Tag Archives: cobrand credit card

CARD Act – Did the World As We Know It End?

By: Jonathan Gelfand

The Credit Card Accountability Responsibility and Disclosure Act of 2009 shook the credit card market to its core.  It was the first major legislation that profoundly impacted credit card regulation in recent memory.  There were significant doom and gloom predictions at the time as to the impact of the act on customers, banks, and also partners in the co-brand market.  To compound the complexity, the Durbin Amendment impacted economic decisions at banks as debit cards became less profitable, reducing the relative negative expected impacts on credit card portfolios.  In October, the Consumer Financial Protection Board issued a report summarizing the results to date of CARD Act.  The impacts of the CARD Act are modest.


Impacts for Co-brand Credit Card Programs

When CARD Act was approved, most programs weren’t directly impacted from a contractual perspective, although a few were when their banks renegotiated their contract.  The overall economic environment impacted many more programs, but that can’t be directly attributed to CARD Act.


Indirectly almost all programs were impacted from a marketing budget perspective and an increased conservatism with respect to account approval and portfolio management.  Attribution of the exact changes to CARD Act is difficult because they overlapped with the economic downturn.  Although the cost of credit (fees and interest) were largely unchanged from before CARD Act, the availability of credit has declined substantially impacting the size of the market and hence the potential size for co-brand programs.


Cost of Credit

Leading up to CARD Act’s implementation in Q2 of 2010, the average retail annual percentage rate charged customers increased as banks pro-actively raised the cost of credit to customers.  With the exception of deep sub-prime customers, all other cohorts are subject to higher finance charge interest rates than they were before the CARD Act.  From this perspective, consumers didn’t do well with CARD Act’s intervention into the market.



For revolving accounts, the story is a little better with the average retail annual percentage rate remaining relatively constant, except for deep subprime customers the impact is largely moot or slightly negative.  It is interesting to note that there has been a slight downward trend in interest rates that probably reflects profit optimization within revolving customer segments.


When fees are combined with the effective interest rate the picture shows that the total cost of credit for revolving customers is largely unchanged compared to the period before CARD Act.  Net,  CARD Act doesn’t appear to have negatively impacted the cost of credit for customers or revenue for banks except in the subprime market.


Credit Availability

Due to a combination of the recession and CARD Act, there was a sharp decline in new credit card  accounts opened after 2007.  Over the same period Private Label credit cards were much more consistent.


 Part of the decline in new accounts is driven by a decrease in direct mail, the traditional work horse of credit card acquisition, but also by a decrease in approval rates across all levels of credit quality.  This decrease is a concern to co-brand programs since a declined customer will have some negative impression of the sponsoring organization.


In addition, once an account is approved, there is a lower line issued.  This is likely attributable mostly to the general economy.  Since accounts tend to go bad at the limit while good accounts tend to not use the full limit, high lines reflect significant exposure.


Future Focus

The CFPB has informed the public that they will be looking at deferred credit disclosures and rules as well as rewards disclosures in the future.  Both of these are important issues for co-brand program partners and should be tracked carefully to make sure that the programs maximize current contributions but are also  well positioned for the future.


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Partner Advisors’ Sean Collins Weighs In On Rogers Communications’ Co-branded Credit Card Program

A Perspective on Rogers Communications Launching a Co-branded Credit Card Program

By: Jim Tierney

Launching a co-branded credit card program may not be a big deal in the U.S., but in Canada it’s a bit different especially when a non-bank – Toronto-based telecommunications company Rogers Communications – is involved, according to Sean Collins, Managing Member of Wellesley, MA-based Partner Advisors.

Rogers Communications recently cleared the final regulatory hurdle on its path to entering the financial services business and plans to start offering credit card services in conjunction with its new loyalty program – Rogers First Rewards — next year.

Rogers Communications had been seeking a bank license since September 2011 and the Office of the Superintendent of Financial Institutions has granted authorization to “commence and carry on business.” Rogers officials have said a subsidiary will begin offering credit card services with a pilot program for select customers first, and general commercial availability will occur sometime in 2014.

Collins told Loyalty 360 that Canada has had co-branding for some time.

