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What I learned at the Co-Brand Credit Card Conference yesterday

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Anika and I were at the UK’s only annual co-brand credit card conference yesterday where representatives from most of the card groups we discuss on Head for Points meet up to discuss what is happening in the industry.  Which, at the moment, is obviously quite a lot.

If you are interested in seeing what I spoke about – none of which will be a surprise to regular readers – you can download my slides (PDF) by clicking the image below.

I would like to be able to say that we came away with an exciting new vision for where the co-brand card market is going, but we didn’t.  “No-one knows nuffin” it seems, so far.

This is what we did pick up:

One consultant felt that the impact of 0.3% interchange fees is not as bad as expected.  His logic was this:

30% – 40% fall in interchange revenue, but offset by

15% – 20% recovered through interest rate rises, annual fee rises, other tweaks

I am not convinced, partly because I do not feel that interest rate revenue is that high, and because only one card (BA Premium Plus) has hiked its fee.  I doubt MBNA would have killed its entire airline product line if the net revenue drop was only 20%.  This view only holds water if the card companies ditch their highest spending customers and attempt to sign up more people who pay interest – and there are few of those in the core London business traveller market.

Other interesting titbits:

One of the longer established co-brand travel cards has just started a root and branch review which is likely to see a substantially changed product emerge.  In this particular case it might actually be positive.

We may see cards try to reign in costs via benefit cuts (no 2-4-1 voucher?) or caps on points earning – or perhaps staggered earning tiers which reduce depending on how much you charge.  Big spenders are now a problem as the marginal miles cost exceeds the marginal interchange fee.

Cardholders are seen as insensitive to rises in fees and interest rates – seemingly true in the case of the BA Premium Plus fee rise, I agree

The current operating model (airline takes all its revenue via sign-up commissions and a ‘pence per mile’ payment) is broken.  Future co-brand agreements should be treated as ‘open book’ joint ventures with a 50 / 50 profit split, with the airline or hotel group having to accept that it is now in the credit card business.

Card data needs to become a greater source of value.  Apparently American Express has never delivered on the promises of ‘big data’ it made to British Airways.  The ability to use card data – perhaps using PSD2 to add data from other cards – must improve.  This may involve doing things which seem illogical, eg if the BAPP Amex offered double Avios on all airline purchases – not just with BA – then BA would get a better picture of how much you were spending with other carriers and could act accordingly.

‘Card linked offers’ such as the Avios and Virgin ‘in-store earning’ deals are seen as a valuable source of revenue going forward.  (Off the point, but apparently Head for Points is entirely responsible for the many changes to the Virgin / Waitrose in-store deal, because it went so crazy after we originally wrote about it that the budget was blown very quickly and emergency action was required).

The good news is that there was not a major sense of despair in the room.  All of the parties have too much at stake.

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Comments (195)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • Polly says:
    22 Feb22 February 05:29

    Glad you made it. Well fancy us lot influencing Waitrose marketing.

  • JamesB says:
    22 Feb22 February 06:04

    Rob, can you please share with us the questions you were asked at the end of your presentation, and more informally during the conference? Often questions can be more insightful than answers.

  • Anna says:
    22 Feb22 February 06:24

    No 2 4 1 voucher would be a huge blow. I wouldn’t pay £195 per year for the BAPP without a substantial incentive like the companion voucher. I’d probably seriously look at making the Platinum MR card work for me instead if I could justify the fee.

  • Andy says:
    22 Feb22 February 06:52

    Don’t quite follow the rationale behind £60,000 spend to ‘earn’ BA silver – surely those who are spending that amount will already be travelling enought to earn status anyway?

    • Stuart graham says:
      22 Feb22 February 07:08

      I agree – I’m not interested in status.
      I want miles and only miles.

      • Mikeact says:
        22 Feb22 February 08:40

        As a ‘non business ‘ traveller, I too, am only interested in ‘Miles ‘…the good old days of status long gone.
        It seems to me that the conference was only pointed towards Business travellers, the millions of non business travellers/ collectors were completed ignored, and they must add millions to the bottom line.

