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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.

  • Chris L says:
    22 Feb22 February 08:23

    I think the issue with offering (for example) Bronze status for spending on a card is that you remove the value of having the card for those who would earn the status anyway. Perhaps a one-tier status upgrade (Blue->Bronze, Bronze->Silver etc) would provide an additional incentive.

  • Mikeact says:
    22 Feb22 February 08:26

    Interesting slides and must have been tempting to be more aggressive with them. I can think of a couple of points I would have made, but hopefully the industry would have gone away with ‘ food for thought’. We will see.

    • Rob says:
      22 Feb22 February 09:09

      You should not think that what is on the slides is what I actually said …. I spoke for over 30 minutes.

  • Ben says:
    22 Feb22 February 08:31

    “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.”

    Given this Rob, do you still advise getting an Amex (Gold Charge or one of the BA cards) before they change the sign up bonus rules? Or wait until whatever this is starts?

  • John says:
    22 Feb22 February 08:31

    My IHG free night (on the barclaycard) cost IHG over $200, not $25.

    I’m confused about why a card should be run at a loss to be sponsored by a marketing department.

    • New Card says:
      22 Feb22 February 08:38

      Because there’s a massive IHG logo that I carry around in my wallet and see multiple times a day – pure marketing.

      • RussellH says:
        22 Feb22 February 10:57

        How on earth does that work for IHG’s benefit?

        No one except you sees the card these days – one does not hand over cards to anyone else (except in the USA). And I am sure that you do not need to see the IHG logo on your card to recall that if an IHG hotel was located where you wanted to stay, then you could stay there and earn some IHG points?

        • New Card says:
          22 Feb22 February 11:16

          I’m not disagreeing that the ROI might or might not be sufficent to justify it, but the same could be said of almost all marketing activities.

        • Will says:
          23 Feb23 February 01:41

          If you already had some IHG points via the card though, you were about to book a holiday and you weren’t a points expert you might well lean towards an IHG hotel because it’ll add to your points balance. I’m pretty convinced myself that it’s a sound strategy.

          I’d speculate that most IHG cardholders are not experts at points earning/redeeming, they push the card pretty aggressively to all members in mail shots and they might well pick up the majority of users via that route.

    • the_real_a says:
      22 Feb22 February 08:50

      This is about marginal costing. IHG only pays the franchise hotel owner $25 for your stay to cover for example the marginal cost of cleaning an extra room and the soap you use in the room. Its very likely your room would have been empty had you not stayed. The hotel of course hopes that you spent well in the restaurant…

      • Anthony Burns says:
        22 Feb22 February 09:50

        Or even more in the bar!
        Sometimes hard to see how the maths add up.

      • John says:
        23 Feb23 February 05:35

        You can see how much IHG paid the hotel for reward nights in your account. As you say, it’s usually a very low amount, but in my case it was $200 (×2 actually).

        • Rob says:
          23 Feb23 February 09:46

          If the hotel is full (95%) then IHG pays the full rate to hotel. Otherwise it is just a nominal room cleaning fee.

    • Mr Dee says:
      22 Feb22 February 21:37

      I would hardly say that IHG are losing out, in many businesses it is not about the one off sale or cost but the lifetime value of the customer and whether your turning a profit at the end of the year.

      • Will says:
        23 Feb23 February 01:47

        Exactly. One needs to consider the context of the free night.
        It’s something the franchise is bound by in its terms of contract with IHG, in return IHG push a huge amount of paying customers to the hotels door every day.

        Small price to pay in order to generate huge revenues on the other side.

        That’s the point of this game in a nutshell really, we’re all trying to exploit the marketing incentives that the schemes offer to entice people in to part with their cash by parting with as little of our cash as possible. It works as long as everyone doesn’t act like us, and if they do things change and the opportunity pops up somewhere else as long as customers continue to respond to marketing and advertising.

  • Talay says:
    22 Feb22 February 08:39

    It wouldn’t take much for MBNA to work the maths and come to the conclusion that their business model was fundamentally broken and thus to pull the plug. The notion that you cannot suffer a 20% fall in income from a product that was marginal at best in terms of where it was ranked in terms of return per £1 spent would not have been a hard one.

    The high end is the problem of course. TO pacify their ability to accrue rewards far in excess of any fee you might charge means that model doesn’t work down the scale as lower earners would get very few rewards (in a devalued world).

    Surely the move must be towards loyalty and not reward ? If so, then status, seat bookings, baggage etc. would all seem fair game with reward flights or upgrades the ultimate prize ?

  • Quark999 says:
    22 Feb22 February 08:55

    Not wanting to be one of the usual spoilsports, but what does “UK launch partner” mean on your slides for Curve and Billhop? Head for Points was a launch partner for those?!

    • Rob says:
      22 Feb22 February 09:07

      It means both companies chose to work with us for their initial UK marketing push. In both cases we had been talking to the companies behind the scenes for some time before they launched and the timing of the articles was jointly decided between us so that the company was ready for the massive surge of interest that being featured on HFP brings.

  • Jonty says:
    22 Feb22 February 09:38

    The Hilton Honors Barclaycard works for some of us: The best sign up plus the second best non-Amex long term reward according to Rob’s valuations. A free hotel night is only worth about £100 to me, and HH Gold status is worth more than IHG platinum (It’s all about the breakfast) so the HH is more valuable than the IHG cards in the Jonty household. I know there are many other ways to get Hilton Gold/diamond but this works for us.

    • Michael Jennings says:
      22 Feb22 February 10:18

      HH Gold is indeed worth having, but doesn’t one only get silver from the HH Barclaycard? I have had it for a while, but I had to pursue another route to get Gold.

      Curiously, though, when I did get Gold from another route I received a letter from Hilton informing me that I had received Gold and that I would retain it “as long as you have your HHonors Credit Card. Is that true?

      • Genghis says:
        22 Feb22 February 10:26

        Spend £10k in calendar year for Gold

      • Tilly says:
        22 Feb22 February 18:47

        Strangely I got an email saying exactly the same Michael. Got HH silver with the visa card but upgraded to gold with amex plat. Got email saying that and I have to say I am confused.

  • Tom says:
    22 Feb22 February 09:44

    Any updates on the “end” of Amex churning?

    • Rob says:
      22 Feb22 February 09:50

      No, it has gone very quiet. It looks like someone has ‘had words’ at the Amex call centre too since no-one has mentioned being given threats by the call centre for a couple of weeks either.

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