“I think the nuance here is that a non-bank has applied for and will receive permission to actually issue,” he said. “That is something the states have really backed off of.”

Collins cited Walmart’s failed bid to enter the financial services market.

“Basically, Walmart wanted to do banking and had secured a type of banking charter that looked as though they might actually do banking as a Walmart entity,” Collins explained. “There was a hue and cry around that from the banking community as you might imagine, and there was a great deal of pressure applied in Washington to prevent that from happening. There is some concern among regulators that non-bank banks might skew the system, and of course the branch bank down the street is loathe to compete with the likes of Walmart for bread and butter banking.”

What’s interesting, Collins added, is that with the financial crash and subsequent bank regulations applied in the U.S., “bread and butter banking (like checking accounts and debit cards) became a whole lot less attractive and banks could lose money on certain retail accounts – meaning that Walmart may have dodged a bullet.”

Collins discussed co-branded credit card programs in Canada compared to the U.S.

“Canada has a much smaller population than the U.S., and a different payments mix which leads to fewer programs,” he said. “Canadian consumers tend to carry fewer credit cards than their American counterparts. It isn’t so much of a case of longer, but a different marketplace requiring a holistically different strategy.  Generally, the (Canadian) market is less hypercompetitive than the U.S. due to both the consumer differences as well as a different approach to regulations for banks and the payment networks (i.e. VISA, MasterCard, etc.).

Canadian consumers tend to be very interested in large “hub” rewards programs, like Air Miles, that attract a large base of consumers, Collins said.

“They are multi-merchant programs that also tie in manufacturers,” he said. “Those programs have been very successful in Canada but less so in the U.S. In fact, AirMiles came and left in the U.S.  One successful example here in the U.S. would be a program like UPromise, but that is in relative penetration terms a far smaller program that Canadian hub rewards programs.

Collins said what is happening now in Canada is an “ante-upping” of rewards value.

“There are several co-brand programs that are underwhelming from a value perspective and that is changing rapidly,” he explained. “The entrance of far more aggressive issuers from across the border is having a big influence.”

Collins said what Rogers is doing in Canada regarding starting a bank is “much more frowned upon” by regulators in the U.S.

“While it isn’t a slam dunk in Canada and will take a while to get fully approved, it is an area in which Canada is more progressive than the U.S.,” Collins said. “It would be very hard for, say, Verizon here in the U.S. to get approved for a captive bank. There are advantages to such a structure, but more risk.  It comes down to the type of banking and lending behavior that Rogers creates in its marketing and product line. Positive selection for both credit score and usage is important in the lending area and I am sure Rogers is focused on creating a product line that optimizes that.”

Collins said successful co-brand programs require four key factors, no matter where they are launched:

A positively credit selected customer, which is driven primarily by a great value proposition that is truly breakthrough and unique

A co-brand partner that weaves the program into the entire customer experience and underlying rewards program, and treats the product like one of its core offerings — not just a ride-along. That usually means performance measurement, executive leadership and accountability, and incentives to the front line.

An issuer and payment network intimately focused on the partner’s broader corporate objectives, not just the silo of the credit card portfolio

Financial alignment between all parties – meaning the end customer, the partner, and the issuer – to equitably share the program benefits.  This means a value proposition and deal structure that is in alignment with this goal. Much easier said than done.

Collins believes that what Rogers is pursuing to use the co-branded credit card program to enhance its customer loyalty program is a “great use” and most successful programs follow the same path.

“Some of the similar efforts in the U.S. have been less successful in this sector than, say, travel-based loyalty programs, so it will be interesting to see how Rogers makes this an “aha” moment for its customers,” Collins said. “But generally, if there is a successful and widely participated loyalty program, that suggests good prospects for a cobrand card in general.  However, the “must haves” above have to be there.”


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Understanding How Banks Value Your Program Is Challenging, but Necessary for Growth -Jonathan Gelfand

How your bank crunches the numbers to determine the profitability of your credit card program is incredibly important to sponsors because the way that banks value programs directly influences their investment in the program and payments to their partners. It can add up to a mutually beneficial partnership or it could mean a marginally satisfactory relationship. It is well worth the time it takes to understand how they do it and how you can use those measurements to increase the value of your program.