    • Leo says:
      22 Feb22 February 07:19

      Hmmm why assume that? A couple could quite easily spend £30K each on a credit card – one main and one supplementary. I easily put more than £30K on a combination of cards but don’t always make silver. The main card holder would get silver and both benefit from that status. It would also allow you to use other airlines/alliances without having to worry about “lost “TPs.

      • Optimus Prime says:
        22 Feb22 February 07:47

        Looks like priority boarding is only applicable to status holder. They don’t usually enforce it but I read some posts in FT about people being denied priority boarding despite their partners being BA Silver.

        • Leo says:
          22 Feb22 February 08:12

          Technically yes but never seen it happen – tbh that’s the least interesting part of status for me – but oddly not my partner….you do benefit from fast track, check-in, lounge use and seat selection.

        • Stu N says:
          22 Feb22 February 08:25

          Never had a problem with one person accompanying me though priority boarding based on my Silver status.

    • Matt says:
      22 Feb22 February 07:31

      We only spend £30k on our cards and already have Silver status, but we’d still be interested in Tier Points for spending – might make Gold possible

      • Clive says:
        22 Feb22 February 07:57

        At Rob’a suggested rate of 1TP per £100, gold would mean spending £150k on your card – wouldn’t it be easier to do a few QR trips booked in a sale for the same result?

    • the_real_a says:
      22 Feb22 February 07:56

      I think it depends if you are the market leader or not. Would everyone spending £60k a year have virgin status – or anything from skyteam/star alliance? The same for the 50m people out in the regions probably are not loyal to BA. The flip side to your argument, is its also low risk for the provider because usage of the benefit is likely to be much less than your existing average.

    • Andrew says:
      22 Feb22 February 08:01

      I’m more open to this. As someone falling from Silver in a month, I’ve come to (perhaps irrationally) value the benefits for the few short haul trips a year I make.

      Can we afford to do more trips? No. With the family the age they are, do I have the time anyway? No.

      So; would mixing and matching credit card spend (which I’d make anyway) and flying to earn status work for me? Potentially – I can see a circumstance where I earn 400 tier points from flying and another 200 from £20k of card spend. Perhaps not the most monetarily-astute way of spending money but it might give me something I personally value for spending money I’d spend anyway.

      • Leo says:
        22 Feb22 February 08:15

        I agree.

      • Louise says:
        22 Feb22 February 09:40

        I’m planning my 2018 travel to make sure I retain silver status and easily spend a decent amount on my BAPP to get a companion voucher every year. I would be happy to give up the 2 4 1 voucher in order to retain status, as I never use the voucher – I book trips for status and just use my avios to cut the cost of the flights. If I hit silver really early in the year but still want to travel, then I will use the voucher to keep the cost down (but by then I’ve used my avios as part payment on flights and don’t have them available for a reward flight!)

    • Lev441 says:
      22 Feb22 February 08:38

      Not true.. I don’t travel enough to get status with airlines but I get most of my miles from credit card spend it around £10k a month. I’d be more likely to shift all my spend on one card if the option of gaining tier points was there rather than spreading across many cards like I do at the moments

    • Rob says:
      22 Feb22 February 09:15

      Under what logic would someone who can spend £60k pa on a credit card necessarily be flying so much they would earn BA Silver?!

      What is true, however, is that the cost of giving away status with a card is reduced for this reason. As anyone taking more than x premium flights per year would have status, anyone who gets status via a credit card is de facto only going to be using it a handful of times. This means that the cost is low.

    • Paul says:
      22 Feb22 February 09:25

      £60k seems a bit much to be ‘awarded’ silver when you could pop over to Auckland for a nice break, on QR obviously, and get silver thrown in, along with the 30k avios too of course…

      • HAM76 says:
        22 Feb22 February 18:01

        topbonus gave Sapphire after 50K € and Emerald after 100K €. It‘s a lot easier to redirect business spending to such a card and manufacture spending than spending actual money on a flight and finding the time to actually fly.

