ROCKVILLE, Md. — According to new Packaged Facts market research, nearly 43 percent of U.S. adult consumers own at least one co-branded or affinity credit card.
By the end of 2014, co-branded credit cards alone generated 31 percent ($809 billion) of the general purpose credit card purchase volume of $2.63 trillion among Visa-, MasterCard-, Discover- and American Express-branded credit and charge cards.
Competition in the co-branded segment is fierce as a growing number of consumers seek more rewards in a finite universe of broader card features and benefits. Packaged Facts outlined eight important trends that will shape the market for co-branded and affinity cards. These trends are:
1. Continued push and pull in regards to transparency
Cards are employing a broad range of rewards redemption strategies that translate to different values when using the same card. While many other cards provide transparency, cardholders may not expect some cards’ promising, eye-catching rewards tier architectures that do not translate. Consumers may not begrudge cards this in light of the wider range of options they provide, as long as the methods employed are not perceived as deceptive.
2. Rewards that tie back to the partner in a unique way
Issuers and partners can choose to compete head-to-head on rewards rates, with the percentage of rewards offered clearly upfront. But card programs need to be differentiated in ways that offer something unique and highly aspirational to incent frequent usage. For cards that attract high-net-worth users, cash back only goes so far: These cards must deliver on brand expectations and enhance the experience by offering intangible, aspirational value to the card user.
3. New and growing co-branded entrants
Capital One and TD Bank are relatively new to the market, while Wells Fargo has finally stepped up to bat. Citi has rejuvenated itself, and Alliance Data and Synchrony are shifting their focus to co-brand, while Visa, MasterCard and American Express networks are competing for a spot.
4. An industry chasing a finite universe of prospects
Because cards focus most of their attention on affluent consumers — the mainstay of co-branded cards — it is believed that these consumers are in endless supply. However, this is untrue due to more issuers, more cards and more rewards. Consumers of all shapes and sizes continue to pace their spending and, due to the recession, issuers have seen modest loan and purchase growth.
5. Own-branded competition
Issuers including American Express, Capital One, Bank of America, Wells Fargo, JPMorgan Chase, Citibank and U.S. Bank have refined and tweaked their own-branded card programs carefully, streamlining offerings and tailoring their target audiences accordingly. While the co-branded proposition is fundamentally different, moving from own-branded to co-branded or vice versa is likely because of consumer circumstance and evolving need, creating fluidity in the use of one card type over the other.
6. The need to draw younger adult consumers to the card, as well as broader banking
Traditional financial institutions are losing the battle with millennials, who maintain banking and card relationships at lower rates than generation X did at their ages, and are turning to online-only and emerging financial services competitors. To keep people involved, Chase, Citi and Bank of America have caught on to the power a unifying rewards program can have on customer retention and cross-selling. More importantly, these banks go beyond American Express’ Membership Rewards by offering opportunities to earn more with the institution directly.
Co-branded cards tied to these kinds of platforms may help bring millennials back in the loop because they have what an own-branded card may lack: the power and ability of the partner brand. Brand power still has merit among millennials.
7, Going mainstream
Co-branded cards can move downstream to appeal to Middle America. Cards such as the Walmart MasterCard won’t be successful offering prizes with bells and whistles, and they don’t have to. This card, for example, gives incentive enough for usage to build loans and spend with a 1-percent earn rate. Less rewards means less expense.
8. The need for loyalty and the use of more sophisticated loyalty marketing strategies
More than ever, the concept of loyalty is a victim of consumer empowerment driven by technology and online/mobile engagement. This is a determining factor why private-label retail card partners have been quick to embrace increasingly sophisticated digital loyalty programs that place the card as a pin among many pins in an omni-channel marketing wheel. In this case, customers are looking at technology and what a related-card management expertise allows.
Co-branded cards fit into this mix and compete on the level of purchase (private-label cards can deliver SKU-level data to the partner) and on what can be done with the information about that purchase. For card issuers, this is a big bargaining chip at a time when merchants have the upper hand at the contract negotiating table.