Card Alliance Market Review – June 2011
The market for credit card alliance programs remains very active. While activity for start-up programs continues to decline in a mature market, an increasing number of card alliance programs established in 2006 and 2007 are coming up for renewal. Given all the turmoil and uncertainty that has plagued the card industry and the economy in recent years, many card issuers and merchant partners are exploring their options.
There has been a significant change in the card issuer community seeking card alliance opportunities. Many of the larger card issuers that were very actively pursuing alliances have changed their focus to maximizing the performance of their top programs. In many cases they have discontinued alliances with smaller, less profitable programs. This, in turn has opened the door for other card issuers that have not traditionally played in the card alliance space to start building alliances with many strong brands.
Given that most programs are in their second or third agreement cycle they are quite mature and often have substantial cardholder bases and related receivables. This is making card transactions increasingly complex as much more is at stake for all parties. Card issuers are seeking to build greater protections against the potential impacts of card legislation and downturns in the economy. In many cases that means a reduction to traditional program support packages issuers are willing to provide. Merchants are seeking enhanced marketing and program support from card issuers, stronger reward programs, as well as new, innovative and differentiated payment products. In many cases, merchants will need to consider stepping up investment into their programs to achieve these objectives. For sure, careful negotiation to ensure the objectives of both parties can be achieved.
While some alliances will ultimately change partners, we expect that many will continue to forge ahead with existing partners with renegotiated terms reflecting market trends. We expect this trend to continue given the significant number of card alliances that were established in the last four to five years.