When Should Merchants Explore Alternative Credit Card Program Opportunities?

Is your company’s credit card program relevant and competitive in the marketplace? When was the last time you checked to make sure your credit card agreement is fair and balanced, reflecting the latest terms, conditions and market economics? Do you have a strong understanding of what your program is worth? A lot can change over the life of a credit card agreement.

Let’s examine a few situations that might prompt a merchant organization to explore alternative credit card partnership opportunities in the market.

The merchant is unhappy with the current credit card issuer

Credit card alliances are long-term business partnerships typically spanning 5-7 years per agreement term. The preparation and launch of a new product is typically surrounded by significant excitement and energy.  Many partnerships thrive throughout their nitial and/or subsequent terms. Some do not.  Though a partnership may work well initially, the alliance can begin to flounder if not actively managed by both parties.  A merchant may become unhappy with their credit card issuer for a number of reasons:

• The program no longer appears to be a priority for the card issuer
• The credit card issuer is not being cooperative and is unwilling to make necessary program changes
• The card issuer has made too many program management changes
• The card issuer is not leveraging new technology or not applying best practices to the program

The credit card market has changed significantly since the agreement was executed

The credit card market is impacted by a lot of factors such as the economy, legislation, competitive payment products, technology and more. All of these factors can, in turn, impact card program economics and card issuer strategies concerning merchant card programs. Just look at what happened during the past five years. As a result of the economic downturn and legislation, many card issuers refined their merchant program strategies; some greatly reduced the number of programs under their management, some renegotiated agreements, others exited the business and several issuers, that did not previously market merchant card programs, entered the space. Program contributions fluctuated significantly as well, dropping to an all-time low for a couple of years, and recently rebounding to pre-recession levels. 

The size and scope of the merchant program has grown significantly

The strategic and economic value of a card program to card issuers is dramatically impacted by the scope and performance of the program. Larger, stronger performing programs are more valuable to card issuers. If your company’s program has grown substantially since it was launched, it will likely be valued higher in the market and will command stronger support commitments. The financial commitments generated from a card program can be significant for merchants. We believe it is critical to conduct due diligence prior to locking in a renewal of your current long-term agreement.

The credit card issuer partner, may not be interested in renewing the agreement

As touched upon above, credit card issuer strategies concerning merchant programs are evolving. Though a merchant may desire to extend its agreement with the credit card issuer, the card issuer’s willingness to do so should not be taken for granted. In recent years, Advantage has worked with several clients who assumed their agreements were going to be renewed by their issuers, only to discover that the card issuer was not intending to renew the agreement. In these cases, the merchants often found themselves unprepared for the upcoming termination and they did not have enough time to fully explore options in the market, or to plan for the conversion and/or re-launch of their programs.

Key Considerations

Evaluating alternative solutions in the market requires careful planning. To be successful, you must budget enough time to fully explore all of your company’s options. Consider the following:

• Do you intend to renegotiate with your current provider prior to exploring alternative providers in the market?
• Do you intend to pursue a few select card issuers privately or do you intend to conduct a full RFP process?
• What is the date by which you must be in a position to make a decision to renew with your current issue, or to move on? Check your agreement. Most agreements contain a notification of non-renewal provision. This date must be built into your timeline.
• If you ultimately decide to make a move to a new issuer, it is important to have the new program ready for launch immediately following the termination date of the current agreement. 

Our Recommendation

We recommend that merchants begin exploration a minimum of 18 to 24 months prior to termination date. This approach provides adequate time for merchants to:

• Negotiate with the current issuer (if desired) prior to exploring market alternatives
• Fully explore market opportunities
• Develop an alliance agreement with a new provider if that is the desired path forward
• Plan for the conversion of the existing portfolio and the launch of the new program, ensuring minimal disruption.

Our Advantage

Advantage Consulting Group supports our clients by building and executing the optimal go-forward strategies for their credit card programs. We evaluate current alliance agreements and benchmark them against the market. We identify opportunities to enhance program terms and support our clients in securing agreements that are fair and balanced. Our support typically secures significant economic and non-economic contractual improvements for our clients.

We encourage you to browse our case studies to learn how we’ve helped our clients by providing renegotiation and restructuring support.

We welcome the opportunity to speak with you about your company’s needs. Please contact us today.

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