Packaged Facts: 8 Key Trends Shaping the U.S. Co-Branded Credit Card Market

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Aug 25, 2015, 05:41 ET

ROCKVILLE, Md., Aug. 25, 2015 /PRNewswire/ -- Roughly 43% of U.S. adult consumers own at least one co-branded or affinity credit card, according to market research publisher Packaged Facts. By year-end 2014, co-branded credit cards alone generated 31% of general purpose credit card purchase volume, or $809 billion out of $2.63 trillion, among Visa, MasterCard, Discover and American Express branded credit and charge cards.

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The findings were published in Co-Branded and Affinity Cards in the U.S., 5th Edition, a new Packaged Facts report. For more information or to purchase the report visit: http://www.packagedfacts.com/redirect.asp?progid=87766&productid=9210415.

Competition in the segment is fierce with a growing multitude of players chasing a finite universe of affluent prospects with more rewards and broader, deeper card features and benefits. Packaged Facts outlines eight important trends that will shape the market for co-branded and affinity cards. These include:

Continued push and pull regarding transparency: Card players are employing a broad range of rewards redemption strategies that translate to different values when using the same card. But some cards are promising eye-catching rewards tier architectures that do not translate, point for cent, as cardholders may expect. This strategy stands out when other cards provide transparency. Consumers may not begrudge this in light of the wider range of options they are provided—as long as the methods employed are not perceived as deceptive.
Rewards that tie back to the partner in a unique way: With the percentage of rewards offered clearly on the upswing, issuers and partners can choose to compete toe to toe on the rewards rate. But players need to differentiate their card programs in other ways, by offering something unique and highly aspirational to incent frequent usage. And for cards attracting high-net worth users, cash back goes only so far: it means delivering on brand expectations and enhancing the experience, offering intangible, aspirational value to the card user.
New and growing co-branded entrants: Citi is rejuvenated, Capital One and TD Bank are relatively new to the market, Wells Fargo has finally stepped in, and Alliance Data and Synchrony are shifting their emphasis to co-brand. Behind the scenes, the Visa, MasterCard and American Express networks are also jockeying for position. Need we say more?
An industry chasing a finite universe of prospects: With all of the attention paid to the affluent consumer—the mainstay of co-branded cards—one would think they are in endless supply. They aren't. More issuers, more cards, more rewards, but you can't mint the affluent on an assembly line. Consumers of all shapes and sizes continue to pace their spending, and issuers have not forgotten the pain of the recession either, resulting on only modest loan and purchase value growth.
Owned-branded competition: Major issuers continue to burnish their own-branded card programs: card players including American Express, Capital One, Bank of America, Wells Fargo, JPMorgan Chase, Citibank and U.S. Bank have each refined and tweaked their own-branded card programs very carefully, streamlining offerings and tailoring their target audiences accordingly. While the co-branded proposition is fundamentally different on an obvious way, moving from own-branded to co-branded or vice versa is likely a matter of consumer circumstance and evolving need (relationship building strategies aside), creating fluidity in the use of one card type over the other.
The need to draw younger adult consumers into the card—and broader banking—mix: Traditional financial institutions are losing the battle with Millennials, who maintain banking and card relationships at lower rates than Generation Xers did at their ages, and are flocking to online-only and emerging financial services competitors. To keep people in the fold, Chase, Citi and Bank of America have caught on to the power a unifying rewards program can have on customer retention and cross-selling. Importantly, they go beyond American Express' Membership Rewards by offering opportunities to earn more with the institution directly. Co-branded cards tied to these types of platforms may help bring Millennials back into the fold because they have what an own-branded card may lack: the power and cache of the partner brand. While brand power may be on the wane, it still has merit, especially among Millennials.
Going mainstream: Co-branded cards can move downstream to catch Middle America. Cards such as the Walmart MasterCard won't win prizes on bells and whistles, and they don't have to, as long as they give reason enough (a 1% earn rate, in this case) to incent enough usage to build loans and spend—less rewards, less expense. It will be interesting to see how mainstream hotel player Red Roof Inn navigates its rewards structure.
The need for loyalty and the use of more sophisticated loyalty marketing strategies: More than ever, the concept of loyalty is on the ropes, a victim of consumer empowerment driven by technology and online/mobile engagement. This is one BIG reason private label retail card partners have been quick to embrace increasingly sophisticated digital loyalty programs that, while still relying on cards, place the card as a spoke among many spokes in an omni-channel marketing wheel. The quest? As dimensional a portrait of the customer as technology and related card management prowess allows. Co-branded cards clearly fit into this mix and must compete on the granularity of purchase (private label cards can deliver SKU-level data to the partner) and on what can be done with the information about that purchase. For card issuers, this is a big bargaining chip at a time when merchants have the upper hand at the contract negotiating table.

Co-Branded and Affinity Cards in the U.S., 5th Edition provides a wealth of insight on trends shaping this increasingly competitive industry, helping market participants plan their co-branded relationships and strategies. Buy it today on Packaged Facts website at: http://www.packagedfacts.com/redirect.asp?progid=87766&productid=9210415.

About Packaged Facts – Packaged Facts, a division of MarketResearch.com, publishes market intelligence on a wide range of consumer market topics, including consumer demographics and shopper insights, consumer financial products and services, consumer goods and retailing, consumer packaged goods, and pet products and services. Packaged Facts also offers a full range of custom research services. Reports can be purchased at www.PackagedFacts.com and are also available on www.marketresearch.com and www.profound.com.

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SOURCE Packaged Facts