 Factors that affect how banks count the profitability of credit cards include:

            •Credit loss profile of cardholders

            •Percentage of new accounts

            •Individual account performance

            •Performance of blended segments

Credit Loss Profile

Since they have had to write off high losses in recent years, banks have become more averse to taking risks. That means that it’s very likely that many “good” customers aren’t being approved, and your program may not be as valuable as it could be.

For example, although 30-day delinquent accounts are usually paid eventually and banks collect fees and higher interest rates on past-due accounts, they are also a harbinger of credit losses to come. It’s the first sign of trouble.

When banks decide that they really can’t collect from their customers, they write off the balance due as a loss. As a result, banks are being more cautious about issuing credit cards, and the percentage of cardholders who are 30-days delinquent in their payments is declining. According to an American Bankers Association report published in April this year, the number of cardholders who were 30 days late on their payments sank to 2.47%. It hasn’t been that low since 1994!  The record high was 5.01% in 2009.

As the number of 30-day delinquent accounts declines, credit card programs should become more profitable to banks. Here’s why. Accounting and banking rules require banks to reserve funds for future loan losses. So, even though losses haven’t actually occurred, these estimated losses affect the bottom line and are reflected on profit and loss statements.

The income generated by your program determines how much a bank is willing to invest in it. As your program increases in value, the bank may be willing to provide more incentives for customers, offer direct mail opportunities, invest in technology to improve customer acquisition or help you grow your program in other ways.

As a partner, asking about and understanding the credit performance of your portfolio will enable you to better maximize its value.  Your bank should be able to tell you the percentage of accounts that are 30-days delinquent and the trend, as well as the charge-off rate and trend. Many banks don’t like to share this information, but it is important and worth pushing for as it directly relates to future investment.

New Accounts

Measuring the value of a new account over time is also challenging.  It is very expensive for banks to acquire new accounts. The payoff, which is highly uncertain, occurs over many years.  Since credit cards tend to have a life span of over 10 years, it is important to understand that average metrics and profitability measured at a specific point in time are very poor indicators of a program’s value.

A new portfolio that is adding numerous new accounts will have sub-par measurements that hide its long term value.  It will also have disproportionate losses, such as estimated reserve funds, that will not look favorable. On the other hand, a vintage portfolio- one with only about 10 percent new accounts– will spin off significant value to the bank.  Portfolios become more valuable over time as cards are used and the number of delinquent accounts declines through attrition.

Although old accounts are more valuable than new accounts, you need to keep adding new cardholders. Their accounts will eventually become more valuable.  If you stop acquiring new customers, you won’t be able to increase the number of tenured accounts you will have in the future.

Understanding the lifecycle of accounts and not just its value at a given point in time is important to maximizing the value of your program. You may think that the banks are expert at this, but unfortunately in my experience there are significant gaps in managing and understanding this cycle.  Frequently like many organizations, banks are very short-term focused.

 Individual Account Performance

Looking occasionally at performance on a per account basis is another important tool that can be used to determine areas where performance can be improved, especially if you compare it to accounts in alternative segments or to a control offer.

Per account analysis can be performed at a point in time by vintage – accounts that were acquired at the same time by the same method — or based on a longer term measure using a tool like Net Present Value (NPV), which takes into account and discounts the future value of an account.

For example, if you sent prospective cardholders an email offer that said they would receive $100 if they spend at least $1,000 on an initial purchase, you can evaluate just the accounts that were acquired a year ago through that promotion to determine if the email offer did well enough to consider repeating.

Ideally, you should compare that vintage to another vintage to determine which offer is better, but just understanding the profitability of one vintage can be valuable.

If you also analyze those accounts using NPV, then you will learn if the costs associated with the promotion will create long term value and if it is a good investment.  You can determine the long term value of those accounts based on the expense of the promotion versus potential future revenues. That can be compared to the expected performance of a different promotion.

