Co-branded credit cards have become one of the most valuable partnerships in the payments industry, enabling retailers and financial institutions to strengthen customer loyalty while driving card usage. Because these agreements often involve millions of cardholders and significant transaction volume, contract renewals are closely watched across the payments ecosystem.
American Express’s decision not to renew its co-branded credit card partnership with Costco highlighted the increasingly competitive nature of retailer-card issuer relationships. As issuers compete for a limited number of high-profile retail partnerships, factors such as economics, customer engagement, and long-term strategic value play a larger role than ever in determining which relationships endure.
In a call with investorsThursday, American Express executives explained why the co-branding agreementwas not renewed.
Chenault saidAmerican Express had started early discussions on contract renewals withseveral of the companies that put their branding on the credit cards. Thecontracts typically include rewards programs and some publicity for bothcompanies. Airliners Delta and Cathay Pacific were two of the companies thatrenewed the contracts.
But with Costco, itjust didn’t make economic sense, Chenault said. That’s partly because even thedeal with Delta for example was less lucrative than they had anticipated. Thecompany also lost its agreement with Costco in Canada last year.
The Costco program is notable for several reasons, including the upscale customer base, the credit card exclusivity of the brand in Costco stores, the fact that the card also acts as a Costco member ID card, and the reportedly high off-us spending rate of members. It is clear that the competition for cobranded card programs is ramping up, especially among the limited universe of top retail brands with the most desirable customer bases. For interested issuers, it is nearly a zero-sum game as the most logical commercial brands already have programs, and contract renewals bring heated competition. Contracts coming up for renewal in the mid-term likely have a better than average chance of switching issuers and/or network brands as commercial brands seek the optimal resource combinations and deal terms.
The end of the American Express-Costco partnership underscored how competitive the co-branded credit card market has become. Retailers are increasingly willing to reevaluate longstanding relationships to secure better economics, broader customer benefits, or stronger strategic alignment. As more co-brand agreements come up for renewal, issuers will continue competing aggressively for partnerships that deliver loyal cardholders, high spending volumes, and long-term growth opportunities.
Overview by Ken Paterson, VP Research Operations for Mercator Advisory Group
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