Anatomy Of A Co-Branded Credit Card:
The news said Costco will end its relationship with American Express. Costco American Express card expires after April 2016. I was working in a small role on a similar credit card transaction. I share information on the general structure of a joint relationship with the brand.
What is co-branding?
A brand card carries a partner’s brand next to the bank behind the card. Partner makes you more attractive to target audience customers. Costco American Express, American Airlines MasterCard, and Sierra Club Visa are all registered trademarks. They have the Costco, American Airlines, and Sierra Club brands respectively.
The co-brand partner is usually a large retailer, such as an airline, hotel chain, or retailer. It can also be a special interest group, as in the example of the Sierra Club.
The bank behind the card, called the issuer, is ultimately responsible for the card. Determine who can use the card, credit limit, and interest rate. If the customer fails to pay, the issuer is ready to write off the bad credit.
What does the broadcaster due to tag together? The broadcaster will have a sales channel. Buy a book from customers who can use cards from other banks. According to American Express, Costco cards account for 20% of its loans and 10% of all American Express cards in circulation. When Costco issues another card from a different brand, American Express will likely lose a good portion of its customers. The stock price of American Express fell nearly 10% two days after the news.
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For each customer that the co-brand partner brings to the publisher, the publisher pays a partner registration premium. It can be $ 100 or more. You’ll see signs and special counters in stores, receptionists making announcements and asking questions, and cashiers asking questions at the cashier. In many cases, the employee who reports a customer receives a special bonus called a spiff.
When a customer pays by credit card, the store usually pays a commission to the bank, most of which goes to the card issuer.
If a customer pays with the card marked with the marketing partner – Costco uses AmEx with Costco or American Airlines MasterCard with American Airlines – the issuer gets a discount on these so-called “on our behalf” transactions. Credit card charges are usually reduced to zero with the discount.
Because people who buy more from the partner are particularly attracted to the co-branded card and because they usually earn double points for using the co-branded card for “on” transactions with us, if the “behind” partner allows the transactions, which drastically reduces your total credit card costs.
If the customer pays interest or penalties to the issuer, the business partner gets a discount. If the customer uses the co-branded card elsewhere, the business partner also receives a percentage of the money earned by the issuer. According to American Express, 70% of purchases are made with AmEx Costco cards outside of Costco. Costco will likely receive a portion of American Express’s 70% orders, as well as some of the interest and arrears fees paid by American Express customers (not all customers pay in full each month).
If you include the membership fee, the reduced purchase price “through us” and the income distribution, the cost to the partner of accepting an unmarked card is negative. This allows you to order the co-branded card instead of using the co-branded card and use it elsewhere. Costco goes a step further by only accepting American Express credit cards. This exclusivity will undoubtedly bring additional monetary value to American Express.
The Brand Partner also receives aggregated data from the publisher on customer demographics and buying behavior. The data helps the partner to market their products.
Since co-branded cards often offer special discounts or earn double points for spending with the co-branded partner (although this is not the case with Costco), customers with a co-branded card tend to spend more. Always spend more with the brand before you receive the card. After that, they will spend even more.
Who is responsible for a joint relationship with the brand? Who has the most influence on customers? In most cases, it is the co-brand partner. Customers ask for the co-brand card because of their relationship with the partner. The agency can make interbank purchases for those who pay the most in terms of sign-up bonuses, commission refunds, and revenue sharing.
Costco is changing because Costco wants more money from American Express than American Express is willing to give. Most customers with the current brand subsidiary card are likely to follow Costco to Costco’s new bank. Some customers keep the American Express card as a regular AmEx card, although Costco will no longer accept it after April 2016.
If you think customers are being offered up to the highest Costco offering, this is the reality of the business. Whoever can pull the strings of a large number of consumers has the power. That wealth is worth a lot of money. Costco only maximizes the value of your influence.