We encourage you to have your bank partner share with you the per account value for them, but also to calculate this value for you. This type of analysis will help you to prioritize and determine the opportunities your cobranded credit card offers so that it will attract more attention in different marketing situations online or inshore.

In many cases, especially if a program isn’t performing, it is hard to justify investing in new account acquisition because the scale isn’t profitable in the short term.  On the other hand, if you look at it from a per account basis, it may be a very profitable long term investment.

Performance of Different Segments

Another challenge with respect to determining profitability is the blending of different account types and segments together. Accounts are commonly segmented by current credit quality, credit quality at acquisition, spending behaviors with the program sponsor, spending behaviors overall, and balance behaviors to name a few. When these segments are viewed separately, you can identify how different segments are actually performing and which accounts are driving profitability. The sources of value become clear and the bank and partner can work to maximize future profitability.

For example, if you can identify who your best customers are, you can invest more money in efforts to get them to be even better customers. For instance, if a customer is purchasing shoes from your store, you may be able to convince them to also buy jackets by offering incentives such as discount offers mailed with their credit card statements. Or, if a customer is buying a limited amount of a product such as gasoline, you could provide an incentive to make them buy more using your card.

Synchronizing Bank and Sponsor Objectives

So, as a partner, what can you do to align your objectives with those of your bank? First, ensure you understand and are correctly valuing the profitability of the program for you in both the short and long-term.  Once you understand your profitability and what drives it, it is important to understand the bank’s profitability so that the value created can be shared more transparently.

Measuring profitability isn’t simple. In banking, it is very complex and will require an investment in time and energy to understand how it works, the different perspectives, and implications.  But it’s well worth it. When you are fully in sync with your bank partner, real growth can be unlocked.


For additional information on Partner Advisors and the way we serve our clients, please visit our company website.

A Peek into the Consumers’ Mind: The Search for a New Financial Product – Kerri Moriarty

Partner Advisors recently conducted market research in order to better understand consumers’ experience when searching for financial products and interacting with providers. The results were surprising and full of implications for provider marketing strategy.

The majority chose search engines as the primary resource when searching for financial products, like a new credit card or mortgage. Seeking advice from family and friends was identified overall as the secondary resource. While these findings alone may not surprise you, it was interesting to learn how these results differ between men and women. While men mirror the overall sample, women indicated that checking with family and friends is the vastly preferred information resource when shopping for financial products. Also while women are slightly less likely to open direct mail solicitations than men, overall 84%% of our sample claims to never or seldom open mail solicitations. This confirmed our hypothesis that direct mail is no longer very effective for many products.

With search engines so popular, we were curious to ascertain how search engines are being utilized from the shopping process through to purchase:

  • Approximately 70% use Google or other search engines primarily as a starting point to identify product options.
  • Only 29% use search engines to compare and evaluate products and providers and a minuscule 1% utilize search engines to select a provider when they are ready to purchase.
  • While 60% find search engines to be most helpful because they provide links to many different product options, many express frustration in trying to identify the next step.
  • 32% feel search engines provide too many options.
  • 26% dislike that search engines don’t provide links to products customized to consumers’ specific needs.
  • 20% wish search engines would direct them to independent third party review and comparison sites instead of product links.

Google reports that the finance industry spent over $4B on Google Advertising last year.  Considering these results from our research, it raises the question whether these advertising dollars are being spent in the most cost effective way to convert creditworthy households into customers.

A key implication for providers here is that customers are looking for fewer, customized, options that can be compared and reviewed independently of providers.

More than half of our sample does not trust marketing and product information from providers in addition to finding it unclear and confusing. An overwhelming 82% find the process of researching, selecting and applying for financial products to be a hassle. Based on our research, we believe that consumers are seeing providers’ information in search engine results and are choosing to other links to get to a decision about which product is best for their needs. While Google advertising certainly proves successful to a degree, it is important to consider other alternatives for product placement that reach consumers as they are comparing and evaluating, and ultimately applying. Lastly, as demand for customized recommendations increases, advertising through outlets supplying this need creates the opportunity for providers to reach and capture their target customer more than ever before.



For additional information on Partner Advisors and the way we serve our clients, please visit our company website.