programs to come from a variety of industry sectors including financial, auto and telecommunications. In the past, issuers were solely focused on Retail and T&E, but as opportunities for new partnerships in these sectors have diminished, issuers have become more willing to broaden their partnerships targets.
Second-look issuing will continue to gain traction. Traditional co-brand issuing banks tend to cater to prime credit consumers, but most brands have customers from all ends of the credit spectrum. Second-look programs allow a brand to cater to more customers, without disrupting the prime issuer’s program. “We’ve seen more brands negotiating for the right to offer second-look programs as part of the contract process,” Rezak said. “The sub-prime credit market has a lot of opportunity and we anticipate that many second-look programs will begin in 2017 and beyond.” When implemented correctly, these types of programs have little downside. Issuers focused on second-look programs have developed an expertise in managing the increased risk associated with this population, without disruption to the consumer, brand partner or prime issuer.
While 2017 may not be the year of the marquee deal, it holds plenty of promise for both issuers and brands in less-trafficked corners of the industry.
About Auriemma Group
Auriemma is a boutique management consulting firm with focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines. For more information, please contact Gary Rezak at 212-323-7000.