    • Mr Dee says:
      22 Feb22 February 21:31

      Another thing to consider would be how much your losing out putting 60k spend on the BA card as opposed to another card that may give you a better return, for example 60k on the Asda premium card is going to give you £600 back.

  • Andrew (@andrewseftel) says:
    22 Feb22 February 07:13

    I also disagree with the interchange revenue offset argument. Misses the point that you’re underwater on what used to be your best customers and now you’re concentrating revenue on a minority group who carries a balance. Your product is fundamentally incentivising customers to lose you money.

    Interest rate insensitivity is a real thing though. Percentages don’t seem to resonate with the average consumer like pound amounts do.

    • Anna says:
      22 Feb22 February 07:36

      I just go by the principle that if I pay off my cards every month I don’t need to think about the interest rate!

      • mark2 says:
        22 Feb22 February 08:25

        +1

      • Tilly says:
        22 Feb22 February 08:36

        +1

      • john says:
        22 Feb22 February 09:16

        Until you get two numbers mixed up on the amount due and end up short by £36 and barclaycard charge you £27 interest (1.4525% supposedly)! I rang up to query as I still hadn’t noticed that the numbers were transposed and they refunded the interest charge. Probably because it was easier than working out the correct amount and why their system had charged £27 interest on the remaining £36 balance…

        • Jack says:
          22 Feb22 February 09:27

          Don’t they charge interest on the full statement balance if you don’t pay off in full? I seem to recall something similar happening to me once (hopefully never again!)

        • callum says:
          22 Feb22 February 10:14

          As John says – if you don’t pay it in full then you pay interest on the entire balance (as you do with every single credit card out there).

          They also refunded without fuss because most banks will refund charges and interest etc. once a year as a “gesture of goodwill” if you give them a sob story.

        • Stu N says:
          22 Feb22 February 12:53

          I’ve done that too – it’s the sort of expensive mistake you hopefully only make once!

  • Richard says:
    22 Feb22 February 07:42

    A cruel irony of the high marginal cost of extra spending killing off a credit card industry only possible because of the low marginal cost of the underlying airline business.

  • Philip says:
    22 Feb22 February 08:01

    Thanks for the slides. They give an interesting insight into HfP’s relationship with the industry. I suspect that from these comments one might guess that not everyone shares this vision of the way forward i.e. the insensitivity to the BAPP price rise is all about the 2-4-1 and substituting Bronze status for this would be seen as a poor deal.

  • Chris says:
    22 Feb22 February 08:06

    Has no one seen the obvious solution ?
    Interchange revenues reduced by 30-40% – Solution reduce costs by 30-40%.

    Answer – Devalue the rewards.

    • Talay says:
      22 Feb22 February 08:34

      Er…..no !

      You cannot remove fixed costs to allow that idea to work whatever you do to the incentives and if you reduce the incentives so much, you will break the income stream from sign ups.

    • Mikeact says:
      22 Feb22 February 08:58

      Chris….with dynamic pricing coming along…rewards are already on their way to being devalued.

    • Rob says:
      22 Feb22 February 09:12

      But that doesn’t work, because you soon fall behind – say – the John Lewis Mastercard.

      The other issue, not in the slides, is that you are also fighting devaluation of points from a) the airlines and b) industry dynamics. If Qatar Airways will sell you a business class ticket for £900 to Singapore out of Belgium (with 560 tier points included) that obviously devalues the Avios alternative. Similarly, whilst Norwegian Premium is not Club World, if you can fly Gatwick to New York in Norwegian Premium for under £1000 then the value of 120,000 Avios + £550 tax for a Club World bed is similarly impacted.

      • Mr Dee says:
        22 Feb22 February 21:33

        Thanks for the tip never thought about the JL card before, not bad at a 1% return rate.

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